@ Dug

The first time I received a paycheque from a full-time job, after being told in the interview I would be earning one amount, the amount I received was around 25% less; you’re not in Kansas anymore, welcome to the real work and TAX. Over the years, I’ve continued to pay my taxes, as a good little citizen, and at certain points along the way, I have paid considerable amounts of tax, because I wouldn’t want to break the law by not paying my taxes. Tax is necessary for a civilised society, they say. I’m told, who will pay, at least in the UK, for the NHS, who will pay for the roads, who will pay for the courts, the military, the police, if I don’t pay my taxes? But let’s be honest, apart from those who pay very little to no tax, who, in a society actually gets good value for money out of the taxes they pay, or hears of a government institution that operates efficiently and effectively? Alternatively, imagine if the government didn’t have control of a large military budget, would they be quite so keen to deploy the young of our country into harm’s way, in the name of national security or having streets in Ukraine named after them for their generous donations of munition paid with someone else’s money?

While I’m only half-way through the excellent “Fiat Standard”, I’m well aware that many of these issues have been driven by the ability of those in charge to not only enforce and increase taxation at will, but also, if ends don’t quite meet, print the difference, however, these are rather abstract and high-level ideas for my small engineer’s brain. What has really brought this into sharp focus for me is the impending sale of my first house, that at the age of 25, I was duly provided a 40-year mortgage and was required to sign a form acknowledging that I would still be paying the mortgage after my retirement age. Fortunately for me, thanks to the government now changing the national age of retirement from 65 to 70 (so stealing 5 years of my retirement), in practice this form didn’t need to be signed, lucky me? Even so, what type of person would knowingly put another person in a situation where near 40% of their wage would mainly be paying interest to the bank (which as a side note was bailed out only a few years later). The unpleasant taste really became unbearable when even after being put into this “working life” sentence of debt repayment, was, even with the amount I’d spent on the house (debt interest and maintenance) over the subsequent 19 years, only able to provide a rate of return of less than 1.6%, compared to the average official (bullshit) inflation figure of 2.77%. My house has not kept up with inflation and to add insult to financial injury, His Majesty’s Revenue and Customs feel the need to take their portion of this “profit”.

At which point, I take a very deep breath, sit quietly for a moment, and channel my inner Margot, deciding against grabbing a bottle of bootleg antiseptic to both clear my pallet and dull the pain. I had been convinced I needed to get on the housing ladder to save, but the government has since printed billions, with the rate of, even the conservative estimates of inflation, out pacing my meagre returns on property, and after all that blood, sweet, tears and dust, covering my poor dog, “the law” states some of that money is theirs. I wasn’t able to save in the money that they could print at will, I worked very hard, I took risks and the reward I get is to give them even more money to fritter away of things that won’t benefit me. But, I don’t want your sympathy, I don’t need it, but it helped me to get a new perspective on capital gains, particularly when considered in relation to bitcoin. So, to again draw from Ms. Paez, who herself was drawing from everyone’s favourite Joker, Heath Ledger, not Rachel Reeves (or J. Powell), here we go. 

The Sovereign Individual is by no means an easy read, but is absolutely fascinating, providing clear critiques of the system that at the time was only in its infancy, but predicting many aspects of today’s world, with shocking accuracy. One of the most striking parts for me was the critique and effect of taxation (specifically progressive forms) on the prosperity of a nation at large. At an individual level, people have a proportion of their income removed, to be spent by the government, out of the individuals’ control. The person who has applied their efforts, abilities and skills to earn a living is unable to decide how best to utilise a portion of the resources into the future. While this is an accepted reality, the authors’ outline the cumulative, compound impact of forfeiting such a large portion of your wage each year, leading to figures that are near unimaginable to anyone without a penchant for spreadsheets or an understanding of exponential growth. Now, if we put this into the context of the entrepreneur, identifying opportunities, taking on personal and business risk, whenever a profit is realised, whether through normal sales or when realising value from capital appreciation, they must pay a portion of this in tax. While there are opportunities to reinvest this back into the organisation, there may be no immediate investment opportunities for them to offset their current tax bill. As a result, the entrepreneurs are hampered from taking the fruits of their labour and compounding the results of their productivity, forced to fund the social programmes of a government pursuing aims that are misaligned with individuals running their own business. Resources are removed from the most productive individuals in the society, adding value, employing staff, to those who may have limited knowledge of the economic realities of business; see Oxbridge Scholars, with experience in NGOs or charities, for more details please see Labour’s current front bench. What was that Labour? Ah yes, let’s promote growth by taxing companies more and making it more difficult to get rid of unproductive staff, exactly the policies every small business owner has been asking for (Budget October 2024).

