Q&A: The law of the kingdom regarding regulation of Bitcoin
The law of the kingdom regarding regulation of Bitcoin
Question
Have a good week, Rabbi,
Regarding taxes and regulation on Bitcoin, do you think the state is permitted to impose draconian taxes or strong restrictions on a virtual currency? And is there an obligation to obey such draconian restrictions? After all, Bitcoin is a currency that threatens the state's control over inflation, and therefore the state has an interest in limiting its use. The question is whether there is a halakhic obligation to comply with these restrictions, or whether in such a situation this is equivalent to the law of robbery.
Recently, the Tax Authority published that trading in Bitcoin is subject to capital gains tax and VAT, whereas taxation on any other currency such as the dollar or euro is zero. In order for a virtual currency to start functioning as a normal currency, it needs to be allowed regulation like a normal currency, and as long as that does not happen, the state is in effect delaying and restricting its use.
It is important to note that because holding Bitcoin is anonymous, the state has almost no tools to enforce taxation on Bitcoin.
Answer
I don’t understand this well enough. Seemingly, the state can define Bitcoin as a security rather than a currency and apply the rules for securities to it. I do not know whether there is an objective definition of the difference between a currency and a security.
As for the matter itself, despite my lack of knowledge, I have an intuition that what I do in the virtual world is my own business. The state cannot dictate that to me because it is extra-territorial. But this requires much more thorough clarification.
Discussion on Answer
Why would there be a problem with imposing income tax on foreign-currency trading? Or why would there be a problem with imposing income tax on trading in a particular currency? Same thing with income tax on Bitcoin (aside from the fact that Bitcoin really is not a currency and does not resemble a currency in any way—it is clear to me that for legal and ownership purposes it is considered movable property [although acts of acquisition cannot be performed on it physically]).
As for its abstractness, why should that be any different from the abstractness of the ‘money’ I have in the bank, or all kinds of other securities. Those who make a prozbul based on the balance in their checking account really think they do not have money in the bank account, but rather that the bank is their debtor. To me that seems completely far-fetched. And apparently the day is not far off when there will be no physical money at all (or almost none) in the form of coins and bills; and even they have no ‘real’ value, so it is not clear to me why they should be viewed differently from money in the bank.
In my view, deception is theft in every respect, since ownership of information or of something abstract is ownership in every respect.
Do the regular laws of ownership even apply to abstract assets like Bitcoin? Or perhaps it should be treated like ownership of a song or a book—that is, copyright ownership, which belongs more to the sphere of the laws of deception.