Sorry, US Government Accountability Office: Linden Dollar, Not Bitcoin, Is Most Widely Circulated Virtual Currency

My pal Andrew Leonard of Salon notes the latest U.S. Government Accountability Office's report to the Senate's Finance committee on the tax implications of virtual currencies, which not only mentions Second Life by name, but lays out an accurate scenario in which an SL content creator would probably have to pay US income taxes (if they're based in the US). Here's the key infographic from the report:

Read the full .pdf of the report right here. As Andrew notes, the real target of the report doesn't seem to be Second Life's Linden Dollars or World of Warcraft's gold coins (also mentioned), but Bitcoin:

The specter of the IRS casting a shadow over Bitcoin, which the GAO concludes is “the most widely circulated virtual currency available,” is the meat of the report. Just the fact that the U.S. government is starting to pay serious attention to the cryptocurrency surely has libertarians getting nervous.

Emphasis mine. Two things: The IRS has already recommended that people pay taxes on virtual currency earnings in Second Life, like four years ago. More key: This report is totally wrong about Bitcoin's circulation:

Last year, Bitcoin had all of an estimated 15-25,000 users. When I wrote that post, Bitcoin advocates complained that I was underestimating the users, but couldn't offer evidence to contradict it. And even if the total userbase is 10x that highest number, i.e. 250,000, there would still be less Bitcoin users than users of Linden Dollars, which are roughly 400,000-600,000.

Your tax dollars at work, my fellow Americans! Anyway, read Andrew's post in full here.

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Comments

[Kala Bijoux]

I think the second link to that article - in the last paragraph links to the wrong Salon article, unless the GAO is also conducting dating studies ;)

[Wagner James Au]

Haha, good catch, Kate, thanks. Now you know what Salon article I was reading after Andrew's. :)

[qarl]

Hammy - bit of advice: next time you feel the urge to contradict professional economists - just don't.

according to LL's most recent numbers, there are $40M linden dollars in circulation, vs. $1000M bitcoin.

[The Tier Is Too Damn High Party]

Well at least, on the flip side, you can now also write off your virtual business losses too.

[Wolf Baginski]

My understanding is that tax authorities generally have only taken an interest at the point of cashing out: the actual real-money payment from Linden Labs to the potential taxpayer. Which is at least simple. Things such as Tier would be a business expense anyway.

But I am not an accountant, nor do I play one on TV.

As for Bitcoin v. Linden Dollars, there are several different measures. Bitcoin has the lead in total monetary value (which has jumped up and down a lot over the last year), but the Linden Dollar has the lead in number of users.

There's a huge number of people making a few US dollars a month in Second Life. Are they worth bothering with? Bitcoin, with fewer people and more US Dollars, would be more significant, even without possible black-market use.

On the other hand, as Amazon's Kindle Direct Publishing reveals, a tax system can exploit a computer-based economy of mostly trivial users, and get money from the insignificant. To self-publish through KDP, as a non-American, just getting the necessary TaxID number would cost me more than I am ever likely to earn. (Median Kindle sales are tiny.)

[Wagner James Au]

"according to LL's most recent numbers, there are $40M linden dollars in circulation, vs. $1000M bitcoin."

But how many *users* of those Bitcoin in circulation are there, and how many of them use Bitcoin to buy goods and services? With citations, please.

[qarl]

yes James, if you want to use the magazine definition of "circulation" instead of the economic one, you have a point.

i'm going to guess that was not the intent of the GAO. but hey, maybe you're right, maybe they're all just a bunch of morons. you should write to them and let them know.