A wallet that tracks your fiat cost base is important to develop so that U.S. people can pay taxes, but "discussion" about it among people who don't have the capability to make it (not to say it is difficult because it is a standard requirement for enterprise accounting since 1800s) is moot.
The issue is not just record keeping and calculation, but also planning and timing. The timing on planning interferes with the timing-fungibility of money. This is one of the reasons why investments are not money.
He missed the point. If everyone has to factor the timing of tax planning into the timing of spends, then money sometimes loses the main reason it existed, which was to remove the gridlock caused by barter due to mismatches of the timing of what trading parties wanted to trade. For example, you want to buy that $1000 item, but this would move you into a higher tax bracket for the year, so you must wait until after Dec. 31.
You set up your wallet software such that it automatically spends the last earned coins, which makes it a wash generally (or yields a small gain for which you need to pay taxes and be happy that you get to
keep about 60-90% of the purchasing power that would have been 100%
lost to inflation in the case you had been using USD instead of Bitcoin). This is similar to using currency.
If you are spending more than you earn, then your wallet spends the coins that were accumulated earlier, in which case you suffer a larger tax hit. This is similar to selling your investments for profit, and paying taxes.
Can someone else explain why this is the end of Bitcoin because I fail to see it?
Like most other bitcoin issues, you've analyzed it correctly and other people are just spewing their knee-jerk reaction: "Oh no, if I use bitcoin I have to report my gains to the IRS? I never had to do that with dollars." THAT'S BECAUSE YOU HAD NO GAINS BEFORE.
IIUC, in the US, you can use whatever method of accounting you want (FIFO, LIFO, etc), as long as you don't count the same bitcoin twice. However your LIFO suggestion makes the most sense for those wanting to use bitcoin as a currency.
I still don't understand this stuff about bitcoin not being fungible now. It's still fungible. Just because you bought them at different prices doesn't mean it matters which are which. Shares of stock are still fungible despite the reporting of capital gains.