The tax wonks are looking closely at this Bitcoin thing. Here’s the latest example to cross my screen: How Bitcoin Challenges the Federal Income Tax System. Here’s an excerpt:
Our tax reporting and collection system is built, among others, on the assumptions that (ⅰ) parties to a taxable transaction know each other (or can reasonably obtain information about one another and send information to each other), and (ⅱ) that there are some uniquely situated taxpayers (such as banks) that regularly collect financial information about other taxpayers in a centralized manner. The operation of Bitcoin defeats both assumptions. Parties to Bitcoin transactions do not necessarily know each other, and the operation of Bitcoin is decentralized. Thus, important assumptions that stand in the basis of our traditional collection mechanisms collapse.
Bitcoin is going through some significant growing pains at the present. A major hub in the economy that grew around the currency, Mt. Gox, has shut down amid rumors that it had lost hundreds of thousands of bitcoins that had been stored with or exchanged through its service.
It seems that making the algorithms around the currency itself impregnable was only the first part of the challenge. The next step will be developing tools of exchange and commerce that are up to the challenge of dealing with the new currency in a reliable and trustworthy manner while being accessible to the ordinary person.