Now, for anyone on NOSTR, none of this is new, a large portion of Nostriches were orange pilled long before taking their first purple pill of decentralise Notes and Other Stuff. However, if we’re aware of this system that has been put in place to steal our earnings and confiscate our winnings if we have been able to outwit the Keynesian trap western governments have chosen to give themselves more power, how can we progress? What options do we have? a) being locked up for non-payment of taxes by just spending bitcoin, to hell with paying taxes or b) spend/sell (:/), but keeping a record of those particular coins you bought multiple years ago, in order to calculate your gain and hand over YOUR money the follow tax year, so effectively increasing the cost of anything purchased in bitcoin. Please note, I’m making a conscious effort not to say what should be done, everyone needs to make decisions based on their knowledge and their understanding.

Anyway, option a) is not as flippant as one might think, but also not something one should (damn it) do carelessly. One bitcoin equals one bitcoin, bitcoin is money, as a result, it neither increases nor decreases is value, it is fiat currencies that varies wildly in comparison. If we think about gold, the purchasing power of gold has remained relatively consistent over hundreds of years, gold is viewed as money, which (as a side note) results in Royal Mint gold coins being both exempt of VAT and capital gains tax. While I may consider this from a, while not necessarily biased, but definitely pro-bitcoin perspective, I believe that it is extremely logical for transactions that take place in bitcoin should not require “profits” or “losses” to be reports, but this is where my logic and the treasury’s grabbiness  are inconsistent. If what you’re buying is priced in bitcoin, you’re trading goods or services for money, there was no realisation of gains. Having said that, if you choose to do this, best not do any spending from a stack with a connection to an exchange and your identify. When tax collectors (and their government masters) end up not having enough money, they may begin exploring whether those people buying bitcoin from exchanges are also spending it.

But why is this relevant or important? For me and from hearing from many people on podcasts, while not impossible and not actually that difficult, recording gains on each transaction is firstly a barrier for spending bitcoin, it is additional effort, admin and not insignificant cost, and no one likes that. Secondly, from my libertarian leaning perspective, tax is basically the seizure of assets under the threat of incarceration (aka theft), with the government spending that money on crap I don’t give a shit about, meaning I don’t want to help fund their operation more than I already do. The worry is, if I pay more taxes, they think they’re getting good at collecting taxes, they increase taxes, use taxes to employ more tax collectors, rinse and repeat. From this perspective, it is almost my duty not to report when I transact in bitcoin, viewing it as plain and simple, black-market money, where the government neither dictates what I can do with it, nor profit from its appreciation.

The result of this is not the common mantra of never sell your bitcoin, because I, for one, am looking forward to ditching the fiat grind and having more free time driving an interesting 90’s sports car or riding a new mountain bike, which I will need money to be fund. Unless I’m going to take a fair bit of tax evasion-based risk, find some guys who will only accept my KYC free bitcoin and then live off the grid, I’ll need to find another way, which unfortunately may require engaging once more with the fiat system. However, this time, rather than selling bitcoin to buy fiat, looking for financial product providers who offer loans against bitcoin held. This is nothing new, having  been a contributing factors to the FTX blow up, and the drawdown of 2022, the logic of such products is solid and the secret catalyst to Mark Moss’s (and others) buy, borrow, die strategy. The difference this time is to earn from our mistakes, to choose the right company and maybe hand over our private keys (multisig is a beautiful thing). The key benefit of this is that by taking a loan, you’re not realising capital gains, so do not create a taxable event. While there is likely to be an interest on any loan, this only makes sense if this is considerably less than either the capital gains rate incurred if you sold the bitcoin or the long-term capital appreciation of the bitcoin you didn’t have to sell, it has to be an option worth considering. 

