Taxing bitcoin with sales tax is a “monumentally stupid” idea, according to digital currency expert Andreas Antonopoulos.
Earlier this year the Australian Tax Office released its guidance on bitcoin, announcing that it did not consider the digital currency to be money, or a foreign currency. The decision means the Goods and Service Tax (GST) applies twice to some bitcoin transactions – firstly on the goods and services being supplied and secondly on the ‘supply’ of bitcoins as payments.
“It’s as monumentally stupid as it would have been in 1994 to classify the internet as a fax machine service, and put it under the control of telecom companies,” Antonopoulos said at a Bitcoin Melbourne meetup on Monday.
“Or to classify it as a CB radio, a fancy CB radio and ask every user of the internet to pass a Morse code exam and have an operator’s licence.
“Those things didn’t happen at the time because regulators took a wait and see approach and decided to let the technology itself flourish for a while before trying to apply regulations.
“By doing regulation in that way, Australia’s not making bitcoin slow down, what they’re doing is making bitcoin move out.”
He says governments should take a similar approach to the rise of digital currency.
“(It’s) a good idea. Because the truth is very few people really understand what bitcoin is exactly, and how it works,” he says.
“And I don’t mean a few politicians; I mean very few people in general really really understand bitcoin.
“I would count myself as one of them. I understand parts of bitcoin, but I don’t think I can predict where this thing is going. I don’t think I can predict even a fraction of the applications that are likely to be built on bitcoin. None of us know. This is unchartered territory. The reason it’s unchartered territory is because nothing like bitcoin has ever happened before.
“The idea of a trusted decentralised network that allows any individual anywhere in the world to transmit value or establish ownership over digital networks and transmit that in a matter of seconds anywhere in the world, transparently, safely, almost instantaneously, and for less than a third of a penny.”
Antonopoulos speculates on what the development of digital currency could mean when combined with the rise of the internet of things. The blockchain, the technology behind bitcoin, which contains a database of all confirmed transactions, could be used to inform objects of their true owners, through smart contracts.
“For example, a car could use the blockchain to identify its owner,” he says.
“So instead of being presented with a physical key, you can present it with a key that’s a mobile wallet, for example, which proves ownership to your car every time you step inside, over Bluetooth with your mobile wallet. The interesting thing here is you could sell your car to someone, and transfer that total in a bitcoin transaction. We create a transaction that has two parts. One part has $10,000 and the other part of the transaction transfers the key token from my car (to the new owner).
“As soon as that transaction is recognised on the blockchain, the car can validate that transaction itself. The car says this transaction says I have a new owner, this transaction has proof of work behind it, and has been included in the block, therefore I believe it because it’s on the blockchain.
“I basically not just sold the title and transferred it, but I also transferred electronic control of the car.
“The internet of things, combined with the internet of money, you have this incredible potential for creating tokens that transfer ownership, for anything you can imagine. And that’s a really exciting thing.”
This story originally appeared on StartupSmart.