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  • Stephan Livera 1:15 PM on August 27, 2014 Permalink | Reply
    Tags: intellectual monopoly, ,   

    “But without Intellectual Property laws, how will content creators get paid?” 

    This is a common concern that comes up in the Intellectual Property debate. Though some current means of getting paid for content creation rely on the state’s enforcement of IP laws, this is not the only way content creators can be paid:

    • Freemium model – A cut down version of the service is available free, and if the user wants more advanced features, they pay for the premium service
    • Crowdfunding / Assurance contract model e.g. Kickstarter – People enter into agreements to only fund the project if enough other people commit to funding it
    • Voluntarily choosing to pay for content to support the creator

    For a very large list, see Stephan Kinsella’s Examples of Ways Content Creators Can Profit Without Intellectual Property.

    The Creator-Endorsed Mark as an Alternative to Copyright by Stephan Kinsella runs through specific possibilities:

    Inventors invent to be first to market. Academics publish articles or books to enhance their reputation and increase their employability. Singers or musicians might give away recorded albums for free to gin up concert sales. Pharmaceutical companies, freed of enormous tax and regulatory (including the FDA) burdens would have much less need of a patent monopoly to help make up for these costs; and could profit from being first to market and reputation (notice that Tylenol still sells for about twice the price of the generics right next to it on the shelf?). Perfume and fashion thrive without IP. Open source software is plugging along. And so on. What about movies, or novels for profit? Various ideas have cropped up. Perhaps the author releases his first book for free to get a fan base; then withholds the sequel until a certain number of fans pledge to pay for the book. As for movies, perhaps they are released first in DRM format to elegant movie houses, before being released on DVD or digitally. (In Against Intellectual Property, n.67, I related the example of how drive in movie theaters, “faced with the prospect of free riders peering over the walls, installed—at considerable expense—individual speakers for each car, thus rendering the publicly available visual part of the movie of little interest.”) It is basically the task of entrepreneurship to figure out how to make a profit off of a given service, given the realities of costs of exclusion, ease of cheap substitutes, and so on.

    At some level, this kind of question is missing the real problem in today’s age of the internet. With so many content creators out there, and the cost of producing content becoming so much cheaper – the real problem nowadays is avoiding obscurity.

    Cory Doctorow on Giving Away Free E-Books and the Morality of “Copying”

    Why do you give away your books?
    Giving away ebooks gives me artistic, moral and commercial satisfaction. The commercial question is the one that comes up most often: how can you give away free ebooks and still make money?

    For me — for pretty much every writer — the big problem isn’t piracy, it’s obscurity (thanks to Tim O’Reilly for this great aphorism). Of all the people who failed to buy this book today, the majority did so because they never heard of it, not because someone gave them a free copy. Mega-hit best-sellers in science fiction sell half a million copies — in a world where 175,000 attend the San Diego Comic Con alone, you’ve got to figure that most of the people who “like science fiction” (and related geeky stuff like comics, games, Linux, and so on) just don’t really buy books. I’m more interested in getting more of that wider audience into the tent than making sure that everyone who’s in the tent bought a ticket to be there.

    Or see this part:

    So ebooks sell print books. Every writer I’ve heard of who’s tried giving away ebooks to promote paper books has come back to do it again. That’s the commercial case for doing free ebooks.

    So more accurately, in this day and age: First, worry about rising out of obscurity and then think about how to monetise your content.

  • Stephan Livera 1:09 PM on August 26, 2014 Permalink | Reply

    Intellectual Monopoly laws distort research and development 

    Intellectual Property government laws distort the types of research and development being done.

    Imagine you were living in a society which lauded you and gave you extra rights and socialised/outsourced protection of your ‘property right’ for doing one type of innovation over another. We would rightly say, at the margin, you are more incentivised to invest into innovations that will be protected through the socialised mechanism of the state. You would marginally stand to benefit more from this innovation than from other innovations.

    But this wouldn’t necessarily be in line with what society preferred, or what would benefit society more. Consider the alternate hypothetical world with no government IP laws – you would invest your research funding where you genuinely saw the best profit opportunity.

    This is one of the points made by Stephan Kinsella in his recent podcast with Tom Woods: Libertarianism and Intellectual Property.

