US now defines Bitcoin and digital assets as cash – for large transaction reporting
the United States Infrastructure Bill, passed in November 2021, features a number of new rules aimed at controlling the use of digital assets. One major change is an eight-word amendment to US tax code section 60501, defining digital assets as cash for the first time.
Most digital asset fans and users wouldn’t argue with that definition (after all, the title of 2008 Bitcoin White Paper includes the words “P2P electronic payment system”). However, the section of the tax code that has changed is the one that details reporting requirements for business transactions over $10,000.
Any business transacting more than that amount in Bitcoin or any other digital asset must now collect data such as real names, addresses, phone numbers, social security numbers, and any other information the IRS deems relevant. They must then report those transaction details to the authorities, and failure to do so will now be a crime.
Foreign currency was already included in the definition of a “cash” transaction of $10,000 or more, but changes to the new infrastructure bill now put digital assets within that definition. The “travel rule” will now apply to all digital currency transactions worth more than $10,000, which is likely to have massive tracking effects in the digital asset industry.
Currently, most of the value of this industry resides in speculative trading, and most transactions would flow to and from exchanges. When this economy expands to include more “regular” payments and transactions, all businesses will need to report. The new requirements, if they were to remain, will affect the entire industry as well as other “DeFi” assets and networks. However, the latter is more focused on large financial transactions, whereas much of BSV’s economy is focused on small payments and micro/nano transactions.
Criticisms of the definition of “cash bricks”
A recent Wall Street Journal article criticized the change, saying it would “thwart the development of this new technology and effectively prohibit many uses of digital assets.” It would only “strengthen existing financial institutions and big tech while forcing Americans to report each other or face a felony charge,” he said.
The Journal also noted that the law could be “constitutionally suspect” under the Fourth Amendment (because of the types of personal information businesses of all sizes will be required to collect). There is already a bipartisan push in Congress to repeal Amendment 60501.
Under US law, sending bitcoin is now like handing someone a brick of cash. And governments around the world don’t like bricks-of-money transactions. Try it and you will immediately draw attention to yourself.
In the United States, the reporting of transactions of $10,000 or more has been a law since 1984.
Virtually no one trades in bricks of silver, despite what you might read on internet forums. Cash these days is for small, everyday purchases, not big transactions. Bitcoin, however, is digital money – you can transfer as much as you want, to whomever you want, to another address as quickly as the network allows.
You can understand how this idea worries regulators. There are all sorts of checks in the system to prevent people from using large sums of money at once: it is usually issued in small denominations to make it difficult to transport and/or secure (inflation has ensures that even a The $100 note is now a “low denomination”). The European Central Bank ceased issuing the 500 euro note, one of the most valuable denominations in the world, in 2019 and intends to phase them out of circulation gradually. Other jurisdictions have reported that even $100 bills and the equivalent are too expensive and have raised concerns about their use in illicit activities.
Inflation, which currently worries many countries, will only make the situation worse over time. Trades that were once below $10,000 will soon find themselves above the reporting line.
If anyone thinks that simply moving digital assets for amounts just under $10,000 will solve their problems, well, it’s been tried before, and the authorities are well aware of that. Former New York Governor and Attorney General Eliot Spitzer was a high-profile case, using withdrawals of just under $10,000 to pay at least $80,000 for a series of high-priced escorts. He did it so often sparked an IRS/FBI investigation suspected that he might accept bribes. Attempting to fly under the radar in this manner will eventually attract attention.
Whatever your opinion on the fairness and constitutionality of cash/digital asset reporting requirements, the fact is that today governments will not tolerate any method of transferring large amounts of value outside of the financial system. “official”. Any new technology or method that allows parties to circumvent these laws will only last as long as it remains obscure and/or small (and effectively useless for the most part).
Most blockchains themselves are detailed and permanent records of all transactions, so using them for illicit activities and tax evasion is a false promise. New international definitions and regulations will make it easier to identify large movements in value, but all users should be fully aware of these realities before taking action.
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