Three brothers, Alex, Bob, and Chuck, each have 250 dollars in a bank account. At the current price of bread, they each have enough money to buy 100 loaves. Alex, who wants to test out his new freezer, buys 100 loaves of bread with the money. Bob is a conservative fellow, so he leaves his money in the bank. However, Chuck is concerned with the rapidly rising rate of inflation, and decides to exchange his money into Bitcoin as a way to hedge against inflation.
10 months later, the brothers compare notes. Soaring inflation has devalued 250 dollars to the point where it can only buy 50 loaves of bread now. Adam still has his 100 loaves in the freezer, in case of a zombie apocalypse. Bob consoles himself that at least he still has the same amount of money in the bank, even if its buying power has been cut in half. Chuck still has the Bitcoin he bought, which has now risen in value to 500 dollars. Instead of buying bread directly, he decides to first exchange it back into dollars.
When Chuck tells his story to his neighbor, Dave the accountant, he is surprised to discover that he now owes taxes, simply by trying to avoid inflation. Chuck's ability to still buy the same amount of bread is not viewed so charitably by the tax man, who huffs and puffs and sees it as a short-term capital gain of 250 dollars. Since Chuck is a good, upstanding citizen, he pays the taxes. Now he only has the ability to buy 88 loaves of bread, which is clearly not enough to outlast the zombie apocalypse.
Chuck makes a mental note to…
(Please finish the story in the comments.)
Points to note:
Alex paid no taxes for holding his bread, and ends up with more loaves than Chuck.
The higher the rate of inflation, the more taxes Chuck will pay.
Chuck is not very good at op sec. Perhaps he will learn.
I've been lurking on r/Monero for a long time, but just decided to create an account so I could join this group. So much respect for what the Monero devs are doing, as well as the Monero community. 🙂