  • Stephan Livera 12:36 PM on August 25, 2014 Permalink | Reply
    Tags: , , public choice economics,   

    Imagination isn't enough 

    Mike Munger makes a great point in Unicorn Governance:

    Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least 300 years

    One of the biggest barriers I face when discussing libertarianism is that people just imagine whatever government they want to – rather than realising that government in the real world with real people is different to ‘unicorn’ government.

    Here’s an interview with Richard Timberlake, monetary economist. Here he is responding to the question of whether rules based fiat money could outperform a gold standard:

    The key word in your question is "could." But the policymakers won’t allow it to. The reason they won’t is found in public choice economics, which argues that the policymakers, like all other human beings, have a stronger motive to further their own self-interest than to promote sound public policy

    So if you’re making an argument using terms like "public interest" or "common good", public choice economics is one way of rationally analysing and responding to this claim.

    Public choice theory analyses the individuals who form the government e.g. politicians, bureaucrats, and voters, pointing out that they themselves are largely driven by self-interest. So in a way, no government is truly only concerned with ‘the public good’.

    Is this argument alone enough to suggest that government is never effective on net? No, but that’s not the case being made here. The point here is: be realistic when you make the case. Don’t make a case for intervention based on ‘unicorn government’, make the case based on real world government. This means it has to be something that could be legislated by real world politicians, enacted by real world bureaucrats and/or voted for by real world voters. Please consider this next time you agitate for more government programs and policies.

    Individuals inside the government are not cut from a different cloth to individuals outside the government.

    • Bullion Baron 12:55 PM on August 25, 2014 Permalink | Reply

      I think that libertarians fighting for smaller government need to be mindful of the same limitations though (government in the real world with real people is different to ‘unicorn’ government). Libertarians would like to see a greater emphasis on individual freedoms (so would I), but I see many calling for government to make changes that simply wouldn’t be supported by the majority of voters, so are they chasing the same unicorn?


      • Stephan Livera 10:26 PM on August 25, 2014 Permalink | Reply

        Great point BB, I agree with your general idea. However, I’d differ slightly – I don’t think political action by libertarians will be very effective in literally getting people to ‘vote more libertarian’. Instead I think it really just serves a more educational purpose to the general public, to show that there are other ways i.e. don’t fall into the trap of the labor vs liberal false dichotomy.

        I’m a little skeptical about political action in general (though I admit it has some value), I think the change will come about through other means:

        • bitcoin as a superior money outcompeting fiat money
        • agorism (of which bitcoin will obv play an important role)
        • seasteading
        • charter cities
        • general education and talking to people e.g. blogging, YouTube videos, in person meetups

        That said, I think there is value in all of these methods, and libertarians should generally pursue whichever method they feel they are most skilled or effective at.


  • Stephan Livera 10:12 PM on August 24, 2014 Permalink | Reply
    Tags: , , ,   

    Will Agorism go mainstream? 


    Agorism is the idea that some libertarians pursue as a means of attempting to bring about a genuine free market by conducting transactions outside the purview of the state. Bitcoin will feature prominently in this movement, given that it is a stateless decentralised currency and it’s really just superior money anyway. I thought I’d link to a few examples where it seems that agorist notions are becoming more commonplace.

    First example: Illegal taxi service Uber operating in Adelaide, launched by Power’s Travis Boak and Crows’ Nathan van Berlo,

    Uber was launched on Friday with the Power’s Travis Boak and the Crows’ Nathan van Berlo part of the promotional campaign.

    This is great to see, because Uber are disrupting the taxi cartel arrangements currently in place via the state. It’s also excellent to see captains of Adelaide’s two AFL teams endorsing the service. More and more people are unknowingly mainstreaming the idea that free markets and voluntary trade are superior to centralised monopoly control and racketeering.

    with acting Transport Minister Tom Koutsantonis warning passengers that they will use the service at their own risk.

    You’re correct Mr Koutsantonis, they will use the service at their own risk – just like they choose to ride in their friend’s cars ‘at their own risk’, or ride in a normal taxi company ‘at their own risk’.

    “Uber has not been approved to operate in SA,” Mr Koutsantonis said.

    Sometimes it just seems like things are banned as a ‘default’ and our rulers must first deign to permit us to undertake free market transactions.

    ‘‘If these conditions are not met, then any operator using Uber or any other unapproved smartphone app would be in breach of Regulation 9 of the Passenger Transport Regulations 2009, which can carry a severe financial penalty.”

