So… You Thought Bitcoin Would End The State? LOL

Bitcoin will fund, not end, the State.

Whenever I talk about use of force in the fight for liberty, those who reject the argument often respond with a one word answer. Bitcoin! Not surprisingly, the people who say this tend to be heavily invested in the cryptocurrency. It is in their best interests financially to see it gain wider acceptance, driving up the demand, and with it, the value, of their assets. So they tend to make outrageous claims about its magical powers, not unlike any common pump and dump stock scam.

For certain, Bitcoin is amazing and is doing a lot to advance free markets. I have a Bitcoin wallet, and it presently has more money in it than my leather one, not that this is saying much. The BlockChain.info markets page is in my bookmarks toolbar in my web browser, and I regularly follow news about the virtual currency. To make a long story short, I love Bitcoin. I’m not writing this to bash on it, but I’m going to put a few holes in the absurd expectations some people have for a few megabytes of open source code.

What Bitcoin Is

Bitcoin is an open source program.

Bitcoin is Open Source

Bitcoin is Open Source

Being open source means anybody can see the original, human readable code of the program. Most of the programs running on your computer are probably closed source. Microsoft products for example. When a computer program is created, the programmer manually types instructions into a text editor. Those instructions can be analyzed or changed by a third party. Unless the application is open source, that code is kept a secret by the program’s creator.

Before a closed source application is released, it is compiled. Compiling changes the human readable code into machine readable code. While applications exist to reverse engineer this process, they are far from perfect, and the original human readable code becomes unrecoverable.

The upside to open source is that it has no secrets, and that’s why open source matters to Bitcoin. If there are flaws or backdoors in the code, they are identified by the open source community and fixed. Unlike Microsoft applications which need to be constantly updated as hackers exploit holes in their security.

Bitcoin is peer to peer.

Bitcoin is P2P

Bitcoin is P2P

Being peer to peer means there is no central Bitcoin authority. That makes it very difficult for governments to control. The decentralized nature of peer to peer protocols means they live or die based on user acceptance alone. No swat team can raid Bitcoin headquarters and force an administrator to hand over funds or identify users, because no such headquarters or administrator exists.

Bitcoin is an asset.

There’s no shortage of disagreement on exactly what sort of asset Bitcoin is. Some call it money, some call it property, some call it an investment, some call it a barter tool. Whatever you call it, Bitcoin is a thing of value.

What Bitcoin Is Not

Bitcoin is not untraceable.

Bitcoin is not untraceable

Bitcoin is not untraceable

Each Bitcoin wallet has a public and a private key. The private key is kept secret, and is used only for spending Bitcoin. The public key is used for accepting payments, and is the public identifier of the wallet. Using the public key, anyone can view the balance of the wallet, and every transaction said wallet has ever engaged in. In this sense, Bitcoin is more traceable than traditional banking, where the transaction information is at least hidden from public view.

Bitcoin is not (entirely) anonymous.

Bitcoin is not (entirely) anonymous

Bitcoin is not (entirely) anonymous

In order to accept payments, you must make your public key known to the payer. If you accept donations from the public or run any sort of open to the public business, this means making your public key, public, associating it with the identity accepting the payments. If you send invoices to clients, this means listing the public key on the invoice.

From there, it is possible to obfuscate where the funds went, but you can never erase the trail. A little forensic accounting by anyone willing to take the time to do it, will eventually spot patterns and locate the funds. Even without locating the funds, it is still possible for taxing authorities to hold you accountable.

Bitcoin is not untaxable.

Bitcoin to be taxed as property

Bitcoin to be taxed as property

The Bitcoin protocol itself is outside the reach of government, but protocol is not what the government taxes. Governments tax value. All this crap you’ve heard from the sovereign citizens about taxes only being owed because you trade in Federal Reserve Notes is nonsense. The banking system makes taxation easier for the government, but that’s just a convenience. Taxing authorities want their cut of everything, and it doesn’t matter if you trade in FRNs, Euros, gold, silver, copper, or Bitcoin. Even if you trade haircuts for lawn maintenance, as far as the IRS is concerned, you are supposed to attach dollar values to each side of the barter and report them to the IRS.

