Tech & Telecom

Post image for Taxable Bitcoins: Property or Money?

Is Bitcoin currency or property? It depends on which parts of the federal government you ask. Last week the Internal Revenue Service (IRS) announced that bitcoins are taxable and how it would implement such taxation. While the rule could have been much worse, the manner in which the IRS went about doing so brings up many more legal questions.

In context, the fluctuating exchange rate between bitcoins and dollars does cause the cryptocurrency to behave more like property in terms of valuation. The IRS merely took its explanation on “virtual currencies” from the current definition of taxable bartering:

Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise.

This is clearer when seeing the IRS’s answer to how Bitcoin values must be calculated for tax purposes:

…A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.

This classification of Bitcoin as non-currency for tax purposes isn’t that new. Back in January 2014, Sweden’s Tax Agency moved to classify bitcoins as assets rather than currency itself. In Australia, this month, the tax authority announced Bitcoin transactions person-to-person would be subject to a “goods and services” tax, similar to the IRS classification, as well as a capital gains tax for profits made through Bitcoin. It is not unusual for bitcoins to be treated as non-currency for tax purposes.

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Post image for Human Achievement of the Day: 3D Printing Cups, Cars, Houses, and Faces

3D printing is a relatively recent technological development that has already begun to revolutionize model-building, structural and other medical procedures, and construction of items from toys to houses.

Also called additive manufacturing (as contrasted with subtractive processes, that is, machining), 3D printing uses digital instructions produced through computer-aided design (CAD) software to create an item by “printing” it in layers using a variety of materials – powders, plastic, ceramics, etc. With ink-jet-type print heads, the materials are extruded layer by layer according to the design.

In its early applications, 3D printing was principally used for creating prototypes or models of larger objects. With 3D printing, those prototypes could be built with greater precision and speed and allow for quick modifications in the design. Rapid prototyping developed during the 1980s and early 1990s.

In the past decade, 3D printing applications have found fertile ground in the medical field. Almost daily, a medical breakthrough made possible through 3D printing is announced. Today, researchers announced that they had created heart muscle that beats when it is implanted in animals. Yesterday, news stories reported that 3D printing had saved a baby’s life by printing a splint that fit over his windpipe and kept it open so he could breathe.  Researchers are using 3D printing to produce scaffolding that they then grow tissue on to rebuild human skeletal parts that have been heavily damaged by injuries or diseases.

For example, structural 3D printing has been used to rebuild a young man’s facial structure after an accident shattered his face. A cancer sufferer had a new pelvis “printed” using that technology. Doctors are more often simulating difficult and lengthy operations by using 3D printed models of the organs or parts of the skeleton on which they will be operating. Using those models can drastically reduce the operating time involved and lead to safer and more efficient surgery – thus reducing the risk to the patients.

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CEI General Counsel Sam Kazman about to take a spin in the Google car. (Photo by Marc Scribner)

CEI General Counsel Sam Kazman about to take a spin in a Google self-driving car in May 2012. (Photo by Marc Scribner)

As we prepare for another Human Achievement Hour (this Saturday, March 29, 8:30 pm – 9:30 pm), we at CEI are examining some of the latest, greatest innovations that will make the future even freer and more prosperous. One massively transformative technology currently in development is the autonomous vehicle, known more widely as “driverless” or “self-driving” cars. Google’s prototype has been covered extensively by the media, traditional automotive companies such as Bosch and Volkswagen are working hard on their prototypes, and new estimates put the potential societal benefits of autonomous vehicles at $3 trillion per year.

As I’ve noted in the past, we should be “thrilled that a technology that can greatly improve traffic safety, offer disabled people an unprecedented level of personal mobility and fundamentally change the way we travel is so close.” Soon, if you imbibe too much on a night on the town, your car or a rideshare provider’s car will be able to take you home. And thanks to reduced congestion due to optimized driving behavior, we will also enjoy improved local air quality. Whatever your political leanings, you should be excited about our driverless future — unless you’re reflexively and ideologically anti-technology.

In the last 10 years, the technology has progressed a great deal — to the point where it is quite possible that first generation highly automated vehicles will be available to consumers before the decade closes. To understand how we got to the stage of the Google self-driving car, it is instructive to see how far we’ve come. What follows is a brief history of autonomous vehicles that covers the technologies’ developments up until about 10 years ago.