    Market regulation is a superior check on companies versus government regulation. Why is this? Because companies have to take precautions to protect their reputation – customers have the ability to opt out with their money. Such a parallel scenario does not exist with the government, as we are all captive to it anyway. See Michael Munger on the Sharing Economy episode on EconTalk podcast.

    He (Taxi Council SA president Jim Triantafyllou) said: ‘‘Ask yourself, would you let your family or yourself get into a car with a stranger who has not been checked, may not be insured and the vehicle might be unroadworthy? Would you give your mobile phone number to a strange driver that you have not yet met?’’

    Standard fear mongering tactic to dissuade customers who want to use services other than his state government protected taxi racket. You know, they used to think that people wouldn’t buy anything online – but the market came up with ways to provide safer exchange mechanisms and provide trust/comfort to customers e.g. escrow and reputation systems. Now, billions of dollars are spent online and through eBay. How long will it be until use of services like UberX goes mainstream?

    Second example: Darknet drug markets kept alive by great customer service, Arstechnica

    First of all, it is incredible that this sort of thing is now being reported on by Arstechnica – and with the focus of the article too. It really does seem that public opinion is shifting to permit a more ‘free market’ attitude. Look at the way the article describes reputation mechanisms on the site:

    Although all the vendors use pseudonyms for fairly obvious reasons, they keep the same fake name to build up a reputation. They work hard to build a positive, consistent (but fake) name for themselves because it is the only way to secure custom. That’s why they are all so unflinchingly polite.

    Because they live on the fringes, these sites are remarkably innovative. The currency of choice here is Bitcoin, the digital cryptocurrency, which can be exchanged easily enough for real world currency… the community developed an even more secure payment method called “multi-sig escrow,”

    This does precisely what economics textbooks predict: it creates a better deal for consumers. The most surprising statistics about the Silk Road 2.0 is not the volumes of available drugs (although that is truly staggering); it’s the satisfaction scores. When I analysed 120,000 customer reviews made on the site, over 95 percent scored 5/5.

    These marketplaces are transforming the dirty and dangerous business of buying drugs in dark alleyways into a simple transaction between empowered consumers and responsive vendors.

    Oh what’s this? These online marketplaces are actually reducing violent outcomes? That happens to be exactly what libertarians have been predicting and talking about. It’s time people realised that state prohibition is ineffective and results in unnecessarily locking people away, and ruining their lives because they took drugs. I don’t take drugs as a personal choice, but I wouldn’t be so arrogant to believe that I can own other people and forcibly throw them in jail for consuming a drug. So how would it make any sense for me to condone the government forcibly locking them away? The government does not have political authority and should be subject to the same moral rules that we as individuals are.

    I’m also optimistic about Open Bazaar, which will be launching soon: A decentralised marketplace for instantly trading with anyone using bitcoin.

    OpenBazaar is an open source project to create a decentralized network for commerce online—using Bitcoin—that has no fees and cannot be censored.

    Part of me is hopeful that this will be the ‘Bit Torrent to Silk Road’s Napster’ i.e. the decentralised version that really takes off after the centralised version got shut down. Shifting attitudes towards agorism are a great thing to see. Hopefully, we will see more people conducting peaceful, non-violent transactions as opposed to the state’s monopoly law and unjustified coercion.

  • Stephan Livera 10:25 AM on August 24, 2014 Permalink | Reply
    Tags: , , regression theorem   

    Bitcoin does not violate the Regression Principle from Austrian Economics 

    See What Does Bitcoin Mean For Austrian Money Theory? at Mises Canada, also published at Zero Hedge.

    Mises formulated this argument as “the regression theorem” of money in his first book, The Theory of Money and Credit, in 1912. The theorem, in brief, runs as follows:

    People will only accept a medium of exchange if they observe that it has value, and can actually be exchanged for things. The only way to observe that is by looking at whether it was so used in a preceding time period. Thus, this chain of observations can be followed back until the first instance in which a particular type of money was used as a medium of exchange, and in order for those first adopters to accept it, it must have had value independent of its use as a medium of exchange, or in other words, be a commodity. Paper money, especially that with no commodity backing, is only adopted when governments force it upon people.

    Mises’ theory is elegant, and for a long time it has been accepted wisdom among many Austrian economists. The only trouble is that Bitcoin is in the process of proving it wrong.

