Legally, Bitcoin exchanges are subject to the same regulations as ones trading commodities. For example, an exchange must report any transaction above $15,000, a policy meant to stem money laundering. For the purposes of taxation, meanwhile, reimbursing somebody for a product or service in BitCoins is treated as barter. The tax code makes provisions for such practices, though, admittedly, they can be tough to enforce.
This has not stopped some American politicians from expressing grave concern about the virtual currency. Charles Schumer, a prominent Democratic senator, has inveighed against it, claiming it is just what drug dealers have been waiting for. All the clever cryptography means Bitcoin dealings are difficult to trace. But not impossible. According to Bitcoin’s defenders, its users may be more difficult for a government agency to pinpoint than someone paying with a credit card. But they are easier to catch than those using cash.
Moreover, any drug trade involves sending physical products to recipients. Authorities already track many packages sent by groups under investigation. When it comes to physical delivery, the method of payment is irrelevant. Another worry, for the authorities at least, is that, in theory, a Bitcoin account cannot be frozen. But, like cash, Bitcoins can be nabbed by seizing the computer on which they are stored.
I’m sure that Sen. Schumer concerns about Bitcoin extend to more than just drug dealers using it, but rather that ordinary folks may use it to escape the prying eyes of government . . . especially the Internal Revenue Service. That would sends chills up the spines of Wealth Alchemists everywhere.
Admittedly, it seems I am a bit late to the party when it comes to Bitcoin. Yet, as an Austrian economist, I’m fascinated by the opportunities the web brings to witness the evolution of alternative institutional arrangements in a rather quick fashion. It also doesn’t hurt that Bitcoin is also operating in a area that Austrians feel have been manipulated by government, for their own benefit, for far too long–currency.
As such, I’m going to delve into this Bitcoin phenomena to see if Austrian theory is in any way useful to understanding its evolution. Perhaps Bitcoin, like many of its predecessors, flames out or maybe it finally hits on the right recipe for success. In either case, it will be educational to watch and I’ll do so publicly via Wealth Alchemy when I find something interesting.
However, my attempts to understand the Bitcoin economy from an Austrian perspective will be limited by my ability to practically participate. Put simply, I need my own Bitcoins. You will notice in the top, right-hand corner a “Bitcoin Plus Miner” widget that will allow you, the reader, to add computing power in my quest to mine Bitcoins. Simply hit the “start” button and a mining we will go. It will not slow down your computer as it uses only spare capacity, but if you have concerns check this out at the Bitcoin Plus website.
Of course, being an economist I don’t expect you would do this out of the kindness of your own heart. So, I’ve activated a portion of the program that will give you a kick-back on any of the Bitcoins you create–note that you will have to open an account at Bitcoin Plus to retrieve them. If I understand the code correctly, it looks like a 30 percent kick-back. With Bitcoin Plus taking 15 percent, I’m netting 55 percent. Definitely not a “get rich quick” scheme 🙂
I’ve already been Bitcoin mining at the Bitcoin Plus website and, with about 8 hours run-time, I’ve mined 0.001106 Bitcoins. According to Bitcoin Plus, one Bitcoin has been worth about $7 so I’ve earned about eight-tenths of one penny (rounding up). I’ll keep you updated on my Bitcoin progress as my computer pretty much runs 24-7 anyways so I might as well use the down-time in some productive manner.
Put simply, this technology essentially dispells any notion that the “peak production” of fossil fuels is just over the horizon. And it’s no surprise that independent, wildcatters, not large, state-owned oil companies, are the ones responsible for this remarkable new technology. As long as the US continues to protect private property rights and the pursuit of profit (no guarantees there), then technology will continue to push back the Wealth Alchemists.
The study, while 36 pages, is remarkable easy to scan through and I encourage everyone to do so . . . it’s worth the trip. From the study’s introduction:
Shale gas is proving to be an abundant new source of energy in the United States. Because it is globally ubiquitous and can probably be produced both cheaply and close to major markets, it promises to stabilise and lower gas prices relative to oil prices. This could happen even if, in investment terms, a speculative bubble may have formed in the rush to drill for shale gas in North America. Abundant and low-cost shale gas probably will – where politics allows – cause gas to take or defend market share from coal, nuclear and renewables in the electricity generating market, and from oil in the transport market, over coming decades. It will also keep the price of nitrogen fertiliser low and hence keep food prices down, other things being equal.
None the less, shale gas faces a formidable host of enemies in the coal, nuclear, renewable and environmental industries – all keen, it seems, to strangle it at birth, especially in Europe. It undoubtedly carries environmental risks, which may be exploited to generate sufficient public concern to prevent its expansion in much of western Europe and parts of North America, even though the evidence suggests that these hazards are much smaller than in competing industries.
Elsewhere, though, increased production of shale gas looks inevitable. A surge in gas production and use may prove to be both the cheapest and most effective way to hasten the decarbonisation of the world economy, given the cost and land requirements of most renewables.
The top 5% of households saw their real incomes increase by 71.5% . . . the growth of college tuition and fees, up 596% since 1980. Mind you, that’s 596% above the core rate of inflation, which increased by a “mere” 160.4% over the same time frame . . . College tuition and fees are another matter in several respects. Not all households incur these costs, and they happen over relatively short periods of time. Also, the costs may be split between households — parents, children and occasionally grandparents — and financed over time. But one hypothesis we might formulate from the data is that college for lower-income families create an enormous debt burden. Unless the education purchased helps to move its recipient into the higher income quintiles, its value is no bargain.
And he is using total income over this time-period, the growth in after-tax income would be much lower. So, in a nutshell, the cost of college has grown, just as with any business, to the point where there are no economic rents left to be earned. Any surplus that use to go to the college graduate is now absorbed up-front by colleges. The debt burden is a vestige of that absorption.
IMHO, if Wealth Alchemists are going to be defeated we need more entrepreneurs and fewer college graduates . . . and it does seem as if the two are inversely correlated.