Feeling lost? See parts one and two of this guide.

The Bitcoin community has made great strides in spreading adoption so far. Businesses accepting Bitcoin have popped up all over the world, and in many cities like Vancouver, we’re starting to experiment with spreading vertically along the supply chain. Hopefully soon the public will begin to embrace it, but a crucial problem remains: if everyone gets paid in bitcoins, how will they pay their taxes?

There are a lot of things that just aren’t easy to accomplish with a grassroots approach. In many parts of the world, people still rely on things like public transportation, the payment mechanisms for which are controlled by the government. If you go to a public university, or have to pay a fine, or want to buy a license or permit, you can only pay with whatever currency the government is accepting. Since many working adults in the world have real responsibilities, like families, they’re not going to risk incarceration in protest.

It’s up to us, therefore, to make it tenable for them. As of the time of this writing, we have yet to find a solution for this problem in Vancouver, but there are people here and abroad approaching the obstacle from different angles. Several avenues of societal integration appear to be emerging, and with them a clear path towards a cryptocurrency-based society.

The first and easiest stepping stone would be intermediary tax and bill-payment services; if a third party will take Bitcoin and pay your bills in fiat, utility companies don’t have to accept. Many businesses around the world have already accomplished this, such as Bylls, which spawned from the Montreal Bitcoin Embassy. One can even pay his or her taxes this way, which allows a fiat-free lifestyle without incurring the wrath of the authorities.

Hopefully, that prospect excites you, and you will become one of many Bitcoiners to use such a service. If the resulting volume becomes sufficient, companies lacking an inherent stake in the fiat system will feel compelled to adopt. Cutting out the middleman effectively undercuts competitors, so utility and communications companies that lag in doing so will be at a disadvantage. Already, businesses like DISH Network are initiating the process.

Governments do have a stake in the fiat system, though, because they control the money supply. In many instances they wield a monopoly, which they could use to contain the spread of cryptocurrency. Often times they do not, however, such as municipal transit systems, which compete with personal vehicles and taxi services. Managing change is a logistic difficulty, especially for public transit like buses where boarding speed and efficiency are crucial. The instantaneous and precise nature of Bitcoin solves these problems, and convincing just one government enterprise to adopt gets Satoshi’s foot in the door.

This will precipitate a gradual cultural shift, in which people start to accept the possibility of a decentralized society–at that point, any remotely-democratic state will be fighting a losing battle. Reach out to receptive government enterprises and institutions whenever possible, and the acceptance of each one will encourage the acceptance of the others. This will build confidence in Bitcoin, and as the price rises, government agencies will have to hold their financial assets in it, or else watch them inflate to oblivion.

The central government will begin to run out of options at this point. Not only will the contractors they pay be using Bitcoin, but so will their own agents. This is the time to campaign for the state to formally adopt Bitcoin; sheer market force will compel them to hold their finances in Bitcoin, as well, in order to avoid bankruptcy. Once they’re holding Bitcoin, and paying expenditures in Bitcoin, they’ve no reason not to accept taxes in Bitcoin, as well.

As soon as one nation adopts, the same bandwagon effects will play out on the international stage; nations have to interact with one another, and they don’t want to do so through a middleman. But what if a rogue dictatorship chooses to break the mold, despite the repercussions? What if our own representatives refuse to accept the coming of change, or we just don’t want to be ruled by other people, anymore? Find out in the last installment of Building a Bitcoin Economy.