    Logan speaks as though the regression theorem by Mises is a rule that new money ‘should obey’ – but I believe he is misunderstanding the point. This causes him to believe that bitcoin contradicts the regression theorem and therefore he believes that the Austrian theory ‘predicts’ that bitcoin will fail, which is not correct. There is superficially a tension, but once correctly understood, there is no contradiction here.

    The regression theorem is more correctly understood as an explanation (like “showing your work”) of how money must necessarily arise. See Konrad Graf’s IN-DEPTH | Bitcoins, the regression theorem, and that curious but unthreatening empirical world

    All one needs to show to erase the alleged regression-theorem/bitcoin paradox is that direct-use and direct-exchange values were present: 1) at all (no degree-of-presence judgment is relevant); 2) at the very beginning (not needed later), and 3) within the value scales of the actual persons involved in creating and dealing with the objects early on (not within the value scales of later users or later economists).

    For further reading see:

  • Stephan Livera 3:32 AM on August 24, 2014 Permalink | Reply
    Tags: altcoins, , HYPER   

    Cheat on Bitcoin with HYPER? It'll be Your Loss 

    David Seaman’s post: If you love bitcoin, cheat on it is quite puzzling. I think he’s a little misguided as to how money arises on the market and what gives it the value it has.

    Some influential Bitcoiners seem to have this thing, this affectation: their blockchain is the only one.

    This would be because money is a tool we use to facilitate exchange. As an intermediary for us to transfer value, it makes complete sense that money is the good that is universally (or close to it) accepted in exchange, which explains how it becomes money. So when you propose another currency to attempt to become money – you have to think that it will overtake Bitcoin, because otherwise it won’t become the universally accepted medium of exchange. If not, it won’t be worth anybody’s while trying to store their value in the altcoin. They could have otherwise stored value in bitcoin and got a better return on investment.

    I know liking alts takes some getting used to. At first, Bitcoin is so mind blowing that anything which “detracts” from its glory seems sacrilegious. But within cryptocurrency, blasphemy is how we praise our creator. Make the old obsolete, then make yourself obsolete, too. Decentralization is like that.

    I don’t doubt that someday, people might move on to another superior money after bitcoin. But that new currency would have to represent a significant improvement over bitcoin, or bitcoin would have to first fail before this could happen. So the question is not will bitcoin become obsolete, but will HYPER (your proposed new coin) overtake bitcoin? I don’t see any reason to believe that HYPER represents a fundamental new innovation with meaningful improved functionality.

    Getting cryptocurrency at a deep level requires “fractal thinking” – if you can correctly discern one part of the fractal, you can extrapolate and figure out the entire market’s canvas. If you’re still a Bitcoin exclusionist, you just haven’t seen the rest of the fractal yet.

    Or perhaps the ‘rest of the fractal’ is not competing currencies that attempt to compete with bitcoin in the market for money – but rather services or layers that will be built on top of bitcoin. I would consider the analogy of bitcoin as the TCP/IP, upon which other services can be built.

    Now if the purpose is that HYPER would just be an ingame currency, there is not really much reason for it to directly compete as an actual cryptocurrency against bitcoin rather than just becoming a ‘token’ or appcoin. The risk here being that the value of the appcoin can move independently of the value of the app itself. Speaking in terms of money – the value of a currency is the value of the network of people who use and transact / accept it. If it became ‘tokenised’ (so to speak), then people would want to store their value in the most superior money and only trade to HYPER to purchase the thing they want. Without a strong enough reason to ‘hoard’ or hold HYPER, people will simply switch to a more universally accepted currency (like bitcoin). Without liquidity, the chances for HYPER are slim. See Appcoins Are Snake Oil  by Daniel Krawisz for more on why appcoins are a bad idea.

    Satoshi’s new world makes people really, really free. And that means freedom of choice: support the development teams, algorithms, and visions you want to see become reality. And if enough users agree, it becomes reality.

    A good way to support the things you want, is to contribute bitcoin – or contribute fiat to a given venture. Why does supporting it have to be done directly with its own appcoin?

    Every time a new decentralized currency brand emerges and stabilizes, another tear is made in the space-time fabric of the old, slow, politically corrupt and inept world.

