Tag: Coins

The Bitfinex Hack Arrests and $3.6B in Recovered Bitcoin: What We Still Don’t Know

by Decrypt

On February 8, the Department of Justice (DOJ) announced the arrest of Ilya Lichtenstein and Heather Morgan on charges of conspiracy to launder cryptocurrency stolen during the 2016 Bitfinex hack, and conspiracy to defraud the United States.

The story has captured mainstream fascination this week like few other crypto stories do, in particular because people have been fascinated with the alleged culprits, who showed off their New York City social lives and rapped on Instagram and TikTok. 

As Bitcoin analyst Jason Deane of Quantum Economics told Decrypt, “It seems impossible to marry the sheer extent of the alleged crime with the meme-rich videos of these two ‘influencers’ who appear as far away from being master criminals as it is possible to be.”

Here’s what we know thanks to the public legal documents: The DOJ seized $3.6 billion worth of Bitcoin; both Lichtenstein and Morgan have been charged with conspiracy to launder cryptocurrency, and conspiracy to defraud the U.S.; and if found guilty, both parties face up to 20 years in prison.

Simple enough, right? But there’s plenty about this saga that we still don’t know.  

Why did they get caught?

According to the DOJ press release, both Lichtenstein and Morgan allegedly employed “numerous sophisticated laundering techniques.” 

These included using fake identities to set up online accounts, automating transactions, and depositing stolen funds into accounts at several exchanges and darknet marketplaces. IRS Criminal Investigation chief Jim Lee described the scheme as “methodological and calculated.” 

Over the last five years, approximately 25,000 BTC underwent a complicated money laundering process before allegedly being deposited in financial accounts controlled by both parties. 

The sheer amount of time that has gone by since these events begs the question—why did these alleged master criminals get caught now?

Lichtenstein stored his crypto keys (private access codes to a wallet) in the cloud, which didn’t help. After establishing a search warrant, law enforcement accessed a file saved to Lichtenstein’s cloud account which contained 2,000 virtual currency addresses—as well as the corresponding private keys needed to access the funds.

“I think the entire case was cracked primarily because of poor infosec on behalf of the alleged criminals,” computer programmer and crypto critic Stephen Diehl told Decrypt. 

Where is the Bitcoin now? 

According to the criminal complaint that accompanied the DOJ press release, the funds seized by law enforcement remain “secured in the U.S. Government’s possession.” 

We do not know what the government will actually do with the newly recovered funds, but legal experts tell Decrypt it almost certainly won’t return the money to Bitfinex.

Based on previous cases, we can only speculate what might happen next. In March 2021, the US General Services Administration auctioned off 0.7501 Bitcoin at a 21% premium, which, at the time, netted the government about $53,000. The government never said how it came to be in possession of that Bitcoin stash, but it also auctioned off a selection of forfeited items including cars, a storage container, and a tractor. 

On other occasions, the US government has auctioned off illicit Bitcoin recovered from criminal cases. In February 2020, it sold 4,000 BTC (worth $37 million at the time) that had been forfeited in a series of federal, civil and administrative cases. In 2014, it auctioned 30,000 BTC ($19 million at the time) seized from the now-closed dark web marketplace Silk Road. 

The government could also use its freshly seized Bitcoin to entice dark web informants to come forward with information on hackers seen as threats to the country’s national security. Since 1984, the State Department has had a “Rewards for Justice” program running that offers up to $10 million for information about individuals or groups participating in cyber activity against the United States. 

Last summer, the government began offering these bounties in cryptocurrency. “Finding people where they are and reaching them with the technology on which they are most comfortable, I think, is the name of the game for Rewards for Justice,” a State Department official told CNN at the time. 

What about the hack itself? 

It’s worth reiterating that Lichtenstein and Morgan have not been charged with participating in the 2016 Bitfinex hack itself.

The DOJ press release says Lichtenstein and Morgan conspired to launder the stolen funds after a hacker “breached Bitfinex’s systems and initiated more than 2,000 unauthorized transactions.” Those 2,000 accounts were uncovered when law enforcement decrypted a file saved on Lichtenstein’s cloud storage. 

Crucially, the criminal complaint adds that “blockchain analysis confirmed almost all of those addresses were directly linked to the [Bitfinex] hack.”

