One of the key aspects of Bitcoin is that it is set in stone; the protocol does not change. Many have been misled to believe that Bitcoin would be a system of nodes voting on a protocol, which could not be further from the truth. Nodes do not vote to change the protocol. This is not written in the white paper at all. The section that is misrepresented concerns honest nodes voting on the ordering of transactions. There is no mechanism for users or the community to change the protocol. And such a mechanism was never designed or intended.
The nature of what is intended is for commercial systems to come to a distributed agreement or consensus as to the ordering of transactions. It allows a group of honest miners or nodes to consider the ordering of transactions and to quickly and efficiently act on dishonest behaviour such as double spending.
In the Bitcoin white paper, I wrote that miners could enforce rules. The precise wording is important. Enforcement is a police or regulatory function, and does not involve the creation of rules. It is also important in another way; Bitcoin is not a system based on one-person-one-vote, but rather a game-theoretic system to order transactions. As a system for democracy, Bitcoin is horrible. It is a system that allows control of the minority by the majority. It is a system that allows those with wealth to dictate to all others. Those who invest the most get to vote more.
As a solution for the honest ordering of transactions, where the higher investor has more to lose, and law enables a large investor to lose large amounts of money if they act dishonestly, Bitcoin works incredibly well. The issue is that some people tout Bitcoin as a solution for things that it is not designed to fix. Bitcoin is not a parliament. No blockchain-based proof-of-work system will be. Having said so, the scripting engine in Bitcoin allows other things to be built, that can enable voting. The ordering of votes could be important. Such is what Bitcoin delivers.
If Bitcoin is fixed, what does this mean for forks?
In a recent IRS release, a query was answered in relation to a concept added to protocols outside Bitcoin, such as BTC. One of the questions follows below:
A21. A hard fork occurs when a cryptocurrency undergoes a protocol change resulting in a permanent diversion from the legacy distributed ledger. This may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income.
Bitcoin is a system that acts within the law. The concept of hard forks or even soft forks is not one that is part of Bitcoin. It has been added to the airdrop called BTC, or, CoreCoin.
Core will tell you it doesn’t matter what I said as Satoshi. I’m sorry, but it does. Bitcoin Core (BTC) is the protocol change resulting in a permanent diversion from the legacy distributed ledger in any reasonable interpretation.
The most important word in the sentence is legacy. The legacy system is one that is analogous to the original. Bitcoin Core differs from my original vision of Bitcoin in every way. Core does not implement Simplified Payment Verification (SPV), and has failed to comprehend what SPV is. More importantly, BTC is not peer-to-peer in any reasonable manner. Some attempts have been made to implement a peer-to-peer version of exchange in BTC, such as with BIP-70, but plans are afoot to remove it altogether.
The simple fact is, the myriad protocol changes implemented by Core into BTC make it anything but the legacy. The implementation of BTC is widely misrepresented as the original. This will change. Those seeking to convert law and justice in order to create a system that promotes bucket shops and criminal activity are about to find how it ends. Bitcoin doesn’t avoid tax. Rather, systems such as taxation help stabilise Bitcoin. The IRS has made it clear that a fork from the original legacy protocol is income. Consequently, changes to the stable protocol that was set in stone form an airdrop that must be sold to pay for the income if you wish to keep the new airdrop coin. Unfortunately for many, the scenario is being falsely misconstrued. BSV is a ticker symbol. It may be a new ticker symbol, but it represents the legacy protocol. Here lies also the reason why we have laws against bucket shops and unregulated financial exchanges. The quasi criminal groups seek to act outside the law and regulation and promote the false idea that Bitcoin was ever developed for such a purpose.
Segregated Witness activated with several major changes to Bitcoin. Such included the implementation of TXID depreciations and the removal of the necessity of signatures and signed transactions. The entire nature of what they’re seeking is antithetical to a peer-to-peer system. Nodes are not the peers in Bitcoin; individuals are.
What does this mean for taxation?
Effectively, it means that any BTC you had in 2017 became an airdrop. The reason for it is that a ticker symbol is not an indicator of a legacy item. In August 2017, the original goal of Bitcoin as a peer-to-peer cash system, in the way that I had originally envisioned it, was kept. Today, it continues through the node implementation called the Bitcoin SV Node. The system has the ticker symbol on the bucket-shop exchanges of BSV. Do not let it fool you. The reason I say so is that in August 2017, as we fought to maintain the original legacy version of Bitcoin, a massive deception was run against uninformed investors. It was the false promotion and deceptive naming of the new airdrop coin as Bitcoin. Let me make it clear: BTC is not in any way close to the concept of what Bitcoin was designed to be. It is an airdrop, and is dissimilar from the legacy.
It is important to consider, it doesn’t matter what you’ve read; it matters what will end up in court. And what you will find is that legacy is strictly defined in courts. So, the question is: what is closer to the original? Unfortunately, there have been many changes implemented in what Core falsely calls Bitcoin and a deception against the market.
The system that is closest to the original, the system that embraces the white paper and does not change, that seeks to be set in stone is the one which is the legacy. The block size is not a part of it, which is something that can be dictated by nodes, miners and voted on based on economic incentives. Users have no say here, nor should they. Users of the system transmit transactions between each other in a peer-to-peer manner — using Bitcoin. You don’t need to like the US dollar to use it, and in time it won’t matter whether you like Bitcoin.
So, despite the really bad advice many people are giving, if you held your BTC following the creation of a new version of Bitcoin Core in August 2017, you will find that the ticker symbol is not an indicator of the legacy. The result will be a tax debt. Interestingly, due to the deception that people have used to promote BTC as if it was still Bitcoin and not the airdrop that it is, many people are going to find that they are in financial difficulties because of Core.
The entire value of any BTC that you maintained after August 2017 is income in the USA. It’s very simple: the legacy coin is the one that fought to maintain the original system, and it is not BTC.
So, let’s put it simply: if you had 100 BTC in August 2017, you received an airdrop income of around $4,500 per Bitcoin Core at the time. The original Bitcoin remains untaxed until you move it. But just owning and accepting those hundred BTC requires that you pay for the income from the $450,000 value that has been falsely attributed to the name Bitcoin and that uses the ticker symbol BTC. Remember, we are not talking about capital gains, it is income.
You may not want to believe what I say matters, and Core will try and tell you that what Satoshi said wouldn’t matter anymore. I’m not sorry to tell you, they’re wrong.