Reasons To Make Bitcoins Illegal

Tax Evation

The first problem with Bitcoin is the high potential for tax evasion. The United States government collects income tax. Under Federal law it does not matter whether that income is in United States legal tender or an alternative currency. USD, Ithaca HOURS, and, in theory, Bartering are all taxable.

 

The problem with Bitcoin is that there is no clear mapping from coins to user. Coins are mapped to addresses and only the user knows what addresses they own. The United States government would have to hack into a person's account(s) in order to find out if he or she was being honest about his or her Bitcoin income.

 

The United States Government is also incapable of implementing sale taxes in Bitcoin because there is no way for addresses to be mapped to nationality. Consequentially, there is no way to know how much each transaction should be taxed and where the tax should be sent.

 

Haven for Black Markets

One of the worst foreseeable consequences of making Bitcoin legal is the fact that Bitcoin economies are the perfect haven for black markets.

 

Bitcoin has two properties that make it perfect for black market dealing. First, users are anonymous. An item can be sold and purchased without each party knowing from where it comes. As a result seller of contraband can sell their products to customer without fear of the buyers being able identify them to police.

 

Second seller of contraband can change their addresses each time they made a transaction. This would make it extra difficult to find out how many people were selling a type of contraband.

 

Haven for Money Laundering

If a person wished to lander their money all they would need is two Bitcoin accounts. Account A would exchange laundered USD and receive Bitcoins. Then Account A would sell those coins to Account B under a different address. Then Account B would exchange the Bitcoins for legitimate USD. So long as Account A is remained hidden from the police, Account B and its user look perfectly legitimate.

 

Unlike tradition money laundering, the lack of a physical and bank interaction makes back tracing the money that much more difficult. Worst yet the launderers could keep changing the addresses of both accounts to make the transactions look less conspicuous.

 

The Bottome Line

If Bitcoin were to become viable it would provide an alternative way of exchanging goods. However Bitcoin by its very nature would work well, if not best, in the world of illicit behavior. It could provide criminal with the anonymity that they desire. For these reasons we believe that it is the United States best interest to either modify of Bitcoin economies or to make them outright illegal.