Personal mobility has traditionally required active human monitoring and direction, from walking to riding horseback to bicycling. The physical and cognitive demands of travel have long been recognized, as has the capacity for and costs of human error in transportation. In the late fifteenth century, Leonardo da Vinci sketched out a design for a self-propelled cart with programmable steering, which was later compiled in the Atlantic Codex.

Engineering interest in vehicle automation stretches back to the 1920s, when auto ownership first became within reach of middle-class households. Inventor Francis P. Houdina demonstrated a radio-controlled car on the streets of Manhattan in 1925. Houdina’s invention was never treated as anything more than a novelty – although his company’s prominence led to a physical altercation with famed escape artist Harry Houdini, who thought Houdina was capitalizing on their similar names, which resulted in a disorderly conduct charge against Houdini – but the challenge of developing automated vehicles became recognized in research communities.

At the 1939-1940 New York World’s Fair, General Motors’ interactive Futurama exhibit predicted high-speed automated roadways in 20 years. While GM’s prediction of a driverless world proved premature, its prediction of individual automobile ownership becoming widespread rather than a luxury for the wealthy and upper-middle class — which sounded incredibly bizarre during the Great Depression – proved accurate.

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Post image for MtGox is Dead, Long Live MtGox!

MtGox, once a pillar of the Bitcoin exchange market, filed for bankruptcy on March 10. In February, the website had ceased withdrawals before ceasing all transactions at the beginning of March. The fallout from the Mt. Gox collapse will bring up many debates about the need for bitcoin exchange regulations, not to mention the bitcoin network’s long-run viability. It is best to understand what actually occurred with MtGox before jumping into action.

MtGox enabled account holders to exchange bitcoins for dollars and vice versa. Within the bitcoin currency network, there are many different exchanges, but MtGox, at one point, controlled about 80 percent of the market, giving it significant influence over the bitcoin market.

MtGox was created back in 2011, with its name as an acronym for Magic the Gathering Online Exchange, named after a trading card game by the same name. From the beginning the site had trouble with security, and was subject to a series of attacks.

One of the most significant events for the exchange occurred in May 2013 when the U.S. Department of Homeland Security (DHS) seized $5 million worth of bitcoins. DHS argued that MtGox had failed to properly register as a money service business. MtGox followed up by registering with the Financial Crimes Enforcement Network (FinCEN), a government agency that regulates monetary industries such as banking to counteract crimes like money laundering and trade in illegal goods.

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I’ve written about the importance of charging road users for their road use for some time. Moving toward a truly user-pays system will require significant reform. For U.S. highways, federal and state fuel taxes provide the bulk of the funding. While the idea behind levying an excise tax on gasoline to fund roads was rooted in user-pays, political developments and new technology necessitate the move away from user taxes and toward more direct, and distance-based, user fees.

Recently, road usage charges became an issue in the Virginia gubernatorial race, with some Republican activists trying and failing to paint the Libertarian candidate as a big-government tool for broadly suggesting that the state investigate the viability of replacing fuel and sales tax road funding with a user charge. Oregon has become the first state in the nation to introduce a user charge pilot program and many others are investigating similar programs. High-tech user charges such as all-electronic tolling and GPS-based charging systems are increasingly being seen as the next logical move for road revenue collection.

On March 12, the Mileage-Based User Fee Alliance (MBUFA) will hold a day-long conference featuring leading practitioners, such as former AASHTO COO and current MBUFA chairman Jack Basso, and politicians, such as Rep. Tom Petri (R-Wisc.), Chairman of the Highways and Transit Subcommittee of the U.S. House Transportation and Infrastructure Committee. The conference will be held in downtown Washington, D.C. Anyone interested in learning about the latest road charging developments — both technological and political — should consider attending this conference. Registration details can be found here.

Have a listen here.

CEI Fellow Marc Scribner opposes a bill that would ban in-flight cell phone usage on airplanes. He believes that decision should be left to airlines, who have the technology to disable phones’ voice communications allowing data usage for texting, emailing, and Web browsing.

Post image for House Committee to Markup Bill Banning In-Flight Cell Phone Calls

Tomorrow morning (Tuesday, February 11), the House Transportation and Infrastructure Committee will markup the Prohibiting In-Flight Voice Communications on Mobile Wireless Devices Act (H.R. 3676). The bill would bar travelers from making cell phone calls on commercial flights—a response to the Federal Communications Commission’s recent proposal to relax its longstanding ban on in-flight cell phone use.

