The US government and other nations are starting to wake up to the fact that monetary-value is shifting into virtual currencies due to the highly democratized nature of the Internet and the interests of cyberspace users in valuable virtual commodity. This is the center of a new US GAO report on how virtual currencies such as World of Warcraft gold and Bitcoin might run into regulatory nature of taxability—we’ve heard this one before, but it’s always worth noting when some officially natured entity perks its ears and puts pen to paper.

On the services front, looking to buy, sell, trade stocks with bitcoins and want to keep as much anonymity as possible? Look no further than an interesting project called TorBroker that utilizes Tor and Bitcoin to do exactly that.

Also, this is the week of physical wallets—a way to store bitcoins in your pocket in case you want to exchange them person-to-person and make offline transactions. The needs of these wallets include something that allows a transaction to happen without permitting a double-spend (if the sender gets to the Internet before the receiver) in order to make the bitcoins more like physical cash. We look to TREZOR and Firmcoin to provide interesting solutions.

A Government Accountability Office (GAO) report on virtual currencies puts Bitcoin on the block

The day would come that the IRS and tax agencies in the US would start to draw their attention to virtual currencies from those that exist in massively multiplayer online games (MMORPGs) such as World of Warcraft and virtual worlds like Second Life—and no doubt Bitcoin would come under the same scrutiny. After all, it’s a currency and it provides for a value exchange just like USD. If anything, BTC seeks to supplant the USD in a lot of circumstances.

So, a report from the GAO seeks to cite where these virtual currencies might impact US tax law and it’s a long, but still interesting, read. For further analysis, I direct readers to meander through the long, but also good read, posted over at The Security Ledger, but for those looking for the quick-fix, keep reading below.

The gist of the report from the very beginning:

Transactions within virtual economies or using virtual currencies could produce taxable income in various ways, depending on the facts and circumstances of each transaction. For example, transactions within a “closed-flow” virtual currency system do not produce taxable income because a virtual currency can be used only to purchase virtual goods or services. An example of a closed-flow transaction is the purchase of items to use within an online game. In an “openflow” system, a taxpayer who receives virtual currency as payment for real goods or services may have earned taxable income since the virtual currency can be exchanged for real goods or services or readily exchanged for government issued currency, such as U.S. dollars.

No doubt the section about “closed-flow transaction” economies will give World of Warcraft users a sigh of relief at the headline that came with this one—although it is possible to sell gold in WoW it’s not actually “legal” to do so as Blizzard doesn’t permit it. Most users—even the 1-percenters of the WoW economy—never purchase nor ever sell their gold, they just accumulate it as part of the game and the fun involved.

Second Life and Project Entropia players, however, might find themselves in hot taxable-water because the virtual currency from these games are directly designed to flow out of the virtual worlds and back into USD and are legitimately licensed to users to do so.

Finally: mining Bitcoin? With exchanges functioning as they are and the capability to use it as a valuable currency, it could end up being tracked as a sort of income; because in fact as a currency it is indeed a kind of income. Most of the commentary about this GAO report seem to meander around how it might impact tax law in that taxable money would be transferred into BTC and then used to make transactions and that means that bitcoin use would therefore be taxable.

Tor and Bitcoin together: a well-expected mix of technology for stock trading?

Now in beta, a project called TorBroker has launched and uses the Tor anonymizing network to provide a  “Bitcoin gateway to the markets.” The service allows users to deposit BTC and trade securities in real markets and uses the Tor network to obfuscate routing to and from the service to increase the privacy of users–but TorBroker itself is not related to The Tor Project itself (just makes use of the network like any other client can.)

According to the website the service supports nearly 1000 stocks and ETFs—from a cursory glance, this seems like an extremely worthwhile use of both technologies: Tor’s anonymity and decentralized nature and Bitcoin’s power to be a decentralized and mostly anonymous currency. However, although the technologies feel like they should be sunshine-and-roses when mixed, the sense from the community is a little bit shaded with much needed skepticism.

A lengthy, but well-rounded, article at Bitcoin Magazine makes the case that while this service need-not-be a flybynight concept, the operation itself lacks trust and is still untested and unvetted by the community.

The Bitcoin community has seen exchanges vanish into thin air, hardware vendors that felt a little sketchy, and there’s no little expectation that the same sort of financial malfeasance and crimes will not also inhabit BTC exchanges. This isn’t because of anything special about bitcoin (after all cash transactions generally come with their own caveat emptor) but because financial exchange over the Internet exists in its own misty-veil of potential lack of liability and responsibility.

Right now, TorBroker is an amazing idea that falls into a niche that no doubt will have an audience. Many people who come to bitcoin do so because they feel that it will protect their interests in privacy—and TorBroker is designed to do exactly that—however, privacy provides a double-edged sword when it comes to protecting one’s interests in the hands of a 3^rd party. This is why trust is such a valuable commodity for all bitcoin transactions and where TorBroker will have to prove itself.

No judgments here yet; but if you’re interested in TorBroker’s service the Bitcoin Magazine article might be a good place to start and committing slowly. No doubt, the brokerage service will reappear in Bitcoin Weekly later as the service upgrades its capabilities as well as its trust.

Bitcoin physical wallets: TREZOR and Firmcoin

While the go-to-pragamatic-glory of cryptocurrencies such as bitcoin happen to be their capability of being transmitted through shadows-and-air via the Internet and wireless, there’s a lot of people who’d like to carry them in their pocket. As BTC happen to be a wifty-digital-currency that means that they can be stored on the Internet and triggered via applications on smartphones with QR codes or even have their private keys transferred via NFC or RFID.

So the different types of physical bitcoin wallets is going to be myriad and innumerable: here’s the most recent two that have caught our eye.

The company, TREZOR, maker of a bitcoin-wallet-cum-dongle is now accepting pre-orders for their interesting little device. The company is led by Marek Palatinus (aka “slush” of the Slush Mining Pool) and Pavol Rusnak (aka “stick” founder of the Prague hackerspace.) The device comes in two versions, a plastic-covered dongle pre-ordered at 1 BTC and an aluminum-encased device pre-ordered at 3 BTC.

“This Pre-Order allows you to purchase a TREZOR today and be among the first TREZOR owners when produced,” the company’s FAQ states. “Please note, that the estimated delivery dates for each type of design might change. We are doing our best to be able to send you your TREZOR even earlier than announced.”

The plastic-encased device is slated for November 2013 and the aluminum version is set to release in October 2013.

Next up is Firmcoin, a physical-wallet designed to allow cryptocurrencies (such as bitcoin) to be traded much like science-fiction credits (or at least act more like money transaction on the street.)

“Firmcoins are a new kind of money support for Bitcoin and other cryptocurrencies,” the website describes. “Firmcoins behave as bills, they can be given as payments and accepted off-line, with high security and protections against double-spend. And whenever you want, you can extract the coins from a Firmcoin and transfer those coins electronically as usual. At any later time you can reload a Firmcoin with any amount of coins.”

The Firmcoin hardware mechanism affords privacy and anonymity (as much as the bitcoin protocol can provide) and the exchange can happen offline. By that I mean, the paper wallet itself is so cheap for a user that the Firmcoin paper-wallet itself is designed to be handed off like a wallet. The full description of its functionality can be read up at “What is a Firmcoin?”

This means that the wallet itself combines the nature of an offline bitcoin transfer and the physical concept of trading value via a physical object.