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Paypal Jumps Into Bitcoin With Both Feet
retroworks (652802) writes The BBC, the Wall Street Journal, Bloomberg, Forbes and several other business sites are buzzing with Paypal's incorporation of Bitcoin transactions. According to Wired, Paypal will be "the best thing ever to happen to Bitcoin." Paypal-owned Braintree not only brings 150 million active users in close contact with Bitcoin, it signals "mainstreaming" similar to cell phone app banking, perceived as experimental just a few years ago.
What does Paypal have to do with exposing Satoshi?
As far as the main story goes, I wouldn't call it "jumping in with both feet" when they're not actually even enabling it on Paypal. They're just putting it on Braintree. While that might look like a huge investment, it fits Paypal's hobby budget pretty well.
...and people were afraid MtGox was going to steal your money. Well, at least there is no doubt with PayPal.
Bitcoin is still cumbersome for everyday transactions, but it's great for settling balances internationally. Paypal probably wants to be known as the easy way to use Bitcoin for small and quick transactions (something that Coinbase has a headstart in), and capture the market before someone else comes up with a way to use Bitcoin directly.
I'm not exactly a guru of bitcoin, but I'll summarize as somebody who's tried it recently out of curiosity.
Getting into it is surprisingly difficult. Purchasing bitcoins right now (or before paypal maybe) is pretty hard. Near impossible to find a site that will let you buy with a credit card, because sellers get screwed over with chargebacks.
Mining bitcoin at this point isn't worth it. At all. A high end GPU working 24/7 would get you $10 per month while costing more in power. At this point mining is only profitable to people willing spend a lot of money on very specialized hardware.
Once you have some, it's easy enough to use. But it's an unregulated system, so there is some danger and no safety net. If you're ever going to put serious money into it, be very, very careful. Danger comes both from things like getting hacked, and from that the value fluctuates without any central control.
Tax-wise it seems tricky. It seems (you're nuts if you take advice from a random stranger on this) that it's considered an asset, and if bitcoin gains in value you have to pay tax on that. Up to you to figure out how to keep track of it and do it properly.
As far as working, it does. You can buy stuff with it fine, and the USD/BTC exchange rate is stable enough. If you have cash to spare it might be worth to get some, just in case it increases a lot in value (I doubt paypal would get into it without consulting a bunch of lawyers), but you'd be nuts to put your life savings into it.
Awesome! All the user friendliness of bitcoin combined with the great customer support of Paypal.
Bitcoin itself doesn't have any known security flaws. One usability issue is that you can't instantly guarantee a transfer of coins -- nobody is going to be buying coffee with it directly.
It's not so much about problems with Bitcoin, but with Bitcoin "banks" that turned out to be incredibly insecure. The banks were created to exchange paper money for Bitcoins, and to facilitate instant transfers. They just happen to be incredibly bad at it, and because there is no regulation like an actual bank, are pretty much free to be as bad as they want.
Paypal is actually a good fit, as Bitcoin is essentially a decentralized Paypal. Paypal is also pretty well known for the same evils as they aren't regulated like an actual bank either, but they've got a lot of infrastructure and experience that could make them a far better Bitcoin bank than what's available right now.
The entire security scheme of bitcoin is actually based on the exact opposite:
Not only is it not anonymous, it's public knowledge *BY DESIGN*.
Every single bitcoin transaction (or any other alt-coin for that matter) is publicly broadcast on the network.
Every single full node on the network is always aware of the transaction.
The point is that, thanks to this broadcast, every single bitcoin user can independently verify the transactions and (based on these checks) together all the node can agree who has how many coins left.
Unlike traditional banking (or a web payment like paypal, for exemple), there is no central authority that is the official referrer about account balances (with banks: the bank is the official authority about the content of its users' acounts. With webpayment: paypal is the official authority about the content of paypal accounts, etc. BUT with bitcoin, everyone can control the history of transactions by looking up the blockchain, there is no official central "Bitcoin, inc." that is in charge).
Due to this design (security by public broadcast) that means that no transaction is secret.
At best, it could be called "pseudonymous": the transaction are hidden behind public key hashes. (the civil/legal identity of parties of a transaction aren't directly written into the block chain. Instead the public key hashes are written).
so there's a low risk that an identity is immediately leaked, just by casual look of the blockchain.
It at least takes a conscious effort to track public keys accros the blockchain and follow the money train until an actual identity can be matched.
But that's completely possible and well within the capabilities of governments.
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
Yes, but:
You buy 0.1 BTC at $500/BTC. Later you buy 0.2 BTC at $550/BTC. Later you buy 0.2 BTC at $560/BTC. Your client will say you have 0.5 BTC, but internally there actually are 3 separate accounts that it'll handle transparently. If you pay 0.3 BTC to somebody, it'll have to issue payments from at least two of them.
