 The tax season is over, but it's interesting to note that the IRS recently released some guidance talking about how it plans to treat the taxation of transactions that take place using Bitcoin or other cryptocurrencies and electronic or digital media of exchange. Now, in this guidance, the IRS has basically announced that it intends to treat Bitcoin as property, not as currency, and hence there'll be capital gains type treatment accorded to Bitcoin transactions. So absent some sort of intervention by Congress, this is sort of the rule or the tax law as it pertains to cryptocurrencies at the moment. Now, this raises a whole host of interesting economics questions in the areas of barter and exchange and currency versus other forms of property. Now, in your typical barter transaction, of course, no money is exchanged. Now, take the case of the farmer who produces a bushel of wheat and takes it down the road to another farmer who has mules for sale and exchange is the bushel of wheat for a mule because the farmer grows the wheat would rather have a mule than the additional bushel of wheat for his own personal consumption. Now, this is a pure barter transaction. It takes place without any money, yet both parties to the exchange feel like they're better off afterwards or we can assume sort of a priori that they wouldn't have entered into the transaction. Now, this is an awfully tough way to run an economy because of the concept of a lack of coincidence of wants. In other words, if the only farmer nearby doesn't have mules but has nails or gunpowder and that's something you don't particularly need, you have a lot of costs involved in trying to find someone who's got something to exchange with you. So of course, money arose from a pure market need and over the ages it developed and different kinds of money arose, oftentimes silver or gold. But nonetheless, money solves this problem of lack of coincidence of wants and gives us a way to specialize and conduct business. Now, when it comes to the tax angle or the IRS perspective, it's interesting to note that the treatment of a barter transaction where one farmer gives his a bushel of wheat for the other farmer's mule is treated the same as though this transaction had been conducted in cash. In other words, if the wheat growing farmer takes his wheat to an exchange and gets US dollars in cash for that wheat, he pays income tax on that cash, then he takes it and buys the mule with it. Now, the cash he uses to buy the mule may or may not be deductible as a business expense but nonetheless, all of this is firmly a taxable transaction from the perspective of the IRS. Well, with barter it's no different. There are specific rules in the tax code and in the tax regulations that apply to barter transactions and so this idea that when the farmer trades wheat for a mule, he's better off, the IRS says, well, that's an accession to wealth and hence you have to pay an income tax on that. And this comes from a very famous tax case in the 1950s known as the Glenshaw glass case. So the point here is that we cannot depend on technology somehow or different forms of trade to get us out of taxes because conceptually the idea of what constitutes taxable income in our society and frankly in most societies with most tax authorities around the world is any sort of increase in your personal wealth. So when we go back to the Bitcoin or cryptocurrency issues, this new IRS guidance creates an incredible burden in terms of compliance costs. Bitcoin or other cryptocurrencies will now be treated in effect like a capital good. So this means just like with stock, you have to track your tax basis. So if you or I go out and buy stock in Apple and we all wish we'd bought more, let's say we bought a certain block of stock in 2000, another block in 2005 and another block last year in 2013, well, it's all had different prices. We track our price and then when we sell the stock, we pay capital gains tax or have a capital loss based on the price difference between what we paid for it and what we later sell it for. Well, now the IRS is basically saying that Bitcoin and other currencies are going to be digital currencies are going to be treated in much the same manner. So that means that every time you acquire one of these, you're going to have to track your tax basis and every time you purchase something, in effect, that could be in the IRS perspective, a taxable event. And if that comes down to using crypto currencies for everyday transactions, buying gasoline, buying coffee, buying groceries, you don't use your app. You don't exchange Apple stock for groceries, but if Bitcoin is treated the same way, for example, it's going to create a tremendous compliance burden. So in conclusion, I would just say that as Austrians and as libertarians, we tend to encourage and champion any attempts to rest control of money away from governments, from politicians, from central bankers. We want to see money as a market commodity and a market phenomenon that has nothing to do with the state. But this recent IRS guidance is just an example. It's really just the tip of the iceberg of how those same governments and central bankers and political class see things like Bitcoin. So we all need to understand that technology alone can't save us from the state and its taxing. The only thing that can save us is the actual elimination of those taxing authorities and better ideas among the population about the proper role of government.