Welcome to the CoinDesk Weekly Review — a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law.
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Is Canada trying to become the first hipster nation? Not only has it demonstrated its geek cred by putting the International Space Station on its new $5 note — thumbing its nose at the old colonial master, which decided to show the UK’s thrusting 21st century nature by putting Winston Churchill on its new fiver — it’s also come out with the first official taxation guidance for digital currencies. Which boils down to: pay up.
It’s a bit more complex than that. If you’re using your digital currency to buy actual stuff, then you’re bartering — there’s tax law for that already — and if you’re speculating, then capital gains rules apply. Nothing new here. Move along.
Which has got the ice hockey jockeys plenty of column inches, so job done. In terms of the whole tricky business of defanging the big scary monster of an electronically tradable currency that leaves no trails for the taxman to follow, not so much. Like many a digital currency player, it seems the Canada Revenue has spotted the chance to skim some buzz from the current e-currency fever without being too clear about the hard questions. (Canadian banks, however, are less keen to dabble.)
Should the rest of the world take heed? John Law notes only that the slang term for the Canadian dollar is the loonie. It’ll take more than a few tons of orbiting hardware to change that.
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Zombie bitcoin mining. There’s a phrase that would make absolutely no sense in the deep past — say, 2010 — but might instead be a brand new crime. An unnamed rogue employee at online gaming company, ESEA, illicitly deployed internal software to the company’s 500,000-strong client base. Instead of using every available gigahertz in the service of blood-soaked virtual violence, those clients’ computers spent spare time doing the calculations that create bitcoins. A bad thing, apparently. The chancer skimmed off just shy of $4,000, which has presumably been docked from his or her pocket money.
John Law isn’t quite sure what crime has been committed here, since most of the time the hardware in a gaming computer sits idle and nobody actually lost $4K. The closest he can come is the old offense of “abstracting electricity,” which used to be thrown at phone phreakers in the UK when they tampered with the GPO’s clockwork telephone exchanges, but even that won’t fly in the US. It’s true that when otherwise-idle bits of hardware start thinking furiously, they do take a lot more power, which the hapless gamers would have to pay for, but how many watts does each bitcoin take to generate?
Like so much digital currency rumination the truth is very hard to find, but according to this profit calculator (“Nothing guaranteed”), it’s around a kilowatt per coin — and our mystery guest managed to mine probably one block of 25 coins, or one per every 20,000 users. Which cost them a few millicents apiece. (Other sources are less sanguine, suggesting up to a quarter of the face value of a bitcoin goes in mining electricity. In which case that’s a thousand dollars across half a million people, or half a cent apiece. If you don’t like any of those numbers, feel free to pick your own.)
Given that nobody’s gone to chokey over LIBOR, that’s going to be a hard case to prosecute. On the other hand, if an enormous number of users with top-end gaming rigs can generate only that little e-cash, either ESEA’s code was tosh-on-a-stick or it’s going to be a long time before Joe Punter gets rich from the sweat of his silicon.
But it is quite pleasing to think that if it does become a crime for third parties to make your computer run useless code, the likes of Oracle, Microsoft and Apple will be eating quite a lot of porridge.
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If digital currency is keeping the great and the good awake at night, then the combination of digital currency and mobile phones should create more wide-eyed twitching than Missouri’s annual output of crystal meth (which really is eye-opening). Mobile phones have already spawned their own unregulated currency in much of the developing world, where pre-pay credits are negotiable instruments, and every retail bank on the planet is lumbering towards some sort of electronic mobile wallet. Mobiles are the perfect platform for free-form money, combining tons of powerful processing with connectivity, security, low cost and — let’s face it — the sort of warm symbiotic attachment to the average human only previously achieved by the tapeworm.
Moreover, people trust them. For everything. So, the regulators of the world are faced with a few billion people already equipped and primed for mobile currency — all it will take is one good app, and everyone from Aunt Ethel to Al Qaeda can dabble in digital coinage. The only reason that we don’t already do most of our banking on our mobiles is the glacially slow rate at which regulators and banks innovate … but that does not apply to currencies like bitcoin and it certainly doesn’t apply to the flying fingers of the world’s hungry young mobile app producers. They’re already at it … and thanks to that old global internet, even if the US decides to ask its geeks to lay off, the apps will pour in from every other country capable of feeding and watering a five-strong programming team.
John Law is reminded of the very early days of the internet, which effectively deployed itself around the world before anyone official worked out what was happening. It’s far worse now we’re all connected and you can get a new app into millions of phones within hours of uploading it to an app store. If you think bitcoin’s causing a ruckus now, then — in the words of Bachman Turner Overdrive — you ain’t seen nothing yet.
Sleep well.
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John Law is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.