Anonymous Currencies Might Limit Financial Access

A recent report states that Bitcoin isn’t anonymous enough, and to an extent, the report is correct. While part of Bitcoin’s reputation has been built on the notion of privacy, the truth is that the blockchain records every transaction in real time, and nothing can escape its shuttering technology. In the long run, no matter how private Bitcoin claims to be, there always seems to be an open window to one’s financial history.

But one has to wonder if this isn’t a bad thing. Two of the cryptocurrency world’s most recent additions, Zcash and Monero, tout complete anonymity for those looking to remain duly private, but there seem to be issues emerging from the backend, and many investors and crypto-enthusiasts are having a hard time deciding where they stand.

First off, let’s look at criminal activity. Anonymity is often showered with praise, but when something is completely hidden like this, it can potentially give rise to back-door dealers looking for ways to exploit any lagging visibility. Monero, for example, is often labeled as the most popular cryptocurrency amongst drug purchasers on the dark net. Many regulators arguing against the notion of completely anonymous digital currency trading feel that the situation is likely to give rise to another Silk Road, only this time, things may be a little harder to shut down.

Zcash is another financial entity that claims to offer new waves of privacy. Again, good for some, criticized by others. Zcash recently hit new heights on cryptocurrency exchange Poloniex, hitting the $2 million per coin mark, but many argue whether this was real or caused by error or platform manipulation. If that’s the case, there’s certainly cause to worry. It was this same kind of manipulation that fired bitcoin into the $1,000 range in 2013 prior to the sudden collapse of Mt. Gox.

Lastly, the likelihood that a government or legislative system would ever be willing to regulate or fully allow the trading of anonymous currencies is particularly slim. While this may sound positive at first (cryptocurrencies were designed to offer independence), access to digital currency for third world and developing nations could wind up limited in the near future. It’s precisely because Bitcoin isn’t fully anonymous that it probably has the highest chance of ever going mainstream and reaching acceptable terms on a global scale.

As consumers, we have to ask ourselves which we’d prefer – true anonymity, or higher monetary access? The independence these currencies claim to provide is what gives us such a choice in the first place.

IRS Targeting Bitcoin-Using Tax Evaders

With tax season just a few months away, which means the season for creative forms of tax evasion is soon to begin.

Sadly, for those with dreams of using bitcoin to cheat the tax man next year, there is some bad news. The Internal Revenue Service is actively on the lookout for  bitcoin-based for tax evasion.

According to documents filed last week, the tax agency is fiercely going after both tax evaders big and small – who are using bitcoin based transactions in an attempt to hide funds from the internal revenue service, by simple not reporting them.  The tax agency sent a broad request on Thursday to Coinbase, the largest Bitcoin exchange in the United States, asking for the records of all customers who bought virtual currency from the company from 2013 to 2015.

That request came in the form of a "John Doe summons," – and indicated that the IRS had already discovered 3 cases of bitcoin based tax evasion, 2 of which came care of Coinbase customers.

Those findings combined with  Bitcoin's rather anonymous user base have made the IRS decide the time has come to take a closer look, just to make sure that a whole lot of other people haven't gotten the idea that stashing money in a Coinbase account is not a good way to hide dollars from Uncle Sam.   —

The crackdown follows a September report by the Treasury Department's inspector general focused on whether the IRS is taking an adequately aggressive stance on "unlawful activities by those who use virtual currencies."

"None of the I.R.S. operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies," the report, delivered in September, said.

If thy comply with the request, Coinbase will be required to hand over the identity and transaction history of it's 3 million  customers. As of now Coinbase does not plan to comply.

" We can't tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers," said Coinbase's legal counsel, Juan Suarez, who said the business keeps a policy focused on working with law enforcement.

That said, bitcoin wallets are tracked through a decentralized hub, which does not record these identities.

There is also a further complication that smaller bitcoin tax "evaders" may not be evading anything – so much as confused about the actual law.

The current guidance indicates that virtual currency is property, rather than currency. That means if  a person buys Bitcoin for $200 and then sells it later for  $400, the $200 in gains are supposed to be reported to the tax authorities. However, since users often "cash in" bitcoin (and effectively sell it off into other currency) when they buy or sell goods – technically any transaction act also becomes a taxable vent.

"It may be the case that many people were not aware that what they were doing is taxable. Are those the people the I.R.S. is looking for?" noted Omri Marian, a professor of tax law at the University of California, Irvine.

Marian noted that most Bitcoin users could be totally  unaware that they were supposed to record their losses and gains as taxable events at any time they bought or sold goods with bitcoin.

Will Bitcoin Have Its Moment in the Trump Era?