    It’s easily possible to create new cryptocurrencies, but what the world actually needs is more people piling into bitcoin because this is the currency with the biggest network effect in favour of it. The most miners, the best infrastructure (e.g. payment processors, wallet software etc), the most eyes looking at the code, the most developers, the most businesses looking to serve it. Starting up a new cryptocurrency is most likely not going to end well unless there are meaningful differentiators and good reason to believe that the currency will ultimately surpass bitcoin. There might be a use for a secondary cryptocurrency as extreme speculation in the case of bitcoin failure – but honestly, this is a very weak foundation to build HYPER on.

    I’m not attributing malice to David’s venture here, I think he means well but is misguided. I think that people who follow him into HYPER will ultimately lose out relative to if they had simply invested those resources into bitcoin. Altcoins are a bubble that will pop, because so far none (or very very few such as namecoin) represent meaningful technical advances or solve problems that bitcoin cannot solve itself. Don’t forget, people will build layers on top of bitcoin to take advantage of its superior liquidity and superior monetary network effect.

    For further discussion on these points, see:

    There can only be one.

    • Mircea Popescu 4:12 PM on August 24, 2014 Permalink | Reply

      I rarely find it worth my time to seriously consider the sort of ebullient idiocy you quote here, but nice job putting it to bed. “Satoshi makes people free so why won’t you put some push behind my cart” nonsense all up and down and all around.


      • Stephan Livera 9:26 PM on August 24, 2014 Permalink | Reply

        haha cheers Mircea. I wanted to help people understand why altcoins are a distraction from the real deal – bitcoin.


  • Stephan Livera 8:31 PM on August 23, 2014 Permalink | Reply
    Tags: , empiricism, , scientific method   

    "Austrian economics isn't scientific and rejects empiricism" 


    From a comment on r/Australia:

    “The mises libertarian loons you cite base their reasoning on praxeology, a pseudoscience, which rejects empiricism. Von Mises himself is quoted rejecting empiricism and supporting fascism, claiming it saved European civilization. You are reading nutbags and believing their hard right fantasies that have no basis in reality. Enough Ron Paul YouTube vids for you!”

    The a priori method in economics is not very well understood and is commonly ridiculed. A better way to understand this is to consider it as the method of thinking about economic problems. Detlev has a great explanation of this here: The a priori method in economics – In defence of Ludwig von Mises.

    reddit commenter: “Von Mises himself is quoted rejecting empiricism”

    Austrian economics does not reject empiricism, I think of the a priori method more like placing constraints on what sort of economic understandings of causation we can derive purely from empirical analysis.

    Also, see Boettke, Peter J. and Leeson, Peter T., Was Mises Right? (2006). Review of Social Economy, Vol. 64, No. 2, June 2006. Available at SSRN:

    Abstract: This paper argues that Mises’s methodological position has been misunderstood by both friends and foes alike. On the one hand, Mises’s critics wrongly characterize his position as rejecting empirical work. On the other hand, his defenders wrongly interpret his stance as rejecting empirical analyses on the grounds that they contradict apriorism and push economics towards historicism. We show that Mises’s methodological position occupies a  unique place that is at once both wholly aprioristic and radically empirical.

    For example:

    The laws of economics ‘‘are not subject to verification or falsification on the ground of experience and facts’’ (Mises 1949: 32). Attempts to empirically test economic theory are not only fruitless, but indicate the wrong-headedness of the scientists who attempt to do so.

    With that said,

    The critics of Mises are quick to point to this as evidence of his denial of the importance of empirical work and the real world. As we noted earlier however, though typically ignored, Mises is explicit in asserting that a priori economic deduction is to be the servant of empirical examinations of the world.

    Robert Murphy also has a nice video explanation of this concept here: What Is Economic Law? via misesmedia.

    So to summarise, Austrian Economics does not entirely reject empiricism and it is dualistic in that it uses both empiricism and the a priori method.

    photo credit: psd via photopin cc

  • Stephan Livera 1:51 AM on August 23, 2014 Permalink | Reply
    Tags: debate, ,   

    There's honest disagreement, and then there's dishonest disagreement 

    Reasonable people can have reasonable disagreements about things. I don’t expect everyone to agree with me about everything, and it’d be a boring world if everyone agreed about everything! However when debating, I believe there is a minimum standard of decency and intellectual honesty expected. A good yardstick is the principle of charity:

    In philosophy and rhetoric, the principle of charity requires interpreting a speaker’s statements to be rational and, in the case of any argument, considering its best, strongest possible interpretation. In its narrowest sense, the goal of this methodological principle is to avoid attributing irrationality, logical fallacies or falsehoods to the others’ statements, when a coherent, rational interpretation of the statements is available.