H.R. 3676 purports to solve a problem that doesn’t exist by depriving consumers of travel choices, as I explained recently in an op-ed in USA Today. To be sure, I sympathize with travelers who fear being stuck next to a chattering bore for a long flight. However, the FCC’s deregulatory steps wouldn’t require any airline to offer voice calls in-flight; rather, the new rules would merely permit airlines to experiment with in-flight calling if they so choose.

The bill’s sponsors concede that some in-flight phone calls are acceptable, exempting Airfone-style in-seat phone calls from the ban. If voice calls on commercial flights are so bad, why continue to allow some passengers to make them on some planes?

Supporters of the bill have fretted about the prospect of passengers loudly yakking away on long in-flight cell phone calls. Yet the technology that enables in-flight cell phone calls usually charges roaming rates for voice calls, discouraging passengers from spending hours on the phone.

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It was announced that Rep. Henry Waxman, D-Calif., is proposing new net neutrality legislation. The proposed bill has likely been made in response to the recent court ruling in Verizon v. FCC, as it focuses on preserving the Federal Communications Commission’s (FCC) non-discrimination rule.

The non-discrimination rule forbid Internet service providers such as Verizon from charging content providers such as Netflix more than other sites to provide greater bandwidth. This rule was struck down last month by a federal appeals court. That was the correct decision because it allows for ISPs to prioritize access for content providers so that these new fee arrangements can generate revenue to invest in more network infrastructure.

The bill may be a Rep. Waxman’s last swing before retiring at the end of this term. Unfortunately, for Rep. Waxman, it is likely to be a fruitless effort, as the possibility for such a bill to pass the Republican-majority House is very low.

In fact, not only is the effort in vain, it may be redundant as well. As Berin Szoka of TechFreedom stated:

[The court] decision interpreted Section 706 as authorizing the FCC to regulate any company within its jurisdiction based on the argument, however contrived, that regulation would somehow promote broadband. This interpretation opened the Pandora’s Box of Internet regulation by both the FCC and state regulators.

The FCC already retains the ability to regulate the Internet to an overbearing degree. Congress should be working to restrain the FCC, not emboldening it to control the Internet.

In this instance, Waxman may end up leaving Congress with more of a whimper than a bang on net neutrality.

Post image for USDOT Calls for Connected Vehicle Mandate; Security and Privacy Concerns Remain

The U.S. Department of Transportation (DOT) announced today it would chart a regulatory path that would require all new automobiles to be equipped with vehicle-to-vehicle (V2V) communications systems sometime in the next several years. This follows a National Transportation Safety Board recommendation that connected vehicle technology be mandated on all new vehicles.

V2V and vehicle-to-infrastructure (V2I) safety systems could provide large safety benefits in the future. Unfortunately, DOT has jumped the gun, requiring systems while large challenges remain, particularly issues related to data privacy and security.

A November 2013 report from the Government Accountability Office (GAO) provides a good description of what DOT is attempting to do:

DOT and the automobile industry have been conducting research on new types of technologies to prevent crashes—called vehicle-to-vehicle (V2V) technologies—in recent years. These technologies facilitate the sharing of data, such as vehicle speed and location, among vehicles to warn drivers of potential collisions. Based on the data shared, V2V technologies are capable of warning drivers of imminent collisions, including some that sensor-based crash avoidance technologies would be unable to detect. DOT’s efforts related to these technologies are being led by NHTSA and the Intelligent Transportation Systems (ITS) Joint Program Office within DOT’s Research and Innovative Technology Administration (RITA). According to NHTSA, if V2V technologies are widely deployed, they have the potential to address 76 percent of multi-vehicle crashes involving at least one light vehicle by providing warnings to drivers.

Sounds good, right? But there are big challenges to V2V deployment, of which GAO identifies five:

1) finalizing the technical framework and management framework of a V2V communication security system, which will be unique in its size and structure; 2) ensuring that the possible sharing with other wireless users of the radio-frequency spectrum used by V2V communications will not adversely affect V2V technology’s performance; 3) ensuring that drivers respond appropriately to warnings of potential collisions; 4) addressing the uncertainty related to potential liability issues posed by V2V technologies; and 5) addressing any concerns the public may have, including those related to privacy.