The IRS officially announced yesterday that Bitcoin was taxable as property. So as far as taxes are concerned, Bitcoin is going to do about as much to set you free as the stock market is, and the stock market has been around quite awhile. Surprisingly enough, there are people who think this is good news. They always expected to pay taxes on their Bitcoins, so the announcement that it is taxed as property instead of money means they can pay the lower capital gains rate on their winnings, and write off their losses as deductions.

Bitcoin Forensics in Action

As a little exercise, let’s look at Derrick J’s Donate page (I got his permission to do this, but all of this information is publicly available)

Derrick’s public key is 1PeaceUVNF3zoFXjMPoTN6S3ssDrhgxTEJ

We can view this on the Blockchain.

This wallet has engaged in 126 transactions, and has received a total of 118.08955384 BTC, which at the current market rate of $583.05 would equal $68,852.11. His first transaction took place on 2013-06-02 at 02:33:33UTC, so we know  he acquired all these funds in under 1 year.

We don’t need to start off with the identity of the investor. If we find a transaction on the blockchain, and want to identify those involved, we can simply do a Google search for the public key. Here we find all the 3,380 places where Derrick’s public key is posted on the web. Including his website, YouTube videos, tweets, and all the rest.

This is all the IRS needs to conduct an audit of Derrick. In a tax court, the IRS simply claims money is owed, and a defendant is burdened to prove the money is not owed. The IRS can clearly see that Derrick has exchanged a good deal of funds here, and when the IRS comes to get him, his options will be limited to explaining each of those transactions, paying the IRS, going to prison, running away, or killing his abductors.

I’m not breaking any new ground here. It only took me a few minutes to find all this information. This is part of how Charlie ShremRobert Faiella, Pascal Reid, and Michel Abner Espinoza all got caught.

Conclusion

Bitcoin is a useful tool. It’s a great way to obfuscate transactions, to increase one’s wealth, to transfer funds, and more. If you never show up on the government’s radar, you might well be able to trade in Bitcoin your entire life and never pay a penny in taxes.

The State Will Be Abolished By Force

The State Will Be Abolished By Force

On the other hand, the moment the government decides it wants to bust you, they will, and all the information they need to do it will be publicly listed on the internet for all to see. They don’t even need a warrant. Bitcoin is property, and like all property, the government wants a cut, and they will kill you to get it.

While it is true that the State cannot end Bitcoin, it is also true that Bitcoin will not end the State. The State will cease to exist when a large enough percentage of the population is willing to use force to defend themselves against it, and no sooner.

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  • sovreigncitizen

    Great article Chris, very informative.

  • Steve Rincon

    Force? You mean, the same “force” the State uses against us? Hmmmmm….

    • Chris

      The State uses defensive force? I always thought the State used initiatory force!

  • Don Duncan

    The state will end when enough people remove their support. No force is needed, just boycott.

    The IRS can bill anyone anytime, and steal anything they can get their hands on and call it “payment”. What they can’t do is come and get you, in leu of payment. Arrests are made for failure to file, tax evasion (fraud on your return), but not just for owing. That’s correct. If you file a return with only the bare minimum of identification, refusing to incriminate yourself, and they calculate your “debt”, you may not be arrested for just the debt, i.e., for not paying. If you have no property they can steal, you are safe. Just don’t get caught by them carrying a lot of cash. They can take it.

    • Manley Caughell

      1% of the population incurring tax liabilities to the state will not end the state. In any way, shape or form. You’re delusional.
      You realize the governments are ran regardless of huge deficits, right? Oh, and, uh, you may not have known this, but they’re still there.

      • Don Duncan

        I “realize” that govt. is a very destructive illusion best exposed and avoided. Govt. cannot exist without the moral blank check of society. “Oh, and, uh”, anyone who does not know this is delusional.

  • Joe Postove

    Christopher, great article! I am a libertarian, but I am just starting to know and understand a little about Bitcoin. One thing that you write about that concerns me, is that all of one’s transactions would be open to anyone with an internet connection. Is that correct? Am I understanding this? If that is so, why would anyone want to trade in bitcoins? Thanks, Joe

    • Chris

      Joe,

      All Bitcoin transactions are publicly visible on the blockchain. This has always been the design of Bitcoin, and it will be the design of any open source peer to peer currency of the future, since without a central authority to keep records, the records necessarily need to be held by the users of the system.

