Two credible possibilities present themselves. What do you think: is the IRS intending to crush bitcoin or are they just mind bogglingly incompetent? My money is on the former, but I suppose history would suggest that we can’t rule out the latter entirely.

The recent IRS decision that bitcoin is property, not a legitimate currency, means that now every book, or coffee, or beer, or keyboard, anyone buys using bitcoin, they have to pay capital gains tax. Brilliant! The transactions costs with which bitcoin is thereby burdened is utterly debilitating for it as a currency. Which, call me a conspiracy nut if you like, I suspect was the intention. After all, we have gold as a template. It’s for this same reason, this same tax policy, which gold cannot compete with the U.S. dollar as a currency of choice. Which, I guess is good news for bitcoin promoters: the government is as scared of bitcoin as of gold – all in about half a decade. Now that’s progress.

That’s about the shape of things. In a world where governments suppress and make a mockery of free markets through their coercive enforcement of fiat currency, nothing less should have been expected.

On the positive side, this development certainly makes things more interesting for bitcoin. I’ve been hearing around calls by bitcoin promoters for campaigns to lobby for IRS policy change. Really? That seems awfully fanciful; a kind of willful ignorance of the necessity of national governments to eliminate currency competitors.

IF you’ve been paying any attention, you should already know the skinny on this. The only way for bitcoin to succeed is as a competitor to fiat currency. Furthermore, the only way to be such a competitor is going to be outside the blessings of nation states.

Is the trite mass media condemnation of bitcoin as currency of criminals destined to be come true? Depends what you mean by criminals.

If by „criminals“ you mean free people, voluntarily engaging in mutual exchange, trespassing upon the life or liberty of no one else. If that’s your definition of „criminal“: well, maybe.

But of course as anyone knows, who bothers to give the matter even a moment’s thought, among the real criminals, the organized gangs of human traffickers, extortionists and murderers, the currency of choice has always been the U.S. dollar. Oh, and thanks to this policy, the savings of those real criminals just increased in value compared to bitcoin. Typical stand-up job you boys down at the IRS!

No, this is all just about criminalizing people who want to choose their own currency. I would say „shame on you IRS“, but you can’t shame conscienceless thugs, can you? And it’s with just such people that we are dealing.

Wallace Eddington is a leading commentator on financial and monetary news and a regular contributor to the Bitcoin Profit Calculator site, where he’s gotten the scoop on the Mt. Gox fiasco and other hot bitcoin issues. See also his hard hitting piece on inflation at the Fiat Currency Review.