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What I think is important about cryptographic assets isn't exactly in the economic properties they have now, but in the potential for reforming governance.

That is, if people are successfully using a crypto asset for their business, AND they are able to use a power and network infrastructure for this that is difficult enough(not perfect) that government authorities aren't successfully applying their "monopoly on force," then government is now pushed into competition with the crypto-anarchic principles and must find a way to become a "better product," enough so that people will prefer government money over crypto.

How will government come up with a product that is better - in a positive way - than a crypto asset? Government has the authority to issue new centralized currencies. This means that if it truly embraced computing - which it never has to date, having never faced a challenge of that nature - it could program a form of currency that is "smart" and bakes in the policy decisions and taxation currently executed by bureaucracy. It would be made attractive to citizens by building in basic income, as well as the service provisions. The result would be more powerful and more efficient than anything we currently know as government. Cash would still exist as a backup, but the government could discourage its use except in emergency situations.

"why do the states need to monitor financial transactions?"

I hate the "terrorism" BS as much as you, but money laundering and large-scale scamming ( https://news.ycombinator.com/item?id=6972139 ) are actual threats.

> but money laundering and large-scale scamming are actual threats.

Yes, banks launder drug money for cartels. Without the state, who would slap their wrists?

I guess you're trying to be snarky or clever here, but I don't get your point. Maybe you can walk over to your local BofA branch, slap someone's wrist, and feel good about yourself?

HSBC knowingly laundered billions for violent drug cartels, and were fined a mere 5 weeks of revenue. None of the executives involved in this went to jail.

Meanwhile, people's lives are ruined for selling or even possessing small amounts of harmless drugs.

http://www.bloomberg.com/news/2013-07-02/hsbc-judge-approves...

I wonder: with the power of the NSA and the right laws ,maybe it's really easier to track and control bitcoin transactions than control international banks?

That's actually a legitimate concern, which is why people are working on CoinJoin [0]. ZeroCoin and other cryptographic solutions are very interesting but will not be practical for a while due to blockchain bloat and extremely high verification time.

[0] - https://bitcointalk.org/index.php?topic=279249.0

like the kind HSBC did in plain sight for over a decade with essentially zero repercussions (the fine was barely enough to break out of 'cost of doing business' territory, so please don't bother with the largest settlement in history uselessness)?

but yeah...bitcoin is bad! cuz...bad people!

This may be the end result, but it seems to me like the more direct (but not necessarily simple) solution to this problem is to close up those loopholes for the rich. The government does need to collect taxes after all, and if nobody is paying then we've created another problem.

If r/bitcoin could speak, it would collectively say: "All tax is theft. It is our job to stop being stolen from. All money belongs to me for the benefit of myself. I am all that matters in society."

I will not comment on how much value this kind of snark is not adding to the conversation, but note that fairer forms of tax e.g. property taxes exist and don't require state to track financial transactions.

The underlying point is: you can't have a rational discussion with people who live out in fantasy cuckoo land.

Nor can one have a rational discussion with people declining to have one in favor of dismissing a side out of hand.

I think some people look at it as form of nonviolent protest, and I'm glad they've found a peaceful option. In fact, I also appreciate that more of society is becoming engaged in a discussion that used to be strictly the purview of economists. Ever try starting a conversation at a pub about how to imbue a new reserve currency with value? Unless you happen upon someone from the IMF, you'd probably be out of luck.

I wish someone would tell me what all these loopholes are so I could stop paying taxes too...

The rich are not exempt from tax monitoring and transaction monitoring. Actually, a lot of monitoring targets exclusively large accounts and transactions.

I know I personally avoid monitoring by storing my assets in trusts with formal equity in foreign (I'm in Canada) LLC's that manage said assets. Myself, I own no property, I'm legally homeless [1], and one of my LLC's gets a tax credit for owning a homeless shelter. I strongly argue to anyone around me that If you owe taxes, you should pay them. I don't tell them that you can avoid owing taxes, and it's not considered tax evasion.

Bitcoin makes a lot of this even more complex, and as more people start using/trusting it for larger transactions, it'll be quite difficult to know who actually owns what. I might not even need half my loopholes anymore.

1. just like this guy: http://blogs.wsj.com/wealth/2008/05/19/the-homeless-billiona...

