Bitcoin and accountability

03 Jan 2013

I am back from 29c3 and I had a blast!
I just wanted to clear something up that was mentioned during an interesting talk by Eleanor Saitta and Smári McCarthy called Long live the protocoletariat! (the unedited stream can be downloaded from here).

It was just a side note in the talk but it seems to be a common misconseption, they claimed that it was not possible to hold people accountable for taxation if they where using bitcoins, and thus it was something bad. A person from the audience later asked how this differ from cash then, and got the answer along the lines (cited from memory, so please correct me if I am wrong): “With cash the State can go the store and say ‘we think you earn this much but you have not taxated for all of that so now you owe us money until you prove us wrong’. Then the store accepting cash is forced to prove that they have not earned that much money etc”. The question was cut short so we never got an answer to why this could not be done for Bitcoin.

My initial reaction is that this process would be much much easier with bitcoins than with cash, make the process even simpler for the taxating authorities. I think that maybe the speakers does not think this is the case due to lack of understanding of the bitcoin protocol. I have tried to get in touch with the speakers over Twitter but have not gotten an answer yet. So I just thought I put my theory here to get a discussion going if someone else agrees with the speakers and care to explain why.
The process of tracking what a store has earned has become alot easier with the bitcoin protocol since each node in the network has ALL the traffic data, this means that all transactions between differnet public keys are public and can be examined by anyone, even third parties. So if a store has a bitcoin adress on their website it is easy to see exactly how much that public key has earned and what public keys the payment came from and where the coins have gone since then.
The store can prove ownership of the public key if it would be needed by signing something with the private key belonging to that address.

I do not see how bitcoins would make it any harder for the taxation authorites to do their job (compared to cash), it makes the job easier.

What are your thoughs on this?

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