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Bitcoin and taxation: the government on a Bitcoin standard

How will governments function in a world moving from fiat currency to hyperbitcoinization? This is a question I’ve been thinking about recently and wanted to think about what happens to governments with a Bitcoin standard. The questions I ask myself are: how will governments finance themselves? How do your taxes work in a digital landscape and how will governments respond to this dilemma?

How will governments finance themselves?

Most die-hard Bitcoiners probably don’t care what happens to the government on a Bitcoin standard. I would dare say that they would like all governments to collapse and burn. I sympathize with this point of view, but I am also a realist. The average person wants government there because they have been conditioned to believe that it brings a sense of order and protects their citizens. I think it’s the opposite, but it’s not the majority opinion.

Governments of various sizes and configurations have existed for thousands of years and will likely still be around when hyperbitcoinization is achieved. So how are governments going to finance themselves when the power to create money on a whim has been irrevocably taken away from them?

In the West, governments primarily tax revenue as a major source of revenue because they have the ability to monitor most transactions through payment channels controlled by the Federal Reserve, banks, and through the threat of force and ‘imprisonment. This has worked for them for a long time, but it will no longer be possible on a Bitcoin standard.

The very nature of Bitcoin makes tracking the income of every economic actor virtually impossible and time-consuming, especially when privacy tools like coinjoins and Lightning are added to the mix. You can begin to understand why governments don’t like Bitcoin, it takes away their power.

Without the power to tax individuals wantonly, governments will be forced to develop methods to generate revenue to support themselves. We’ll talk about this later.

The Bitcoin economy of the future

Imagine a future where everyone buys and sells goods peer to peer using Bitcoin. This would by default be a tax-free economy. Currently, there is no line of code in the Bitcoin protocol to calculate sales tax when you purchase goods, and no Bitcoiner would even consider creating something like that unless they wanted to be tarred and feathered like a simple for the government.

I don’t even know if it’s technically possible to do it, to be honest. No one likes paying taxes and wouldn’t shed a tear to no longer have to pay them. This creates another dilemma for governments around the world. If they cannot tax income or tax consumption effectively, what alternatives do they have to survive?

There is no simple answer to this question. I think our entire conception of what government is and how it relates to its citizens will have to radically shift from a top-down conception to a more decentralized customer service model. This fits more with the libertarian vision of what the state should look like, where governments are voluntarily funded by their citizens instead of being forced to fund it through gunfire.

In this model, governments will need to be much smaller than they are today, because they will need to be mindful of revenue versus spending, just as any business would. If governments are good financial managers of their Bitcoin treasuries, citizens will be much more likely to reward governments with continued support. This form of signaling support is more influential than voting. The ability to refuse funding will make politicians more responsive to citizens.

Elections could still be held as this is not expected to change. Political parties should show that they are good managers of capital, otherwise the government would not be funded voluntarily and would naturally fall from power in the next election. This is a world that I think we should work towards, because it will make the world safer for everyone.

How will governments respond to this emerging challenge?

While it may sound like music to our ears, politicians hate the idea of ​​Bitcoin or having to listen to citizens. They have it pretty good at the moment. They can tell people what to do, get good benefits, and get re-elected even if they break their promises – no wonder they never want to leave office.

In the United States, incumbents are re-elected by more than 90 percent. Did you know that in the House of Representatives, the re-election rate for incumbents has never fallen below 85%? So you will only have 15 percent of votes rejected in the next election. Who doesn’t love those odds? That’s why nothing changes. We put the same people in power year after year because they know how to play the game and grease the right hands, all thanks to the fiat money printer.

If you want to see all the BS the federal government spends on its depreciating fiat dollar, check out the Citizens Against Government Waste website. This will give you a good idea of ​​the bullshit that is being funded in your name.

So, knowing this, do you think they will willingly give up all that power, prestige and influence? I do not think so. They will employ various tricks to either capture Bitcoin for their benefit or make it so cumbersome that people won’t use it.

I fear that Bitcoiners have already fallen into one of their traps with the Bitcoin ETF. I truly believe this was a bad decision and could significantly slow down Bitcoin adoption in the United States. Sorry to say it, but most people want everything in life to be quick and easy, even Bitcoin.

Answer this question: Why would those who have very little knowledge about Bitcoin learn the ins and outs of self-custody, and why is it important when they can “own” Bitcoin in their retirement account? 9 out of 10 people will choose this option. As long as they see their retirement portfolio growing thanks to Bitcoin, they will happily force large custodians like Blackrock to hold their Bitcoin, without understanding how dangerous third-party custody actually is for Bitcoin.

At least we have a chance with Bitcoin to improve the world. Let’s hope people take advantage of the opportunity to achieve true freedom.

This is a guest post by Robert Hall. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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