So Ryan Selkis (aka @twobitidiot) went on a tear this morning with a multi-point tweetstorm.
At scale, the only way to tax crypto will be at the miner level. That’s how BTC, ETH or the dominant cryptocurrency will become a true global reserve.
— Ryan Selkis (@twobitidiot) January 21, 2018
… followed by 16 points (plus and /end comments) he tore out some great ideas. (bold highlights are mine and notes are below):
1/ Soon, possibly as soon as 2018, crypto holders will have a choice between two major risks wrt government oversight: a) disclose all holdings and have them subject to seizure, or b) evade taxes and move to the shadow financial system.
2/ It starts small. You as a BTC holder move 1-2 BTC in an off-the-grid wallet backed up in a hardware wallet, or split between family members, or simply a seed in your head. This will never get reported. Even if you were apprehended, you could say you lost the keys. Sorry.
3/ Those assets over time, with privacy enhancements and improved liquidity in the crypto-only economy, become impossible to trace. They are essentially tied to your unseizable identity. You’ll pay for things with that currency without a trace.
4/ Paying with that currency privately at a restaurant for instance will be no different from going to a friend’s house for dinner. No money will appear to change hands. The debits and credits will happen completely privately. Unless your host must KYC every one of its patrons.
5/ This seems like a dystopian future, but it’s one that largely already exists with wechat in China and the credit card driven and increasingly cashless western economies. So where do you go to avoid this oversight?
6/ There will probably be two options. Join an underground economy where you live currently. Or move to a new crypto-friendly country.
7/ The former doesn’t seem tenable. You would be relying on conducting your entire economic life in the equivalent of speakeasies. You can’t serve private customers and report taxes in the future economy. Again, you have to choose: on or off the grid.
8/ So you get to the point where crypto tribes do ultimately move en masse. Slowly at first and then rather quickly. Crypto “citadels” umm…actually become a thing. Smaller and intrepid emerging economies hang up a welcome sign for sovereign individuals.
9/ These countries could get ostracized at first in global trade, but they will be wealthy. Very wealthy. So they will always have trading partners even if China and the US don’t like it. And indeed! At scale, these massive macro payments can be made in private as well!
10/ Around the same time, global asset bubbles begin to collapse. The disintegration of the dollar as reserve causes a global financial panic. The crypto-friendly countries become the leaders of the free world, redistributing aid like the US once did to war-torn countries.
11/ ahhh, but who pays for the aid? Who pays for social services? How does taxation work in this completely private galt’s gulch type of economy? At that point, it might be the only place you can actually trace crypto activity. The energy intensive miners.
12/ If crypto becomes a) liquid, b) truly private, c) scalable, d) widely self-custodied, e) tradeable primarily on decentralized exchanges, only way to tax it will be at the source of new currency issuance: energy intensive PoW miners or via “inflation treaty” in a PoS system.
13/ This is why I think we’ve reached the tipping point in crypto already. The final boss to beat is the incumbent financial system and national authorities. Banning crypto is a real – and I’d argue smart – option for banks and governments.
14/ If I were to guess how this plays out, I think we’ll see a continued frenzy in 2018-2020, followed by chaos. Bans + hunting down tax evaders + crypto crash and/or global recession + physical relocations of holders.
15/ This is not just a disruptive technology, but an economic movement that – coupled with the rise of nationalism, massive job displacement due to tech, and frustration with big brother oversight – will ultimately lead to wide scale economic and political disruption.
16/ Like people working on AI and gene editing, it’s on the innovators to think about the long-term ramifications of this tech and design the foundation of the crypto economy appropriately.
and I need to interrupt here because the end tweet needs its own attention:
End: We like to play the role of the good guys and the cowboys and the people who will change the world for the better, and I hope that plays out. “However, I have seen how it ends.”https://t.co/3mtpsi4S7V
— Ryan Selkis (@twobitidiot) January 21, 2018
That /r thread cracks me up – but it is eery to read. Too much of it rings true. A great way for TwoBitIdiot Ryan to close out.
Here’s my commentary – for clients, partners, and for my own notes.
- Disclose and Seize – What about an idea of Safe Disclosure? – I think that Ryan may be missing some pathways here. With new, identity savvy, capabilities that are beginning to emerge there may be some middle ground. As a loose idea, picture a token that you can use, disclose the use of it, but the “monitor” (e.g. taxman) can’t grab it. They can be told, at your decision, how much of something was used. Auditable, but privacy (and seizure) protected.
- Crypto-Friendly Countries – I can see countries devolving to be more like city-states in time. Advantage goes to the country that ensures they won’t seize my stuff – but that will take care of me. I need to pay some kind of fees – directly (cash/crypto payments as transactions) or as an annual fee, and even (gasp) a tax of some sorts.
- National Authorities Evolve to Serve – I agree that the shift to decentralization, and the easy movement of those with means, will shake national authorities. My hope is that those “citadels” will evolve truly helpful systems of governance and assistance that folks naturally don’t resist. It’s the flaws in government that we push back against. Many services that are provided are necessary and appreciated. The mode of delivery may be flawed at a fundamental level though. The current political “system” (cesspool?) isn’t inspiring but I believe there is some desire to serve amongst most of us.
I am curious about what some of the deep systemic thinkers (e.g. Naval Ravikant, Nick Szabos) are pondering in this area.
NOTE: I create these pages for my clients, partners, and for personal use. I like having the content all in one spot and the Twitter /1 format drives me totally bonkers and I make my notes in line. Hopefully you enjoy.