Now, this is interacting with the fiat system, it does involve the effective printing of money and depending on the person providing the loan, there is risk, however, there are definitely some positives, even outside the not inconsiderable, “tax free” nature of this money. Firstly, by borrowing fiat money, you are increasing the money supply, while devaluing all other holders of that currency, which effectively works against fiat governments, causing them to forever print harder to stop themselves going into a deflationary nose drive. The second important aspect is that if you have not had to sell your bitcoin, you have removed sell pressure from the market and buying pressure that would strengthen the fiat currency, so further supporting the stack you have not had to sell.

Now, let’s put this in the context of The Sovereign Individual or the entrepreneurial bitcoiner, who took a risk before fully understanding what they were buying and has now benefiting financially. The barrier of tax-based admin or the reticence to support government operations through paying additional tax are not insignificant, which the loan has allowed you to effectively side step, keeping more value of your holdings to allocate as you see fit. While this may involve the setting up of a new business that itself may drive productive growth, even if all you did was spend that money (such as a sport car or a new bike), this could still be a net, economic positive compared to a large portion of that money being sucked into the government spending black hole. While the government would not be receiving that tax revenue, every retailer, manufacturer or service provider would benefit from this additional business. Rather than the tax money going toward interest costs or civil servant wages, the money would go towards the real businesses you have chosen, their staff’s wages, who are working hard to outcompete their peers. Making this choice to not pay capital gains does not just allow bitcoiner to save money and to a small degree, reduce government funding, but also provides a cash injection to those companies who may still be reeling from minimum wage AND national insurance increases.

I’m not an ethicist, so am unable to provide a clear, concise, philosophical argument to explain why the ability of government to steal from you via the processes of monetary inflation as well as an ever-increasing tax burden in immoral, but I hope this provides a new perspective on the situation. I don’t believe increases in taxes support economic development (it literally does the opposite), I don’t believe that individuals should be penalised for working hard, challenging themselves, taking risks and succeeding. However, I’m not in charge of the system and also appreciate that if any major changes were to take place, the consequences would be significant (we’re talking Mandibles time). I believe removing capital gains tax from bitcoin would be a net positive for the economy and there being precedence based on the UK’s currently position with gold coins, but unfortunately, I don’t believe people in the cabinet think as I do, they see people with assets and pound signs ring up at their eyes.

As a result, my aim moving forward will be to think carefully before making purchases or sales that will incur capital gains tax (no big Lambo purchase for me at the top), but also being willing the promote the bitcoin economy by purchasing products and services with bitcoin. To do this, I’ll double confirm that spend/replace techniques actually get around capital gains by effectively using the payment rails of bitcoin to transfer value rather than to sell your bitcoin. This way, I will get to reward and promote those companies to perform at a level that warrants a little more effort with payment, without it costing me an additional 18-24% in tax later on.

So, to return to where we started and my first pay-cheque. We need to work to earn a living, but as we earn more, an ever-greater proportion is taken from us, and we are at risk of becoming stuck in a never ending fiat cycle. In the past, this was more of an issue, leading people into speculating on property or securities, which, if successful, would then incur further taxes, which will likely be spent by governments on liabilities or projects that add zero net benefits to national citizens. Apologies if you see this as a negative, but please don’t, this is the alternative to adopting a unit of account that cannot be inflated away. If you have begun to measure your wealth in bitcoin, there will be a point where you need to start to start spending. I for one, do not intend to die with my private keys in my head, but having lived a life, turbo charged by the freedom bitcoin has offered me. Bitcoin backed loans are returning to the market, with hopefully a little less risk this time around. There may be blow ups, but once they get established and interest costs start to be competed away, I will first of all acknowledge remaining risks and then not allocate 100% of my stack. Rather than being the one true bitcoiner who has never spent a sat, I will use the tools at my disposal to firstly give my family their best possible lives and secondly, not fund the government more than I need to. 

Then, by the time I’m ready to leave this earth, there will be less money for me to leave to my family, but then again, the tax man would again come knocking, looking to gloat over my demise and add to my family’s misery with an outstretched hand. Then again, this piece is about capital gains rather than inheritance tax, so we can leave those discussions for another time.