History tells us that no international monetary system lasts forever. And as Barry Eichengreen, the leading thinker in this arena, has repeatedly reminded us, those systems tend to collapse very quickly, whether it was the dominance of Rome's coins, the British pound's status as the common unit of international trade, or the various periods in which the world aligned around the gold standard.

The same will be true for the dollar's unofficial status as the international reserve currency. Its hegemony will at some point disappear and, when it does, the fall will be swift as the world scrambles for a new commercial anchor.

Below I will make the case that the trigger for this decline, whether it happens in the next four years or not, could well have been put in place last Tuesday. A Trump presidency could hold the right ingredients for a dollar collapse.

I will also argue that this time, when the dollar system collapses, it won't be replaced by another outdated fiat currency like the euro, yen or Chinese yuan. Neither will we go back to a precious metals standard, however much gold bugs hanker for it.

In the interim, we may anchor world trade to a transitional, multilateral combination of these paper and commodity currencies, but soon enough it will prove to be too unwieldy and out of touch with a changing global economy.

The fact is we now operate in a digital economy in which economic activity is increasingly decentralized, with transactions happening peer-to-peer and, when the Internet of Things is in place, machine-to-machine. That online, decentralized economic architecture will require a digital, decentralized system of monetary exchange that bypasses the inefficient financial intermediaries of a broken banking system.

The solution might not be bitcoin per se, but the distributed, network-run system of value transfer that it represents will, I believe, provide the template for the future model. It's one possible explanation for why the digital currency got a bump on Tuesday evening through Wednesday.

Change is coming

Why might Trump set this chain of events in play? To be sure, we don't know what changes the next president will introduce, but he has definitely stoked uncertainty around the direction of US policy. And uncertainty, the enemy of efficient markets, can often have a self-fulfilling effect.

That's an unsatisfying answer, however. So let's also break down some of the ideas that Trump has floated and how they might change the international perception of America's commitment to the dollar-based international system:

Rights determined by ethnic background

Trump suggests we should discriminate against external foreigners (Muslim visitors to the US), domestic non-citizens (undocumented Hispanic immigrants) and domestic citizens (judges deemed unfit to serve for being of Mexican descent.) This is not just a moral issue; it goes to the heart of whether the law is impartially upheld in the US.

Blockchain: Why the 'Big Guys' Can’t Win

Matthew Spoke is CEO and founder of enterprise blockchain startup Nuco. He is a bitcoin and ethereum enthusiast, who has previously worked with Deloitte with the aim of advancing the use of smart distributed protocols.

In this opinion piece, Spoke looks at moves by tech industry incumbents to capture the emerging blockchain market, and offers a warning for the eventuality that they succeed. 

Chess pieces

There's a seemingly obvious marriage happening right now between two incredibly important Internet technologies, one that promised to make web businesses more scalable and organizations more efficient (which has happened to a large extent), as well as holding decentralization and disintermediation as the ultimate objective (on which the jury is still out).

Earlier this year, I wrote a piece about the "Race Towards Irrelevance" that seemed to be taking place among traditional organizations whose markets and business models stand to lose from the adoption of decentralized systems. Primarily, I was referring to some intermediary companies in the financial services industry who will struggle to redefine their value propositions as blockchains become more commonplace.

What I failed to include in my prior ramblings was that it's not only traditional industries and businesses who face this risk. Similar to the attention and investment that has poured into the "blockchain industry" from financial services firms, there are a number of global scale technology vendors positioning themselves to dominate this market – or, to a skeptic, centralize it.

I'm referring to "the cloud" and "the blockchain", two terms which should more accurately be used in the plural sense.

Decentralization is key

I'm not suggesting that cloud computing is not well suited to underlie blockchain infrastructures.

On the contrary, in many cases, there's an obvious match that allows for efficient scalability, robust node security and light weight onboarding, among other benefits. But (and this is a big but) these benefits quickly become irrelevant if we forget about the need for appropriate decentralization. Naturally, it's no surprise that the same companies who, to a large extent, brought us the mainframe and the PC, want a piece of the blockchain action. It's also no surprise that these same companies are already in the process of capturing large parts of the emerging blockchain market.

As the old adage goes: "nobody ever got fired for buying [insert big tech company here]."

In general, I think the entrance of big tech companies into this domain has had a positive impact. It has helped bring much needed credibility and reaffirm the importance of these new technologies. That said, as markets consider their adoption, we should encourage an objective analysis as to the appropriate implementation of this technology so as to achieve its intended outcome.

Although there are many reasons to trust the competency of  prominent technology vendors and the integrity of their systems, which have been proven for decades in other domains, let's keep in mind that the intended purpose of this paradigm shift is to eliminate the need for trust. Objectively, this means that a blockchain cannot be dependent on a single vendor's infrastructure or security.