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Why Ohio bitcoin tax gimmick is like paying with Beanie Babies

USA TODAY logo USA TODAY 12/24/2018 Susan Tompor
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Car dealer Bernie Moreno took a small step outside of the tax payment comfort zone to show that bitcoin one day could be much more than a buzzword.

Moreno, 51, converted U.S. dollars into bitcoin in late November and paid off some taxes relating to car leases to the state of Ohio — gaining the Facebook bragging rights that he was the first ever to use bitcoin to pay some type of state taxes in the country.

“Digital currency and blockchain are really the next tech revolution,” said Moreno, president of The Bernie Moreno Cos auto dealership in Olmstead, Ohio.

Ohio is the first state in the United States to accept cryptocurrency. The state allows payment of 23 different business taxes via the portal, including the state sales tax, cigarette taxes, the public utilities tax, withholding tax and assorted other taxes.

"From mom and pop coffee shops to Fortune 100 companies, businesses now have the ability to pay their taxes with OhioCrypto.com," the Ohio Treasurer's website says. 

For security purposes, a business must have a profile on file with the state Treasurer’s office so the state knows the business and what taxes it is registered to pay.

There's an initial three-month window where no fees will be charged. After the introductory period, the transaction fee will be 1 percent. The added cost would be lower than charges for using a credit card, the state said. 

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More: Ohio becomes first state to accept bitcoin for tax payments

Is Ohio for real? 

Sure, this tax thing is a gimmick – and most people can see right through it. 

"The Ohio announcement is mainly a PR stunt," said Kevin Werbach, professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania. 

"There is not a particular advantage in paying your taxes with bitcoin today," Werbach said. "The state just wants to signal that it’s 'cryptocurrency-friendly.' " 

After all, many businesses aren't sitting on a pile of bitcoin currency. Some would have to go out and pay extra fees to buy bitcoin to pay taxes with it. And who is really going to do that? 

On top of that, we're talking about one incredibly speculative form of electronic cash. Imagine trying to pay any bill with something like highly-volatile tech stocks or Beanie Babies in the 1990s.

Bitcoin isn't for paying bills

Andrew Wu, assistant professor of technology and operations and finance at the University of Michigan's Ross School of Business, said the volatility of bitcoin itself makes it unsuitable for things like paying one's taxes. 

What's it really worth today? 

Bitcoin made headlines a year ago with an incredible run up in its price.

Just a year ago, bitcoin was a speculative sensation and hit a all-time record of $19,870 on Dec. 17, 2017. That's after kicking off 2017 at nearly $1,000. 

Yet after that incredible run up in 2017, we saw one miserable fallout in 2018.  Now, we're talking about an 82 percent drop in just 12 months. 

Bitcoin was trading around $3,548 on Dec. 17 after suffering startling losses in just one month. The world’s largest cryptocurrency had kicked off November at an average price around $6,341, according to CoinDesk. 

"The extreme volatility makes it pretty unattractive from a payment prospective," Wu said. 

After all, the value of a dollar is that it holds its value from day to day. Bitcoin can't even hold the same value hour to hour. 

To deal with that fluctuation, the bitcoin tax-process in Ohio involves partnering with a third-party called BitPay, an Atlanta-based payment service. The state is not holding any cryptocurrency assets. 

One word: Blockchain 

Bitcoin payments, though, aren't the end game for Ohio.

Ohio's state treasurer Josh Mandel told CNBC that the Buckeye State is looking to attract blockchain start-ups with its new acceptance of bitcoin for taxes. Blockchain has the potential to revolutionize the financial services industry by making payments faster, more secure, and less expensive on a global scale, according to industry backers. 

Wu said the blockchain story is one that Ohio could benefit from one day. 

"It makes sense for the states to be friendly to these blockchain start ups," Wu said. "The blockchain technology itself is very, very different than cryptocurrency." 

While bitcoin is mainly a speculative asset now, he said, blockchain technology ultimately will be useful to manufacturing, logistics and other industries to store and record transactions. 

In May, General Motors and Ford joined BMW and Renault and other firms to create the Mobility Open Blockchain Initiative to explore how manufacturers could tap into this new technology.

Bitcoin, on the other hand, is unlikely to be adopted in the mainstream as a way to pay for goods or services, Wu said. 

Even if a business accepts bitcoin for payment, like Moreno did a few times, the business most likely will immediately convert that bitcoin into U.S. dollars because the risk of wild currency fluctuation is simply too great. 

Moreno has sold three cars over time where the buyers, mostly entrepreneurs, paid in bitcoin. He sold an Austin Martin and two Porsche vehicles.  

Moreno has never invested in bitcoin himself. He first heard about bitcoin about four years ago when his teen son brought up the quirky currency.

He remembers the conversation being something like a famous line in the movie “The Graduate.”

“I’ve got one word for you Dad: bitcoin.” 

His son, he said, made money on the bitcoin bet.

Not everyone did, of course.

Even with the wild fluctuations, Moreno said he has no doubt that digital currency will be part of the future – much like credit cards, cell phones and personal computers spun things around. 

"It's really about Ohio putting a flag in the ground, saying ‘We will lead in this new technology,'" Moreno said. 

Contact Susan Tompor: stompor@freepress.com or 313-222-8876. Follow Susan on Twitter @Tompor. 

This article originally appeared on Detroit Free Press: Why Ohio bitcoin tax gimmick is like paying with Beanie Babies

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