Anthony Pompliano, or Pomp, is at it again. Some of you may recall his odd claims about bitcoin adoption in Argentina, which I took apart here. Well, the following tweet wandered onto my twitter stream a couple of days ago. For more, here is the Wall Street Journal.So let's get this straight. The Ohio state government is not accepting bitcoin as payment for taxes. Rather, it is sponsoring a gateway that allows business owners to offload their bitcoins on the market in the moments prior to tax settlement. The actual tax obligation will be settled in actual dollars. Take a look at the FAQ at ohiocrypto.com. "At no point will the Treasurer’s office hold cryptocurrency. Payments made on OhioCrypto.com, through our third party cryptocurrency payment processor partner BitPay, are immediately
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For more, here is the Wall Street Journal.
So let's get this straight. The Ohio state government is not accepting bitcoin as payment for taxes. Rather, it is sponsoring a gateway that allows business owners to offload their bitcoins on the market in the moments prior to tax settlement. The actual tax obligation will be settled in actual dollars. Take a look at the FAQ at ohiocrypto.com.
"At no point will the Treasurer’s office hold cryptocurrency. Payments made on OhioCrypto.com, through our third party cryptocurrency payment processor partner BitPay, are immediately converted to USD before being deposited into a state account."
Here's an example of how this might work. Let's say an Ohio business owner owes $10,000 in taxes. By logging into ohiocrypto.com, she can sell $10,000 worth of bitcoins to a payments processor called BitPay to meet her tax bill. BitPay in turn sells those bitcoins for the requisite amount of dollars on a bitcoin exchange like Coinbase, and then forwards the $10,000 (in fiat) to the State of Ohio. Dollars, not bitcoins, are being accepted for taxes.
Ohio's announcement not a big deal, certainly not deserving of a WHOA. In addition to bitcoin, there are all sorts of assets we taxpayers can offload in the moments before settling our tax bill. After we've computed our tax bill, we can sell an appropriate amount of Tesla shares, then forward the dollar proceeds to the state. That's exactly what is happening with ohiocrypto.com, except an intermediary--BitPay--is being hired to expedite the last minute. We can do the same with gold, or silver, or property. Heck, using Pomp's definition we can even "pay our taxes" with an old IKEA sofa. Quickly sell the sofa at a low price on kijiji, deposit the cash, then settle the tax bill with an ACH payment to the government. The whole process won't take longer than 45 minutes.We don't even need to pay an intermediary like BitPay to expedite it.
Unfortunately, ohiocrypto.com is a big waste of taxpayer funds. Only a handful of businesses are ever going to use it. Say that our Ohio business owner has some dollars in her bank account as well as some bitcoin. She owes the state $10,000. According to ohiocrypto.com, the fee for going the Bitcoin route is 1%, in her case $100. But the cost of an ACH payment is free. Unless she has some sort of soft spot for paying with bitcoin, a quick and simple calculation means the she will never opt to use ohiocrypto.com.
I'm being generous with my example. I've assumed that our business owner already happens to have enough bitcoin on hand to send her payment to ohiocrypto.com. But if she doesn't, which is likely to be the case, then that only multiplies the unlikelihood of her ever going via Ohio's new bitcoin route. To fund her $10,000 payment to ohiocrypto.com, she'll first have to endure the hassle and expense of acquiring enough bitcoins ahead of time. Given that she must still endure BitPay's 1% fee to settle her taxes, why would she ever bother embark on such a costly chain of transactions?
Don't blame BitPay for the high fee. It charges a 1% fee because dealing in bitcoin is a nuisance. Not only must BitPay recoup the trading costs that it incurs by selling our business women's $10,000 worth of bitcoins (both commission and slippage), but in the time between accepting her submission and making the trade it must cope with bitcoin's volatility. BitPay is just trying to get by.
Why is Ohio going through with this project? Ohio Treasurer Josh Mandel, who is behind the effort, has this to say: "Around 2014, I developed an interest in crypto and now I consider myself a crypto enthusiast." Right. This project smells of fanboy-proving-devotion-to-bitcoin, not how-do-we-save-the-taxpayers-money. Perhaps Mandel is angling for a cushy job in the crypto sector when his term expires in January?
Back to Pomp. To end his tweet, Pomp proclaims that the "virus is spreading." Not at all. A well-designed payment option will literally drag people in because it is so incredibly useful. This ain't it, Pomp. Not only is Ohio not accepting bitcoins (no doubt they are too volatile), but it is unlikely that Ohio businesses will adopt ohiocrypto.com. Ten years into Satoshi Nakamoto's payments experiment, it still hasn't succeeded in pulling in mainstream payees and payors. Let's face it. Bitcoin is just not that great of a payments system.
...which isn't to say it hasn't been successful. What Nakamoto didn't realize at the time is that he wasn't creating decentralized cash. He was creating what would come to be one of the world's most popular decentralized financial games, akin to the lottery or poker. If you think about bitcoin this way, you'll see why it is just silly to set up payments gateways like ohiocrypto.com. If you were to offer someone the opportunity to buy $1 worth of goods with a $1 lottery ticket, they'd never take you up on the offer. Their lottery ticket is their salvation, their route to becoming a millionaire. The same goes for bitcoin. People don't want to waste bitcoins on buying stuff or making tax payments. No, their bitcoins are their ticket to riches.