So, you wait a month, now it's $570/BTC, and sell 0.05 BTC.
My understanding is that it's perfectly possible that your client will decide to source bitcoins from all 3 accounts in some random quantities that add to 0.05. So how much have you gained? Hard to tell, since the standard client won't directly tell you what accounts it used, and doesn't know how much you bought each part of your balance for, it doesn't do banking at all.
Joking aside:
at least bitcoin has on purpose been designed in such a way to make it impossible for a central authority to freeze an account, because on purpose there are no central authorities.
So that's a relatively small advantage over paypal.
(although, in both case, these system should be used EXCLUSIVELY for payments only. You should only use them to push money around, you should NOT use them to store money. Neither Paypal, nor the bitcoin network are banks. So if you got a big amount of money frozen, it's only your own fault).
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
It's risky of course, but it has its upsides. Eg, here's an ID:
1GFRGRC37baNYgL6JbwrbXft2XjDHskFwf
If you want to buy me a beer, it's easy. No need to exchange personal information, mess with bank transfers, or anything of the sort. I can accept payments without even making any preparation -- install the client, generate the ID, figure out how to get the money later. That's the sort of thing where I think it does great -- allowing the near equivalent of just buying somebody a beer in person, but through the internet.
For large amounts, yes, you better be careful, and be willing to take the risk.
Like most assets, don't you (in the US) just pay tax on it when you sell it and realize a profit? Just like stock? That doesn't seem tricky at all.
If I understand things correctly, the tricky part is that you realize a taxable gain when you spend your bitcoins. Not merely when you sell them. Buy a coffee, remember to calculate and report your gain.
A recent IRS advisory said virtual currency is to be treated as an assent not a currency. So lets say you receive some bitcoins. At some future date you spend these bitcoins. Since these bitcoins are an asset you have to account for their gain or loss in value for the days you held them an declare a loss or gain on your taxes. In short spending bitcoins has the paperwork overhead of selling stocks, its not like spending dollars at all.
Ex. You buy one coin at $500 and another at $600. Coins are priced at $800 at the time of a future purchase. You buy something for $1,200, 1.5 coins. Using FIFO (first in first out) your basis for the outgoing 1.5 coins is $500 + $300 = $800, and the basis for the returning 0.5 coins is still $300. You experienced a gain of $400 on the 1.5 coins at the time of the sale and that $400 would seem to be taxable income.
Using LIFO (last in first out) your basis for the 1.5 outgoing is $600 + $250 = $850. You experienced a gain of $350.
Apologies if I botched the math, hopefully the point gets across.
A possible advantage of LIFO is that you are spending "newer" coins first. Letting your "older" coins continue to age. If you hold these "older" coins for a year or more then they may have an advantage of being taxed at a lower rate when spent or sold.
And of course you can use any scheme to determine which coins are being used in a transaction, you are not limited to LIFO/FIFO. They are just convenient examples.
You buy 10 shares GOOG at $500. Later you buy 20 share of GOOGs at $550. Later you buy 20 share of GOOG at $560.
If you pay 30 shares to somebody
So, you wait a month, now GOOG is at $570, and you sell 5 shares.
Your cost base is ( $500 * 10 + $550 * 20 + $560 * 20) / 50 = 544
When you paid someone that 30 shares, the price at that instant was $560, so you made a capital gain of (560-544)*30 = $480
When you sold 5 shares at $570, you made a capital gain of (570-544)*30 = $130
I really don't see what's so confusing about this.
Bitcoin use the same cryptography that SSL, certificate and most every encryption system (Private & Public key). If you managed to crack this you got a lot more than just bitcoin, you got access to almost everything on the planet. The data inside the blockchain are not encrypted at all, the encryption is only used to prove you're the ownership of an address (so you can transfer the Bitcoin to another).
FIFO or LIFO is to simple when dealing with taxable transactions. The sell priority goes Losses > Long-term gains > Short-term gains.
Its not really that simple either. For example LIFO (last in first out) has the advantage that it helps accumulate long term gains. So applying LIFO within the current short term gains helps a particular coin age and move from the short term to long term. Also one might want to be selective about when long term gains are spent. Again, LIFO is useful in this respect in that it prefers to spend short term.
In short LIFO may be a good default policy, maximizing and preserving the long term gains. A policy that can be overridden on that special day when one wants to cash in the long term gains.
Read the article. PayPal is not accepting Bitcoin. Braintree, which is owned by PayPal, sells a shopping cart checkout system which accepts various forms of payment. They're adding Bitcoin for merchants that want it. PayPal is not itself accepting Bitcoin, nor is eBay.
A number of shopping cart systems already offer Bitcoin as a payment method. Braintree is just catching up.
And this is different than stocks how?
I don't have to worry about capital gains on my stock portfolio when I buy a sandwich.