As far as tax monitoring goes, I'm not sure that account and transaction monitoring is helpful. If you have a stated income near the median, yet own a palace, a Porsche and a Lamborghini for the wife, a yacht &c something just has to be off. Apparently you can see the phenomenon in at work in Greece. If you have undeclared income, at some point the funds have to enter the regular economy, and from then on it's just old-fashioned police work.

Just how you do the actual enforcement, that's a different issue, especially if corruption is entrenched already.

Not necessarily.

The funds from your undeclared income could be going to other people' undeclared incomes.

I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange.

My friend, you fall under this critique. While the middle-class can make transactions if it chooses using Bitcoin, it has to deal with its huge volatility - a 'store of value' problem. You cannot have just a 'medium of exchange', like the song "You can't have one, without the other".

I believe that unmanaged (fire-and-forget type) store of value is a fiction to begin with. Most if not all thing depreciate in time for wear and tear or plain obsolence. Managed assets such as a business you're controlling or your own set of talents and skills can appreciate over time. Scarce assets such as gold or real estate appreciate, however not due to their inherent value, but only due to the "greater fool" dynamic; it's unstable, and unpredictably so.

So what we have is governemnt creating an illusion of unmanaged store of value through financial engineering. It's is somewhat artificial, so I suspect it's not stable either. Consider that financial bubbles are caused by excess of capital relative to production needs, and the glut of capital was accumulated strictly due to people trying to preserve value of their savings. There is a mismatch between amount of value people are trying to preserve and cumulative size of viable investment opportunities.

The Krugman's problem is, that he is used to certain definition of "money", and then when something else comes, he compares it to that definition. For example, the original paper from Satoshi didn't mention the term "store of value". Given the ambiguity of the word "reliable", we can say nowadays that bitcoin is not "reliable store of value". But who said it is? It must not necessarily have the same attributes as fiat money does.

Anyway, I think the root of the problem with those mainstream journalists is that they do not distinguish between Bitcoin as an unit of account (like, I have 0.5 BTC, or this item cost 0.1 BTC), and a Bitcoin as a technology (peer-to-peer trustless network with all the wonderful attributes it has). Their mind mangles those two things into one, and they then see Bitcoins as only some virtual numbers, which are moving from one wallet to another. Starting from this perspective, they can't conclude anything useful, and can't see the intrinsic value of Bitcoin the technology.

The state monitors financial transactions primarily for tax purposes. I'm guessing a very substantial amount of data they collect is around payroll and sales.

The state monitors transactions first for illegal activity under mechanisms like the Bank Secrecy Act (BSA). Any payments or financial services company follow Know Your Customer standards including running OFAC checks to ensure that the recipient is not a known terrorist.

Monitoring for taxes comes second.

BSA: http://en.wikipedia.org/wiki/Bank_secrecy_act

"Monitors" is a bit strong, unless you're talking about actual states. NY/NYC will go after you fiercely if you are wealthy and try to get out of city taxes.

All federal tax information for employees is self-reported by employers. There isn't a huge monitoring infrastructure in place—just required-by-law reporting of what people get paid. Getting paid with not-dollars doesn't change the system.

So why don't they just invoice me in April? I shouldn't have to be bothered with tracking things on my end as well, right?

Lobbying by the tax accountant and tax software industry: http://www.propublica.org/article/how-the-maker-of-turbotax-...

To be fair, there's also a strong contingent within the U.S. political right that believes paying taxes should be made as explicit (and, potentially, annoying) as possible, lest the citizenry fail to appreciate how much of their income is being extracted to fund the government. This kind of thinking has popped up on the left from time to time as well, around things like military spending.

The solution there is just to get a receipt showing the breakdown. W-2's are kinda that already at a very coarse-grained scale.

We don't have any system in place to show military spending breakdowns or get people upset about it or give people who are upset about it a way to influence changes shrinking it in the future.

The fact that wealthy people use tax loopholes is a bad thing. Making in possible for everybody to use tax loopholes is a really horrible idea.

As far as making it illegal, I wonder if the blockchain gets to a certain size where it's easy to detect and delete, if that's not already the case. At that point I think the blockchain morphs into something harder to detect--maybe that technology already exists? I think the coin with the best developers will survive--maybe that's Bitcoin, maybe not.

I'm going with the blockchain that has the most transactions is the most valuable because of the meta data you can glean from it. That's currently Bitcoin.