    As an example of an honest disagreement with libertarianism, you might argue: “Hey libertarians, if libertarianism/anarcho-capitalism is really a viable system, why haven’t we seen it fully implemented yet?”. This is a reasonable disagreement and if you’re curious about the answer, David Friedman answers this here from 0:50 onwards for a minute or so.

    With this in mind, here are some dishonest ways of debating against libertarianism:

    1. Mischaracterising the position (aka strawman), and then ridiculing that position

    Restated in other words to show the problem more clearly, this argument might look like: “You disagree with my laws? That must mean you want to live in a society with no laws!”. Or it might look like: “You are living in a fantasy land where a violent dynamic does not exist.”.

    Do you see the problem? Is arguing like this honestly considering the best, most coherent position of your intellectual opponent? No. Libertarians are not arguing that we should literally live in a society with no laws, or that society could exist with literally zero violence – the contentious part is certain actions undertaken by the state which libertarians claim to be unjust. Instead of literally zero laws, a system of market-driven polycentric law is what anarcho-capitalist libertarians actually propose. And yes there would regrettably still be some (unavoidable) violence, but the point is that there would be less unjustified violence (defined in terms of property rights allocated).

    2. Selection of unrepresentative examples, asserting that they represent libertarianism

    This is a common one, and typically the ‘argument to Somalia’ is invoked as though it is a rebuttal of the libertarian position. If you’re interested to see whether that particular argument holds water, see some of Benjamin Powell’s scholarly work here. I’ve had people mention the middle east as an ‘example’ – which is a failed example given that the middle east clearly has governments and government laws.

    Speaking to the broader point, it is important to perform apples to apples comparison – it won’t do to compare a ‘bad anarchy’ to the ‘best possible government’, because not all other things are equal. When all other things are not equal or at least reasonably controlled for, we can’t be sure which factor is the true cause. Without sound economic analysis, we cannot know whether human quality of life improved because of government (as a pro-government person might believe), or whether it got better in spite of government (as a libertarian might believe). See a related example contesting the ‘statist narrative’ with sweatshops and improvement in working conditions in an earlier post here.

    3. Imposing an impossibly high standard or not imposing equivalent standards to both sides of the argument

    Here’s how this one might play out: I show an example of a semi-anarchic private law society existing for hundreds of years. The pro-government person ‘argues’ against libertarianism by stating that the example society failed and is not existing today, therefore it is disproven. But wait a minute, by the very same token – should all governments be expected to last forever? Many governments have not lasted for 300 years and if this is going to be the yardstick, then government fails ‘the test’ and is disproven also. This is another dishonest comparison.


    I’m more than happy to entertain honest disagreement, but I have little patience for dishonest disagreement.

    Picture credit:

  • Stephan Livera 11:44 PM on August 21, 2014 Permalink | Reply
    Tags: group identity, Logan Albright, philosophy, society   

    Only individuals act 

    Logan Albright points out the misuse of the word ‘society’ and other group identity concepts in this thought provoking Mises Canada article.

    The word “Society” has a legitimate use, if it is genuinely being used as a verbal short hand. But when it is imposed as a label on all residents of an area, this is when you have to be wary. Someone might misuse the concept to say that something is in “society’s interest” as a way of masking a transfer of wealth from some individuals to other individuals. It would be much better to be explicit and honest about a proposed wealth transfer being committed at threat of imprisonment (as virtually all state laws and regulations are).

    When a political measure is proposed “for the good of society” it is a way of masking what is actually going on – the transfer of wealth or benefits from one group or individual to another. It is unseemly to say “We must rob Peter to pay Paul because Paul operates a well-connected lobbyist shop.” So instead, we hear things like, “we need an economic stimulus package in order to mitigate systemic risk for the good of society.” Isn’t that a neat trick?