This begs another question: were Lichtenstein and/or Morgan involved in the hack itself, or might they have had a relationship with the hacker? We do not know, but it is likely this question—also asked by crypto journalist Laura Shin—gets raised during future court proceedings.

Overall, some onlookers may view the arrest and the seizure of the stolen Bitcoin—albeit years after the Bitfinex hack itself—as a sign that crime doesn’t pay, even in crypto land. For others, the Bitfinex arrests, like the hack of The DAO in 2016 and the Silk Road takedown in 2013, may merely be another reminder of Bitcoin’s lingering image problem.

https://decrypt.co/92658/bitfinex-hack-arrests-heather-morgan-unanswered-questions

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Bitcoin Trades More Like Risk Asset Than Inflation Hedge, Says Bank Of America

by Decrypt

While Bitcoiners often advertize the cryptocurrency as an anti-inflationary “digital gold,” Bank of America says it trades like nothing of the sort.

A recent company report indicates that the crypto asset moves far more similarly to risk assets such as equities, and reached all-time high correlations with the S&P 500 by the end of January.

Tight correlation to risk assets
According to the research note—titled “Global Cryptocurrencies and Digital Assets”—Bitcoin has been trading as a risk asset since July of last year. This was about the same time that BTC’s price showed signs of meaningful recovery following a 50% price crash in May 2021.

Risk assets are typified by high volatility. Equities, real estate and currencies all fall into this category.

“Correlations on Jan 31 between bitcoin and the S&P 500 (SPX) and between bitcoin and the Nasdaq 100 (QQQ) reached all-time highs and the 99.73 percentile respectively,” reads the report. Meanwhile, the asset has maintained near-zero correlation with gold during that time. Bitcoin is often compared with gold as an inflation hedge asset (though gold itself doesn’t always act as such).

Unlike some other cryptocurrencies such as Ethereum, Bitcoin has a fixed supply issuance schedule. The cryptocurrency will be mined ever more slowly across time until it reaches a cap of 21 million coins. This has spurred some investors to use it as a hedge against rampant currency devaluation, oftentimes in preference over gold.

Bitcoin-to-gold correlation was stronger early in the pandemic, following promises of intensive stimulus from world governments in March 2020. Nevertheless, BofA now believes that Bitcoin will neither be adopted as an inflation hedge in developed countries nor lose its status as a risk asset until its price volatility goes down. 

Bitcoin, inflation, and the Fed

While Bitcoin’s correlation to risk assets is strong, it has a small propensity to react to Federal Reserve policy and inflation statistics, though in unpredictable ways. In November, Bitcoin’s price rose to an all-time high around $69,000 shortly after October’s inflation figures were revealed at 6.2%—a 30-year high at the time. However, Bitcoin and stocks fell later that month once the Fed chairman deemed inflation as no longer a “transitory” phenomenon. 

Nevertheless, the report did acknowledge that Bitcoin could function as a reliable inflation hedge in underdeveloped countries with more inflationary environments. This is on display in Turkey, where Bitcoin was trading at all-time highs denominated in Turkish lira this December, despite trading lower against the dollar.

https://decrypt.co/92590/bitcoin-trades-risk-asset-inflation-hedge-bank-america

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Shiba Inu Sets Course for Meme Coin Metaverse as Doge Killer Token Jumps 48%

by Decrypt

In brief

  • The team behind Shiba Inu, the second largest meme coin by market cap, has announced a metaverse project.

  • Investors will be able to buy virtual land using Doge Killer (LEASH), another token by the same team.

The world of meme coins is now entering the metaverse. The team behind Shiba Inu, an Ethereum-based token that arguably has little utility but is the 13th biggest cryptocurrency with a market cap of $18.4 billion, have announced a virtual land project. 

In a Tuesday blog post, the developers said they would “lead this Metaverse sector” and will soon release “Shiba Lands” for purchase and auction. The metaverse refers to shared virtual worlds that people can interact with as 3D avatars. 

Those who want to get involved ahead of the launch of the meme coin metaverse can do so by buying and holding Doge Killer (LEASH)—another token created by the developer (or developers) behind Shiba Inu. 

“Overall, our focus is not only to disrupt the Metaverse industry but many industries in and outside the crypto world,” the blog post read. 