This is not financial advice, please consult a financial/tax advisor before spending and replacing without filing taxes and don’t send your bitcoin to any old fella who says they’ll return it once you’ve paThe first time I received a paycheque from a full-time job, after being told in the interview I would be earning one amount, the amount I received was around 25% less; you’re not in Kansas anymore, welcome to the real work and TAX. Over the years, I’ve continued to pay my taxes, as a good little citizen, and at certain points along the way, I have paid considerable amounts of tax, because I wouldn’t want to break the law by not paying my taxes. Tax is necessary for a civilised society, they say. I’m told, who will pay, at least in the UK, for the NHS, who will pay for the roads, who will pay for the courts, the military, the police, if I don’t pay my taxes? But let’s be honest, apart from those who pay very little to no tax, who, in a society actually gets good value for money out of the taxes they pay, or hears of a government institution that operates efficiently and effectively? Alternatively, imagine if the government didn’t have control of a large military budget, would they be quite so keen to deploy the young of our country into harm’s way, in the name of national security or having streets in Ukraine named after them for their generous donations of munition paid with someone else’s money? While I’m only half-way through the excellent “Fiat Standard”, I’m well aware that many of these issues have been driven by the ability of those in charge to not only enforce and increase taxation at will, but also, if ends don’t quite meet, print the difference, however, these are rather abstract and high-level ideas for my small engineer’s brain. What has really brought this into sharp focus for me is the impending sale of my first house, that at the age of 25, I was duly provided a 40-year mortgage and was required to sign a form acknowledging that I would still be paying the mortgage after my retirement age. Fortunately for me, thanks to the government now changing the national age of retirement from 65 to 70 (so stealing 5 years of my retirement), in practice this form didn’t need to be signed, lucky me? Even so, what type of person would knowingly put another person in a situation where near 40% of their wage would mainly be paying interest to the bank (which as a side note was bailed out only a few years later). The unpleasant taste really became unbearable when even after being put into this “working life” sentence of debt repayment, was, even with the amount I’d spent on the house (debt interest and maintenance) over the subsequent 19 years, only able to provide a rate of return of less than 1.6%, compared to the average official (bullshit) inflation figure of 2.77%. My house has not kept up with inflation and to add insult to financial injury, His Majesty’s Revenue and Customs feel the need to take their portion of this “profit”.

At which point, I take a very deep breath, sit quietly for a moment, and channel my inner Margot, deciding against grabbing a bottle of bootleg antiseptic to both clear my pallet and dull the pain. I had been convinced I needed to get on the housing ladder to save, but the government has since printed billions, with the rate of, even the conservative estimates of inflation, out pacing my meagre returns on property, and after all that blood, sweet, tears and dust, covering my poor dog, “the law” states some of that money is theirs. I wasn’t able to save in the money that they could print at will, I worked very hard, I took risks and the reward I get is to give them even more money to fritter away of things that won’t benefit me. But, I don’t want your sympathy, I don’t need it, but it helped me to get a new perspective on capital gains, particularly when considered in relation to bitcoin. So, to again draw from Ms. Paez, who herself was drawing from everyone’s favourite Joker, Heath Ledger, not Rachel Reeves (or J. Powell), here we go.

The Sovereign Individual is by no means an easy reaD, but is absolutely fascinating, providing clear critiques of the system that at the time was only in its infancy, but predicting many aspects of today’s world, with shocking accuracy. One of the most striking parts for me was the critique and effect of taxation (specifically progressive forms) on the prosperity of a nation at large. At an individual level, people have a proportion of their income removed, to be spent by the government, out of the individuals’ control. The person who has applied their efforts, abilities and skills to earn a living is unable to decide how best to utilise a portion of the resources into the future. While this is an accepted reality, the authors’ outline the cumulative, compound impact of forfeiting such a large portion of your wage each year, leading to figures that are near unimaginable to anyone without a penchant for spreadsheets or an understanding of exponential growth. Now, if we put this into the context of the entrepreneur, identifying opportunities, taking on personal and business risk, whenever a profit is realised, whether through normal sales or when realising value from capital appreciation, they must pay a portion of this in tax. While there are opportunities to reinvest this back into the organisation, there may be no immediate investment opportunities for them to offset their current tax bill. As a result, the entrepreneurs are hampered from taking the fruits of their labour and compounding the results of their productivity, forced to fund the social programmes of a government pursuing aims that are misaligned with individuals running their own business. Resources are removed from the most productive individuals in the society, adding value, employing staff, to those who may have limited knowledge of the economic realities of business; see Oxbridge Scholars, with experience in NGOs or charities, for more details please see Labour’s current front bench. What was that Labour? Ah yes, let’s promote growth by taxing companies more and making it more difficult to get rid of unproductive staff, exactly the policies every small business owner has been asking for (Budget October 2024).