    Logan also skilfully points out the use of this verbal sleight of hand in foreign policy discussion:

    On the nightly news, it is common to hear pundits utter something along the lines of, “Well, since Palestine attacked Israel, Israel is justified in retaliation against Palestine.” If we substitute the names “Smith” and “Jones” for “Israel” and “Palestine,” this sort of logic makes total sense, because Smith and Jones are presumed to be rational actors, capable of making plans and carrying them out. But Palestine and Israel are not actors at all.

    So when someone says that Israel has the right to retaliate against Palestine, what are they really saying?

    To emphasise the  absurdity being masked by collective language, Logan restates it:

    “Smith (a Palestinian) attacked Jones (an Israelite) so Jones is justified in retaliating against… Brown (another Palestinian whose only similarity to Smith is geographic proximity.)

    Only individuals act. Remember that.



  • Stephan Livera 2:26 AM on August 21, 2014 Permalink | Reply
    Tags: ATO, , capital gains, CGT, personal use asset,   

    ATO Guidance on bitcoin taxation in Australia 


    The ATO released guidance on bitcoin taxation today and it’s predictably not a great outcome for bitcoin businesses in Australia. The ATO’s view is that bitcoin is: Not money, not a foreign currency, not a financial supply for GST (Goods and Services Tax) purposes, but it is an asset for CGT (Capital Gains Tax) purposes. Bear in mind that I’m not a taxation lawyer / accountant, this is just my understanding from reading the ATO guidelines and listening to the ABC Radio interview with Michael Hardy, Senior Assistant Commissioner at the ATO.


    On the bright side, individuals who are not carrying on a business are mostly being left alone. Bitcoin is being treated as a personal use asset:

    “Personal use assets are CGT assets, other than collectables, used or kept mainly for the personal use or enjoyment of you or your associates. Any personal use asset you acquired for less than $10,000 is disregarded for CGT purposes.”

    So if I understand this correctly, individuals are free to cash in or purchase goods/services with their bitcoin and do not have to pay CGT on it – so long as those bitcoins were acquired for less than $10,000.

    Australian Bitcoin Exchanges

    Australian GST law in this area creates an awkward situation where Australian Bitcoin exchanges will have to charge GST on bitcoin that they sell (supply) to customers. See section Taxpayers conducting a bitcoin exchange:

    GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise. Input tax credits are available for bitcoin acquired if the supply of bitcoin to you is a taxable supply.

    I sense that Australians who want to buy bitcoins will just buy from an overseas seller so that they can avoid paying an extra 10% for the exact same thing, given that bitcoins are perfectly fungible. This interpretation of the GST law will be troublesome for bitcoin services like CoinJar, and they may have to restructure into holding customer bitcoin in trust and becoming a ‘marketplace’ of sellers and buyers to avoid having to charge GST.

    But even doing so, CoinJar and any other Australian bitcoin marketplaces might still face a problem – the individual sellers on those marketplaces may still need to pay GST (if they are judged to be carrying on a business for tax purposes), so this may not fully eliminate the problem.

    In the meantime, Australians who want to purchase bitcoin locally using cash might end up using localbitcoins or Mycelium Local Trader.

    Merchants who accept bitcoin

    Most merchants who accept bitcoin do so using a bitcoin payment processor/intermediary to remove the exchange rate risk and immediately change the BTC to fiat. The Bitcoin GST guidance Example 3 covers this scenario:

    Example 3: merchant using an intermediary to accept bitcoin in exchange for goods or services

    14. Following on from Example 2 above, Paul has an agreement with an intermediary acting as his agent to accept bitcoin in exchange for goods and services. When customers provide bitcoin to the intermediary in exchange for goods and services, Paul pays commission to the intermediary equal to 1% of the price. The intermediary agrees to deposit Australian currency (immediately or within one day) into Paul’s nominated bank account. There is no agreement between the customer and the intermediary.

    15. Two transactions occur here. First, the customer supplies bitcoin in exchange for the supply of goods and services from Paul as a barter transaction. The GST consequences of this are explained in Example 2. Second, Paul supplies bitcoin to the intermediary (through the transfer of bitcoin from the customer) for Australian currency which is treated as a taxable supply by Paul on which GST is payable. The intermediary provides Paul with taxable services for which the commission is consideration and the intermediary may claim credits for the acquisition of the bitcoin.

