Adam Levitin is all over the IRS decision to tax Bitcoin as property, over at Credit Slips. He thinks the IRS rule extinguishes Bitcoin’s promise as a medium of exchange, because now “I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be.” In other words, Bitcoins will no longer be fungible in the way that dollar bills are fungible. You will need to calculate each Bitcoin’s basis to know the tax consequences of spending it.
Adam is much better versed in the tax dimension of the question than I am. However, as I wrote on Tuesday, I think this call may be premature. The IRS ruling probably will complicate the spending of Bitcoin, but the effect of that on Bitcoin adoption may be muted. One possibility is that middlemen that enable merchants and customers to easily keep track of their BTC transactions (I used the example of Coinbase) may go from helpful to essential. For example, presumably you can set up your Coinbase account to automatically hold onto Bitcoins acquired at, say, $100 and spend those you acquired closer to the current market price instead.
If you’re interested in Bitcoin, I also recommend Adam’s post earlier this year on the diminishing returns on Bitcoin “mining” (seigniorage).