Now, for anyone on NOSTR, none of this is new, a large portion of Nostriches were orange pilled long before taking their first purple pill of decentralise Notes and Other Stuff. However, if we’re aware of this system that has been put in place to steal our earnings and confiscate our winnings if we have been able to outwit the Keynesian trap western governments have chosen to give themselves more power, how can we progress? What options do we have? a) being locked up for non-payment of taxes by just spending bitcoin, to hell with paying taxes or b) spend/sell (:/), but keeping a record of those particular coins you bought multiple years ago, in order to calculate your gain and hand over YOUR money the follow tax year, so effectively increasing the cost of anything purchased in bitcoin. Please note, I’m making a conscious effort not to say what should be done, everyone needs to make decisions based on their knowledge and their understanding.

Anyway, option a) is not as flippant as one might think, but also not something one should (damn it) do carelessly. One bitcoin equals one bitcoin, bitcoin is money, as a result, it neither increases nor decreases is value, it is fiat currencies that varies wildly in comparison. If we think about gold, the purchasing power of gold has remained relatively consistent over hundreds of years, gold is viewed as money, which (as a side note) results in Royal Mint gold coins being both exempt of VAT and capital gains tax. While I may consider this from a, while not necessarily biased, but definitely pro-bitcoin perspective, I believe that it is extremely logical for transactions that take place in bitcoin should not require “profits” or “losses” to be reports, but this is where my logic and the treasury’s grabbiness are inconsistent. If what you’re buying is priced in bitcoin, you’re trading goods or services for money, there was no realisation of gains. Having said that, if you choose to do this, best not do any spending from a stack with a connection to an exchange and your identify. When tax collectors (and their government masters) end up not having enough money, they may begin exploring whether those people buying bitcoin form exchanges are also spending it.

But why is this relevant or important? For me and from hearing from many people on podcasts, while not impossible and not actually that difficult, recording gains on each transaction is firstly a barrier for spending bitcoin, it is additional effort, admin and not insignificant cost, and no one likes that. Secondly, from my libertarian leaning perspective, tax is basically the seizure of assets under the threat of incarceration (aka theft), with the government spending that money on crap I don’t give a shit about, meaning I don’t want to help fund their operation more than I already do. The worry is, if I pay more taxes, they think they’re getting good at collecting taxes, they increase taxes, use taxes to employ more tax collectors, rinse and repeat. From this perspective, it is almost my duty not to report when I transact in bitcoin, viewing it as plain and simple, black-market money, where the government neither dictates what I can do with it, nor profit from its appreciation.

The result of this is not the common mantra of never sell your bitcoin, because I, for one, am looking forward to ditching the fiat grind and having more free time driving an interesting 90’s sports car or riding a new mountain bike, which I will need money to be fund. Unless I’m going to take a fair bit of tax evasion-based risk, find some guys who will only accept my KYC free bitcoin and then live off the grid, I’ll need to find another way, which unfortunately may require engaging once more with the fiat system. However, this time, rather than selling bitcoin to buy fiat, looking for financial product providers who offer loans against bitcoin held. This is nothing new, having been a contributing factors to the FTX blow up, and the drawdown of 2022, the logic of such products is solid and the secret catalyst to Mark Moss’s (and others) buy, borrow, die strategy. The difference this time is to earn from our mistakes, to choose the right company and maybe hand over our private keys (multisig is a beautiful thing). The key benefit of this is that by taking a loan, you’re not realising capital gains, so do not create a taxable event. While there is likely to be an interest on any loan, this only makes sense if this is considerably less than either the capital gains rate incurred if you sold the bitcoin or the long-term capital appreciation of the bitcoin you didn’t have to sell, it has to be an option worth considering.

