Bitcoin Will Be Worthless Until You Can Pay Your Taxes With It
For the cryptocurrency to have real staying power, it’ll need help from the IRS.
When faced with the charge that cryptocurrencies have no inherent value, believers often counter that paper money doesn’t either. Such a defense is intuitive, but it’s wrong. Fiat currencies, as they’re known, are “backed” by the government that issues them. That means, in practice, that you need them to pay your taxes. As long as a country is functioning—that is, as long as it’s collecting taxes and spending the proceeds on such things as police, schools, and highways—its money has value.
Cryptocurrencies, on the other hand, have derived their worth from a steady stream of converts—or, from the point of view of skeptics, greater fools—who at the moment appear to be in short supply. To have staying power, Bitcoin will need governments to allow citizens to settle their tax bills with the new currency. That will be a hard sell, since national governments will be reluctant to collect taxes in a denomination they don’t control.