German government declares bitcoin private money, subject to tax

Despite the rising popularity of bitcoin and its expansionary plans, governments are trying their hardest to ground and pound the alternative currency. Last week, it was reported that the New York Department of Financial Services issued subpoenas to numerous firms associated with bitcoin.

Now, the German federal government has deemed bitcoin as a “unit of account,” which means it is classified as private money and is subject to tax, according to Die Welt. The Finance Ministry told local news outlets that mining of the bitcoin currency is similar to “money creation.” The latest declaration signifies that bitcoin can be regulated akin to shares – any profit can be taxed.

It should be noted, however, that even though the government can tax bitcoin it can be rather difficult to determine how much any one person holds. Since the alternative currency is purely anonymous and it is hard to locate transactions, implementing a tax could be extremely complicated for the government.

Frank Schaeffler, a member of the German parliament’s Finance Committee, stated that he is a fan of Friedrich August Hayek and the concept of denationalizing money and this move is a step in the right direction.

“We should have competition in the production of money,” said Schaeffler. “I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction.”

Financial experts, meanwhile, lauded Germany’s “forward-thinking” approach because if the euro collapses and everyone converts to bitcoin then bureaucrats could still collect tax revenue.

“I think it is interesting that Germany has gone ahead and given legal status to the bitcoin, as it could become an alternative to the euro if the single currency ever ceased to exist,” said Kathleen Brooks, a research director at, in an interview with CNBC. “If the euro does go belly up the German authorities could potentially still collect tax if everyone started using the bitcoin – that’s a good example of German forward-thinking!”

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