Now, this is interacting with the fiat system, it does involve the effective printing of money and depending on the person providing the loan, there is risk, however, there are definitely some positives, even outside the not inconsiderable, “tax free” nature of this money. Firstly, by borrowing fiat money, you are increasing the money supply, while devaluing all other holders of that currency, which effectively works against fiat governments, causing them to forever print harder to stop themselves going into a deflationary nose drive. The second important aspect is that if you have not had to sell your bitcoin, you have removed sell pressure from the market and buying pressure that would strengthen the fiat currency, so further supporting the stack you have not had to sell. Now, let’s put this in the context of The Sovereign Individual or the entrepreneurial bitcoiner, who took a risk before fully understanding what they were buying and has now benefiting financially. The barrier of tax-based admin or the reticence to support government operations through paying additional tax are not insignificant, which the loan has allowed you to effectively side step, keeping more value of your holdings to allocate as you see fit. While this may involve the setting up of a new business that itself may drive productive growth, even if all you did was spend that money (such as a sport car or a new bike), this could still be a net, economic positive compared to a large portion of that money being sucked into the government spending black hole. While the government would not be receiving that tax revenue, every retailer, manufacturer or service provider would benefit from this additional business. Rather than the tax money going toward interest costs or civil servant wages, the money would go towards the real businesses you have chosen, their staff’s wages, who are working hard to outcompete their peers. Making this choice to not pay capital gains does not just allow bitcoiner to save money and to a small degree, reduce government funding, but also provides a cash injection to those companies who may still be reeling from minimum wage AND national insurance increases.

I’m not an ethicist, so am unable to provide a clear, concise, philosophical argument to explain why the ability of government to steal from you via the processes of monetary inflation as well as an ever-increasing tax burden in immoral, but I hope this provides a new perspective on the situation. I don’t believe increases in taxes support economic development (it literally does the opposite), I don’t believe that individuals should be penalised for working hard, challenging themselves, taking risks and succeeding. However, I’m not in charge of the system and also appreciate that if any major changes were to take place, the consequences would be significant (we’re talking Mandibles time). I believe removing capital gains tax from bitcoin would be a net positive for the economy and there being precedence based on the UK’s currently position with gold coins, but unfortunately, I don’t believe people in the cabinet think as I do, they see people with assets and pound signs ring up at their eyes.

As a result, my aim moving forward will be to think carefully before making purchases or sales that will incur capital gains tax (no big Lambo purchase for me at the top), but also being willing the promote the bitcoin economy by purchasing products and services with bitcoin. To do this, I’ll double confirm that spend/replace techniques actually get around capital gains by effectively using the payment rails of bitcoin to transfer value rather than to sell your bitcoin. This way, I will get to reward and promote those companies to perform at a level that warrants a little more effort with payment, without it costing me an additional 18-24% in tax later on.

So, to return to where we started and my first pay-cheque. We need to work to earn a living, but as we earn more, an ever-greater proportion is taken from us, and we are at risk of becoming stuck in a never ending fiat cycle. In the past, this was more of an issue, leading people into speculating on property or securities, which, if successful, would then incur further taxes, which will likely be spent by governments on liabilities or projects that add zero net benefits to national citizens. Apologies if you see this as a negative, but please don’t, this is the alternative to adopting a unit of account that cannot be inflated away. If you have begun to measure your wealth in bitcoin, there will be a point where you need to start to start spending. I for one, do not intend to die with my private keys in my head, but having lived a life, turbo charged by the freedom bitcoin has offered me. Bitcoin backed loans are returning to the market, with hopefully a little less risk this time around. There may be blow ups, but once they get established and interest costs start to be competed away, I will first of all acknowledge remaining risks and then not allocate 100% of my stack. Rather than being the one true bitcoiner who has never spent a sat, I will use the tools at my disposal to firstly give my family their best possible lives and secondly, not fund the government more than I need to.

Then, by the time I’m ready to leave this earth, there will be less money for me to leave to my family, but then again, the tax man would again come knocking, looking to gloat over my demise and add to my family’s misery with an outstretched hand. Then again, this piece is about capital gains rather than inheritance tax, so we can leave those discussions for another time.

This is not financial advice, please consult a financial/tax advisor before spending and replacing without filing taxes and don’t send your bitcoin to any old fella who says they’ll return it once you’ve paid off the loan.