      What Bitcoin does not do, is report these transactions to the IRS directly, they are not directly associated with your social security number or tax ID, and they cannot be seized by any authority without first capturing your private key. Those are the upsides, and there are lots of great reasons to use Bitcoin.

      The only assertion this article makes is that it is not the savior of free market economics that some of the early adopters want to make it out to be. They are saying this because saying it drives up the demand and value of their assets.

  • Zbyszek

    Well, the article is sound on what’s in it, but there are facts about BTC that are missing. There are ways to anonimize BTC transactions (BTC mixers) and there is a development aimed at making BTC fully anonymous. It is true, that in current situation you cannot use BTC carelessly and expect it to keep you anonymous. Also, if the BTC is wide spread enough so it pushes dollar out of the market (large enough portion of it), the state will loose it’s ability to freely print money. This is something that your article is lacking entirely. There is no FRB with BTC at all. You have to create BTC substitutes in order to achieve that and that is much harder with BTC than with simple fiat. I believe the central banking system is the root of the state power. They really can tax you only as much, and so it the BTC pushes dollar out of the market, it will destroy the state’s power to spend. Also, this whole bond bubble will burst and this is nothing good for the state also. There is much more to BTC that you wrote about.

  • John Galt

    B…but Jeffrey Tucker said Bitcoin would end the state!

  • Matthew Reece

    “While it is true that the State cannot end Bitcoin, it is also true that
    Bitcoin will not end the State. The State will cease to exist when a
    large enough percentage of the population is willing to use force to defend themselves against it, and no sooner.”

    The cold hard truth that many libertarians need to stop shying away from.

  • jeff4justice

    Why is a made-up imaginary money in Bitcoin or gold or silver any better just because it’s not created by statism? I don’t get why people who can imagine a world without statism control can’t imagine a world without monetary systems – “who will build the roads” style. An individual would be better served it seems being as self-sufficient as possible instead of stuck in systems of dependency and made-up Monopoly money.

    • Don Duncan

      Money is not a scam conceived by statists. It is a product of the market. Fiat (paper) money is a scam of statists. Anyone is free to boycott money, the market, society, and be “self-sufficient”. That few are hermits is testimony to our need for social contact and its psychological benefit. I know. I tried being a hermit in 1982. Living in society is a two edged sword but it is still better.

      Markets/money are inventions of society with pitfalls but overall, benefit us. It’s the myth of “beneficial authority” that infects society and destroys us. That superstition is the cancer.

      • jeff4justice

        Thanks for the reply. One does not have to be a hermit or anti-social to be self-sufficient – or, to be clearer, as utmost self-sufficient as possible. Also, just because something is a product of market does not mean it’s logical, efficient, or beneficial to people. The market thrives off of brainwashing people into paying for self-destruction and dependency – not entirely but certainly a huge portion of it does. Seems to me if one can dream of emancipation from government then why not also emancipate from market too and replace it with teaching people to be utmost self-reliant and to share out of love when dependency is truly needed – as you don’t charge your children, lover, or parents for services (generally speaking). But my question is futile because mankind is prone to be controlled by fear (think Drive by Incubus) which is a natural instinct that is exploited by the 3 major fear-based systems of control established by wannabe supremacists: religion, government, and market. Saying we need money in a circular logic argument is the equivalent to asking “But who will build the roads.”

        • Don Duncan

          Religion/government are violent, authoritarian/fear based. No one would dispute that. But voluntary exchange of goods/services, i.e., market, is their opposite. Is fraud/violence an essential component of the market? No. Is it found in some market transactions? Yes. Can government exist without violence or threat thereof? No. Can the market exist without violence or fraud? Yes, in fact the most successful markets are founded on the principle of voluntary interaction. This is the natural, default social system. Why? Because humanity does not prosper by force, it is reason that makes humankind successful. Take away reason, substitute brute force, and species suicide would result. We have always had a mixture of both reason and force. Technology and science are the products of reason. War, poverty, and crime are the product of brute force.

          • jeff4justice

            Thanks for the insights but I don’t see that as an answer. You’ve re-explained what we both know: statism is bad – we agree on that.

