[Please excuse the minor taxpunks diversion; there's a relevant point here, aside from the fact that we're approaching April 15 and discussing technologies that will let some people not care if they're approaching April 15 in a few years :-] At 09:28 AM 4/7/96 -0800, Jim Bell wrote:
FWIW, I think that there is no capital-gains-type tax on currency conversions. In other words, if I take dollars and buy yen today, and the interconvert rate changes and I convert back and make a "profit," that is not considered income.
What it's worth is fairly minimal, i.e. the IRS doesn't see it that way. If you did transaction Y and then transaction X and now have $100 more than you did before you started, they think that's capital gain, whether you were buying and selling Yen, soybeans, or mutual funds. The only difference if you're buying and selling ecash from Bank Foo is that it may be easier to not tell them about the transaction if it were all encrypted and outside your home jurisdiction. What they don't know won't hurt them... On the other hand, depending on what country your bank is in, there may be taxes or fees or bribes charged by the bank's home country, which would get passed along to you either directly or indirectly.
And most of the "interest" will simply be the avoided inflation loss that would have otherwise occurred. Buying ecash may be equivalent to buying an absolutely non-inflating currency that the government can't manipulate.
No, it's equivalent to buying private-bank currency, which may be denominated in dollars or ECUs or gold or yen or pesos or zorkmids, which may be inflatable by some government, or may be backed only by the full faith and credit of the anonymous remailer in Panama that you reach your ostensibly Cayman-Islands e-bank through. Now for the slight cypherpunks relevance - assuming that you're banking in some currency other than your home country's government's, whether it's hard currency like Swiss Francs or soft metal like gold or a mixture like ECUs or shares of Fidelity Mercury Fund, if you to pay taxes on the net result of transactions, you'll probably want a timestamped log of what you did when, and ideally a good data set of the highest, lowest, and instantaneous prices of the backing currency on several markets, so you can report your profits and losses pessimistically. (For most kinds of accounts, you'd want those sources to be totally separate, but for captive currencies like BankFoo Non-Inflatable Zorkmids, you might want to get them together, though you might want to have two accounts, one of which is quiet and subscribes to the price reports and another where your real transactions happen.) Alice du Gnome-ynous.