Requiring that cars “talk to each other” before critical issues related to security (how are hackers prevented from manipulating V2V warnings and how are the security systems financed and operated?) and privacy (who owns the V2V data collected and who may obtain it, and under what conditions may they obtain it?) strikes me as premature. The automakers and senior lawmakers, such as Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., are similarly concerned.

The private sector, in partnership with government researchers, has been methodically developing V2V and V2I technologies. We should allow them to continue this process without the imposition of regulatory mandates, however good the intentions. Once the technologies have been sufficiently improved, we should allow the market to determine V2V deployment. Not only will this maintain consumer and producer choice, but it will reduce the very real safety risks associated with prematurely deploying potentially flawed technologies.

Even if you believe a V2V government mandate is an appropriate public policy position, you should recognize that this call from DOT is premature. Lawmakers should call on the DOT to continue its partnership with the private sector in the development of nonbinding V2V standards, rather than moving forward with strict regulatory requirements.

ECONOMIC MOBILITY
Iain Murray, Vice President for Strategy:
“The fact is: Today’s America is divided between those who work for government and those who don’t. Those who work for government have a job for life, guaranteed retirement and other benefits, and financial security,” said Murray. “Those who don’t, have uncertain prospects. They are at the mercy of an administration that is making their benefits more expensive and restricting their access to credit with more and more regulations. That is the true inequality in President Obama’s America.”

Ryan Young, Fellow:
“Given what reports suggest will appear in the president’s State of the Union address, we need to keep in mind three things. First: A higher minimum wage is not a free lunch, and will force some employers to reduce hours or fire workers. And, second, extending unemployment benefits will keep unemployment unnaturally high,” said Young. “The third thing is: If the president is truly concerned about the poor, he should support policies that would make the poor better off instead of focusing on income inequality. One of these policies could be a deregulatory stimulus that would make it easier to start a business and hire workers.”

REGULATORY REFORM
Wayne Crews, Vice President for Policy:
“Ours is the era of big borrowing and big regulation — and big executive power, perhaps untethered by Congress or the Constitution. The latter will be a centerpiece of President Obama’s State of the Union address,” said Crews. “What America needs instead is a leaner government that rejects overspending and over-regulating. Leadership means unleashing the entrepreneurial sector from over-regulation, and allowing U.S. citizens their natural right to opt out of big, destabilizing government programs like the president’s health care law.”

ENERGY
Myron Ebell, Director of CEI’s Center for Energy and Environment:
“If President Obama were really committed to boosting the economy, he would tell Democratic Majority Leader Harry Reid to bring the pro-energy, pro-jobs bills passed by the House to the Senate floor for a vote,” said Ebell.” I would recommend the president announce his intentions to approve the Keystone XL Pipeline in the State of the Union address. However, he seems more determined to order new EPA regulations that will raise energy prices and impoverish Americans.”

JOBS & ECONOMY
Aloysius Hogan, Senior Fellow:
“An actual focus on jobs is sorely needed in America, but the president’s promises past and present haven’t borne fruit. Hiring is held back by ObamaCare, according to business surveys. Jobs are being killed by the administration’s regulatory policy such as those in the coal-mining industry. Financing of start-ups and expansion is hamstrung by Volcker Rule red tape,” said Hogan. “America’s labor-force participation rate is the lowest in more than a generation, and the president’s approach to jobs is not helping the situation.”

TECHNOLOGY
Ryan Radia, Associate Director of Technology Studies:
“I expect the president will echo his recent proposal to ‘reform’ the National Security Agency’s mass surveillance programs in his State of the Union address. His latest plan focuses on shifting the burden of collecting, storing and securing Americans’ phone records to telecom companies or another private ‘third party,’” said Radia. “The problem is the government will still be able to access privately held phone records without a warrant. What is worse: outsourcing bulk-data collection to America’s private sector would undermine trustworthy digital relationships, and with them, the nation’s enviable position atop the global information economy.”

FINANCIAL MARKETS
John Berlau, Senior Fellow:
“Given the impact regulations have on our economy, I would like to see President Obama address some of the consequences we are seeing from the Dodd-Frank Act,” said Berlau. “We need a moratorium on issuing new Dodd-Frank regulations in order to allow for a review of the negative, unintended consequences of the current ones. Even Democrats, like Rep. Maxine Waters of California, are concerned about these overly burdensome rules and the suffering they are causing main street banks and credit unions.”