Starting in the third quarter, Dish Network announced this morning, it will accept bitcoin payments from its customers. That will make it, it claims, the largest company to accept the cybercurrency.
As far as PR goes for bitcoin, this is right up there with a similar announcement from Overstock earlier this year. In other words, Dish's embrace of bitcoin pushes it that much more into the mainstream, or so the narrative goes.
Which I am not knocking or discounting. But there is one tiny consideration that should be added that narrative. Mainstream use equals mainstream regulation and mainstream tax liability.
In short, if and when consumers start using bitcoins for their everyday transactions on a widespread basis, they will find their paperwork burden increasing if they want to stay in compliance with tax laws. That, it turn, could temper their appetite for its use.
Dish, you see, may indeed be the largest company to date to start accepting bitcoins as payments—but it is definitely the largest company to date since the IRS unveiled its guidance about virtual currencies on March 25.
However, as one study suggests, it may be that consumers do not automatically equate bitcoin with a payment option for their cable bill.
Secret Money: Living on Bitcoin in the Real World, by Forbes staff writer Kashmir Hill, can be bought in Bitcoin or more traditional currencies.
What the IRS Says
First, a brief reminder about the IRS guidance.
On March 25, IRS issued Notice 2014-21. It contained guidance and frequently asked questions relating to virtual currencies.
As the National Journal explained in its interpretation of the guidance, "Among other clarifications, the notice states that the IRS will treat bitcoins as property, rather than a form of currency, for federal income tax purposes."
For people using bitcoins to pay their cable bill, or to buy a set of sheets on Overstock, this is what they have to know, per National Journal:
As with any other form of property, the sale or transfer of bitcoins in barter results in a taxable event for a bitcoin user. In the context of a purchase of goods or services for bitcoins, the purchaser has a taxable gain if the fair market value of the goods/services received exceeds the spent bitcoins' adjusted basis (i.e., the net cost in US dollars of the purchaser's acquisition of the bitcoins), and a loss if the fair market value of the goods/services received is less than the spent bitcoins' adjusted basis.
Now, I am not suggesting that the IRS will be knocking on your door for failing to accurately account for a $100 payment to Dish made with a virtual currency. Certainly state governments that have laws on their books requiring residents to pay sales taxes on goods purchased online don't, or rather can't, police this activity and for all practical purposes are unable to zing offenders with a tax bill. Federal legislation could change that, but of course, that is another story.
Ditto, I am guessing, with the IRS and these early days of bitcoin use, especially as the agency is already hamstrung this year with a tighter budget than it would have preferred.
But this is rule now officially on the books and one that could be applied if the agency chooses to make an example of a company, for instance, that inappropriately uses bitcoin to buy services or make a payroll, or audits a taxpayer and finds egregious violations.
Just saying.
One study which recently caught me eye, however, suggests that consumers are not poised to use bitcoin to buy towels or sheets or pay their cable bill, at least not en mass.
Researchers at Germany's Goethe University in Frankfurt took an empirical stab at determining why users gravitate to bitcoin. Is it its appeal as an asset or as a currency? The answer, in short, is that "especially uninformed users" seek out bitcoin to participate in an alternative investment vehicle and not its "original purpose of being used as an alternative transaction system," the researchers concluded.
Exchange users buying bitcoin for the first time, the researchers determined, are more likely to keep bitcoins in their exchange wallet for speculation purposes and "do not have the intention to use these acquired bitcoins for paying goods or services."
The researchers also noted that bitcoin returns react on news events related to this digital currency, more evidence that suggests exchange users are acquiring them for speculative purposes.
This is not to say that some consumers, perhaps even many, as Overstock's bitcoin payment volumes show, are using bitcoin for their everyday bills. Ebay, for example, is considering integrating bitcoin for PayPal and demand surely must be much of the reason.
But if I were to guess the primary driver behind the forces pushing bitcoin into the mainstream economy comes from companies and not consumers. Why that is so is yet another story.