    It seems there is a ‘Double GST’ effect here. The first transaction of the two is standard and isn’t really a big deal. However, because this is treated as two transactions (instead of one transaction if bitcoin was treated as money), there are now two sets of GST being paid – meaning that the economic incentive for merchants to accept bitcoin via payment processor just took a massive nosedive thanks to the GST law. The two sets of GST that must now be paid:

    1. The (normal) GST that would have taken place when a customer buys a good from a merchant i.e. GST on the goods/services
    2. The extra GST being paid in relation to the ‘supply’ of bitcoin to the payment processor

    Now in the ABC radio interview Michael runs through a scenario for a business to business bitcoin payment (see around 5:00) where no conversion to fiat takes place, where both businesses are presumably registered for GST purposes, and both businesses receive an input credit. But in this case, where a merchant is accepting bitcoin from a customer and using a payment processor – they would now be far worse off. It creates unreasonable complexity and impracticality in business management because two tax invoices have to be issued (because it’s not one, but two transactions). It is artificially disadvantaging bitcoin transactions relative to fiat transactions.

    So to sum up, pretty good for individuals, bad for Australian bitcoin exchanges/marketplaces and bad for Australian bitcoin accepting merchants. Hopefully the legal environment improves to permit the massive innovation that bitcoin represents. Otherwise, bitcoin companies and talent will simply move to other countries, or get pushed underground. Even though this current set of laws is not great for bitcoin in Australia, I still believe in bitcoin. Why? This is why:

    • greatly reduced friction in international transactions
    • ‘push’ instead of pull transactions
    • giving power back to people who are being oppressed by their government
    • hedge against trusting your bank
    • hedge against trusting your government’s fiat money
    • it has always made sense to have a digital borderless currency, and it makes sense to have this in a decentralised format (so the power of issuing it is not abused)
    • somewhat anonymous donations and payments

    So we can see all of this increased complexity and double standard / inferior treatment for bitcoin transactions based on the ATO interpretation of it ‘not being money’. The real irony here is that Bitcoin is actually the superior money, people just haven’t worked it out yet.

    photo credit: minwoo via photopin cc

    • Jack Diamonn 5:31 AM on August 21, 2014 Permalink | Reply

      I have just discovered your blog, and am enjoying.
      I appreciate your links to original sources.
      The ATO as government enforcer has to disincentivise Bitcoin as an alternative currency, and will continue to pursue it through legislation.
      My view is that the more legislation created around Bitcoin will in effect, be the framework that provides a workable model.
      The beauty of the evolvement is that there is no committee strategising to combat the government reaction to competition, and that it is the philosophy that will enable the public good, we call Bitcoin


      • Stephan Livera 7:43 AM on August 21, 2014 Permalink | Reply

        Hi Jack thanks for your comment. I do think it’s unlikely that the Australian government legislates to fix this situation – though perhaps there are other ways for the law to change here, such as it being considered a national currency by another nation, triggering it to instead be considered as a foreign currency.

        Ultimately though when it comes to government actors, they are facing a prisoner’s dilemma problem as Daniel Krawisz describes here



    • Jack Diamonn 5:33 AM on August 21, 2014 Permalink | Reply

      *public good* as in product, not top-down moralising public good~~lol


    • andrew 9:29 AM on August 21, 2014 Permalink | Reply

      Bro… speak to the exchanges … cointree has already advised it will be business as usual for most users… this means no 10% on top of btc …

      You need to speak to ppl in the business before releasing this type of stuff which can turn off new users


      • Stephan Livera 9:47 AM on August 21, 2014 Permalink | Reply

        Andrew, I will update the post tonight if I learn more specific information that contradicts what I’ve written here.

        See example 1, point 10 from

        10. *The following day Karin, who is registered for GST, wishes to purchase 10 BTC from Liam’s online service for use in acquiring an asset for her business. The exchange rate is 1BTC = AUD662. Karin acquires the 10 BTC for AUD$6,686.20 plus GST. The GST inclusive amount of AUD$7,354.40 is calculated as follows: 10 BTC x AUD$662, plus AUD$66.20 commission, plus AUD$668.62 GST.”*


      • lloyd 11:15 AM on August 21, 2014 Permalink | Reply

        I think cointree needs to look into it more. Exchanges are required to charge GST on a supply of bitcoins.

        “GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise.”


    • andrew 9:44 AM on August 21, 2014 Permalink | Reply

      They could be wrong but Just check :) they seemed confident thatci dont have to worry and continue buying as per normal even with that tax thing


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