            So why then do we need more in-effect rulers in the form of employers, arbitrators, and land owners who create rules? Why not work to emancipate from all of the 3 fear-based systems of control? Why would you want an imaginary money system of any kinds as opposed to becoming as utmost self-sufficient as possible and voluntarily sharing with your neighbors as you already do with your (if applicable) kids, lover, parents, and some friends? Once people can coexist peacefully without the obstruction of wannabe supremacist nonsense then people will be able to simply look out for one another and empower one another voluntarily – not by force but voluntarily by logic.

            Hmmmm. I can site here and play imaginary money games like Monopoly or Bitcoin or I can go attain skills to become self-sufficient.

            “Can the market exist without violence or fraud? Yes” How so? I am guessing you believe in property ownership? How does one own land as property without aggression upon others?

          • Don Duncan

            How is property aggression? We own ourselves, our thoughts, actions, and by extension what we create with our mind. When we mix these with the land we need not aggress. Everybody has to occupy some space. Two can’t occupy the same space at the same time. Are they both aggressing? Or just the first one to get there? If you claim the land is owned by everyone, that is the same as saying no ownership exists, and the tragedy of the commons always results.

          • jeff4justice

            A question to a question is not an answer : )

          • Don Duncan

            My questioning your question was a challenge to your hidden assumption contained therein. If you had read past it, you would have your answer. For example, the collectivist slogan: “All property is theft” is contradictory. No property, no theft. One cannot steal what is not owned. Got another cute non-responsive reply?

          • jeff4justice

            You voluntarily replied and I am sincerely happy to be won over to your point of view if you can provide logic and critical thinking. I’ve also been patient and kind in replying to you.

            At the end of the day as much as I am a wannabe idealist, I have a bleak world view and think people are too prone to fear-induced self-destructive subservience. I think it will all end in a war because of fear-based wannabe-supremacist evoked wars. The USA can’t even stop voting for the same 2-partysy stem charade without expecting different results. Occupy was a failure, Tea Party was a failure. Those who dare speak up (stuck in statism or not) tend to get mowed down. The rest are told “government is spying on you can cops can do anything to you” and they just collectively shrug and go back to weapons of mass distraction or scapegoating some group or another (gays, Muslims, Mexicans, blacks) in a futile blame game.

            I am very much allured to concepts of voluntarysim. Nonetheless, I have no allegiance to ANY world view, philosophy, belief system, ideology or whatever you want to call it. Also, shedding the skin of illogical belief systems (statism, creationism) does not mean I just have to cling to whatever voluntaryists or atheists claim without questioning it. Truth is supposedly free-thinking people can often be as stubborn as the blatantly illogical.

            We’re all living under statism force and regardless of what label we subsribe to in reality we’re all doing the same thing: surviving by any means necessary. Which is what one should do. One’s allegiance should be to their own self-preservation first and foremost (including the kids, lover, parents). I think that tends to work best incorporating voluntaryism and the golden rule. But if I was in a post-earthquake zone and starving I would forgoe my preference of non-aggression principal for self-preservation – and any intellectually honest person wold too whether they admit it or not.

            Next, I don’t see a stateless society forming so long as religion exists – as most religion mandates aggression.

            Regarding voluntaryism, I do like to ask: how can one own land as property (not any property, just land) without aggression upon other person? I don’t think one can.

            Also, what’s wrong with voluntarily dropping all nonsensical, illogical, inefficient fear-based systems of control and replacing it with loving cooperation (which people already do – Couchsurfing.org is a great example). That may sound hippy-dippy but isn’t really too much more idealist than just imagining a stateless society. “How can people get resources without money” is not really any different than asking, “Who will build the roads.” F’k if I know but it’s a possibility.

            Next, if I don’t consent to the state to dictate how I live then why would I consent to a developer who wants to own beach front property from Santa Monica down to Redondo Beach to tell me where I can go on the beach just because they declare themselves the “owner” of their arbitrary imaginary lines?

          • jeff4justice

            Aw, my reply is “waiting to be approved.”

  • Joshua Katz

    It seems to me that BTC violates the regression theorem, which is why its value fluctuates wildly. It’s not a currency at all.