Bitcoin Will Be Worthless Until You Can Pay Your Taxes With It
(Bloomberg Businessweek) -- When faced with the charge that cryptocurrencies have no inherent value, believers often counter that paper money doesn’t either. Such a defense is intuitive, but it’s wrong. Fiat currencies, as they’re known, are “backed” by the government that issues them. That means, in practice, that you need them to pay your taxes. As long as a country is functioning—that is, as long as it’s collecting taxes and spending the proceeds on such things as police, schools, and highways—its money has value.
Cryptocurrencies, on the other hand, have derived their worth from a steady stream of converts—or, from the point of view of skeptics, greater fools—who at the moment appear to be in short supply. To have staying power, Bitcoin will need governments to allow citizens to settle their tax bills with the new currency. That will be a hard sell, since national governments will be reluctant to collect taxes in a denomination they don’t control.
But not all governments: In November, Ohio became the first U.S. state to accept Bitcoin for state tax payments, a move that made news but may not prove to be a tipping point. That’s partly because the state is still denominating its taxes in dollars. And partly because—and all due respect to LeBron James, Lake Erie, and the Rock & Roll Hall of Fame—it’s only Ohio.
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