“Therefore we are early, but most importantly, our Metaverse serves as the anchor in our sustainable ecosystem, as we add even more utility, projects, and benefits for our beloved ShibArmy, the best crypto community out there.”

Interested investors will be granted a place in the queue to the Shiba Inu metaverse by holding Doge Killer tokens, the blog post said. They can snap up the virtual land using LEASH tokens when it goes on sale. 

Doge Killer’s price is up 48% in the past 24 hours, trading for $1,750, according to CoinMarketCap. Shiba Inu (SHIB) is up 10.75%, at $0.00003353 a token. 

A “meme coin” (or “meme token”) is a cryptocurrency that is based-on an internet joke or meme. There is an abundance of them, and they are usually more volatile than other cryptocurrencies, like Bitcoin and Ethereum. 

Shiba Inu exploded in popularity last year when it burst onto the crypto scene to compete with Dogecoin—the biggest meme coin by market cap. Critics of both Both Shiba Inu and Dogecoin say the coins have no inherent value, but proponents—particularly those of Dogecoin—say the coins can and should be used for payments.

Both meme coins have become popular as internet communities and celebrities, such as Elon Musk, have promoted them online, causing their value to go through the roof (and make some early investors very rich.)

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

https://decrypt.co/92547/shiba-inu-shib-metaverse-doge-killer-token

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Lawmaker Takes Aim at Puerto Rico as Crypto Tax Haven

by Decrypt

In brief

  • A Congresswoman’s comments reveal growing hostility to Puerto Rico’s crypto millionaires.

  • But it’s unlikely that policy change will follow anytime soon.

Stories about crypto millionaires decamping to Puerto Rico have become commonplace in recent years. The island’s attraction lies in its sandy beaches, mild climate—and its reputation as a place for U.S. residents to avoid paying taxes.

But not everyone is happy about this. On Tuesday, Brooklyn lawmaker Nydia Velazquez (D-NY) complained that Puerto Rico has become a haven for rich crypto speculators from the mainland—and asked a Treasury Department official if Congress could help “go after crypto investors trying to use Puerto Rico as a tax shelter.”

Velazquez’s comments came during a hearing of the House Financial Services Committee, which was examining the broader topic of stablecoins. The Congresswoman is originally from Puerto Rico and, like many who live in her New York City district, maintains strong ties with the island.

Her remarks elicited a strong reaction on Twitter, where many applauded her desire to go after people they portrayed as wealthy and unwanted interlopers. One attorney with a Puerto Rican flag in his profile complained of a “white supremacist fantasy of Puerto Rico without Puerto Ricans”:

Others offered more nuanced takes, pointing out that the law attracting millionaires to Puerto Rico doesn’t favor only crypto holders, but those looking for a tax shelter in general.

The law in question allows investors to claim no tax on capital gains—a huge potential benefit for Americans who live on the mainland and can face federal capital gains rates as high as 37 percent. But as some pointed out, taking advantage of the law involves more than just turning up in Puerto Rico:

Others have voiced similar cautions. In a recent essay, a Boston law firm points out that simply owning property in Puerto Rico is not enough to claim the tax exemptions and that, in any case, the law only applies to capital gains earned after a person moves to the island—meaning that someone who moved there in January would not be able to avoid taxes on crypto profits accrued during the boom of 2021. Meanwhile, Puerto Rico’s governor approved a 2020 law that makes applying for the tax exemption more expensive.

It’s unclear if Velazquez’s comments will have any impact on U.S. or Puerto Rico tax policy, especially as the focus of Tuesday’s hearing did not relate to Puerto Rico. But it could serve to warn wealthy crypto investors that the tax benefit may not exist forever—and that many on the island may not want them there in the first place.

https://decrypt.co/92437/puerto-rico-crypto-tax

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Ukraine Is Using Bitcoin to ‘Crowdfund War’ With Russia: Report

by Decrypt

In brief

  • A new report by Elliptic points to a sharp rise in Bitcoin and cryptocurrency donations to Ukrainian NGOs.

  • Many of these groups provide financial assistance to the military.

  • Others are involved in cyber warfare.

As tensions on Ukraine’s border continue to mount, Ukrainian non-governmental organizations (NGOs) are seeing a sharp rise in Bitcoin donations, according to a new report by blockchain analytics company Elliptic.

These aren’t charities to fight poverty or spread social justice. We’re talking about pro-Ukrainian hacktivists and military organizations.

Elliptic says it amounts to NGOs and other groups using cryptocurrency to “crowdfund war.”

Russia has amassed 100,000 to 130,000 troops on its borders with Ukraine and Belarus as a prelude to a potential invasion. The United States, a Ukraine ally, has moved 3,000 troops into the region, with another 8,500 on heightened alert.

Per the report, in response to government corruption, local NGOs have begun securing financial support for soldiers, weapons, and medical supplies over the last decade. Elliptic says that donors are using Bitcoin to funnel money to such NGOs, bypassing any banks and financial institutions that might block payments.

“Elliptic has identified several cryptocurrency wallets used by these volunteer groups and NGOs, which have collectively received funds totaling just over $570,000 – much of it over the past year,” states the report.

Some of the groups Elliptic says are receiving Bitcoin donations include Come Back Alive, which provides training, military, and medical equipment, and the Myrotvorets Center, which has ties to the Ukrainian government.

Others include hacktivist groups Ukrainian Cyber Alliance and Belarusian Cyber-Partisans, which have engaged in cyberattacks against Russian targets. Elliptic says that in the last year, the Ukrainian Cyber Alliance alone has received close to $100,000 in Bitcoin, Litecoin, Ethereum, and stablecoins.

Ukraine didn’t originate the idea. Elliptic says the organizations are taking the idea from pro-Russia groups, who began using Bitcoin fundraising as early as 2014.

However, Bitcoin and cryptocurrency only make up a small portion of the funding flowing into Ukraine. Most of the funds are fiat currencies through traditional payment systems.

https://decrypt.co/92468/ukraine-using-bitcoin-crowdfund-war-russia-report

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Erik Voorhees: Central Bank Digital Currencies Are ‘Orwellian Spy Surveillance Nightmare’

by Decrypt

Erik Voorhees is many things: Bitcoin O.G., outspoken libertarian, and founder of the crypto exchange company-turned-DAO ShapeShift. He also hates the concept of central bank digital currencies (CBDCs) with a passion.

“No one who’s in crypto likes CBDCs. No one who understands the value of cryptocurrency likes CBDCs at all,” Voorhees said during an extensive conversation on Episode 2 of Decrypt‘s new gm podcast.

“It’s like all the worst aspects of fiat today in your bank,” he added, “plus Orwellian spy surveillance nightmare. And so, who is clamoring for CBDCs? Only people that want surveillance over their subjects. Those are the only people. Obviously this is why China is leading the pack in terms of adoption of CBDCs.”

‘Even worse’

Voorhees certainly isn’t the only person in crypto who feels there’s no compelling point to government-controlled cryptocurrencies, which don’t look markedly different from what the traditional finance world already uses today.

“People need to realize that fiat currencies are already digital. So the dollar is already a digital currency, the euro is already a digital currency,” he said, adding that moving to a CBDC is “kind of funny, because we sort of already have that.”

If anything, the ShapeShift founder added, it’s “even worse” than the current banking system, since CBDCs would have “greater surveillance capabilities over all the people using it.” (After all, that is the appeal of blockchains: transparent, public, with all transactions tracked 0n-chain.)

And yet, CBDCs continue their rise. China’s own CBDC, the digital yuan, is rapidly progressing. It’s being accepted as payment at this year’s Winter Olympics in Beijing, and about $1.5 million of the coin was just airdropped to tens of thousands of Chinese citizens, and has already appeared in stores nationwide. 

Will US follow China?

Bitcoin advocate and Senator Cynthia Lummis (R-WY), alongside Senators Marsha Blackburn (R-TN) and Roger Wicker (R-MS), asked the US Olympic and Paralympic Committee to stop athletes from using the digital yuan amid concerns it “may be used to surveil Chinese citizens and those visiting China on an unprecedented scale.”

The United States has been far more cautious about adopting its own CBDC, though officials like Fed Chair Jay Powell have repeatedly said the US is looking into it.

Voorhees believes the US is at a fork in the road. 

“[The US] can either go the way of China and make this Orwellian, super-centralized CBDC world, or they can be a little more free market about it and acknowledge that private companies like Circle, like Tether, have already created a CBDC that’s better than anything they would create,” he said, adding that’s “probably how it will go.”

And this is what Voorhees actually hopes to see—stablecoins that fit the CBDC bill: “They are a currency of the central bank, and they are digital. However, they operate on open networks, and even though they are not permissionless, they are far better than the banking system.”

ShapeShift’s shift

Voorhees doesn’t just oppose CBDCs, he’s flat out against any financial product that sacrifices user privacy. In August last year, he tweeted that KYC (know-your-customer rules designed to prevent financial crimes) are “unethical.” KYC, he added, “employs the coercion of government to require companies to endanger their customers, and customers to endanger themselves.”

That’s why, in July, ShapeShift became a fully decentralized exchange and shut down its corporate business.

Becoming a decentralized exchange (DEX) was crucial for Voorhees as it enabled trading without intermediaries. What’s more, ShapeShift’s codebase went fully open source, with control being handed over to the ShapeShift DAO (decentralized autonomous organization). 

By November, the new ShapeShift DAO formed a partnership with ICHI, a stablecoin platform, to mint a native stablecoin pegged to the US Dollar.

While the ShapeShift founder said he’s lost faith in the American government, he predicts US political leaders will ultimately allow stablecoin usage to grow, because “they’re not as Orwellian or desiring of central surveillance as China.”

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SHIB Soars 20% Amid Crypto Market Revival

by Decrypt

The price of Shiba Inu (SHIB) has surged by an impressive 20% over the last day, according to data provided by CoinGecko.

The popular meme coin touched a daily high of $0.00002930 earlier today and is trading at $0.00002753 at press time, levels not seen since January 18.

Currently, SHIB is the world’s 14th-largest crypto asset with a market cap of $15.1 billion, with the latest run bringing its total gains to 30% in the past seven days.

Shiba Inu has also seen a significant increase in trading volume—with over $2.5 billion in trades over the past 24 hours, it is now the sixth most traded cryptocurrency behind Tether (USDT), Bitcoin, Ethereum, Binance USD, and XRP.

However, there’s still a long way for SHIB to return to its all-time high of $0.00008616 that was recorded at the end of October last year. The coin is 68.2% away from historical levels and is still down 3.8% over the last month.

Several other meme-themed cryptocurrencies are on the rise as well, with the likes of Floki Inu and Floki One jumping by 17.4% and 8.7%, respectively.

Dogecoin (DOGE), the original meme coin, is up 5.6% over the same period of time.

Crypto markets rebound

The crypto market is largely in the green over the day, with Bitcoin approaching the $43,000 mark last seen on January 20, and Ethereum reclaiming the $3,000 level.

At the time of writing, the benchmark cryptocurrency is up 1.9% in the last day, changing hands at $42,522; Ethereum is up 1.6%, trading at $3.076.

Among other ten largest cryptocurrencies, XRP gained 12.9% in the past 24 hours, Cardano (ADA) spiked by 4.5%, while Terra and Polkadot (DOT) are up 3.1% and 2.7%, respectively.

The combined market cap of all cryptocurrencies has crawled back above $2 trillion on Monday, with Bitcoin dominating almost 40% of the market.

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This Week in Coins: Ethereum, Solana, Polkadot Lead Major Crypto Price Recovery

by Decrypt
This week in coins
This week in coins. Illustration by Mitchell Preffer for Decrypt.

After a very rocky start to the year, crypto price watchers finally saw the start of a promising recovery last week. This week, prices continued to rise. In fact, today’s growth alone has been particularly noteworthy: The global crypto market cap climbed 10% in just 24 hours, to hit $1.9 trillion.

The two market leaders posted noteworthy gains this week. Friday, Bitcoin recrossed the $40k threshold, and it sustained that growth well into Saturday. The world’s most popular cryptocurrency has grown 8.8% over the last week and currently trades at $41,460.

But Bitcoin’s growth has been overshadowed by Ethereum, which grew 16% this week and trades at $3,015. 

In fact, all top 30 cryptocurrencies (excluding stablecoins) are up this week, except for Fantom, which lost 0.6% and trades at $2.16.

The biggest successes of the week are: Solana, up 17% to $115; Polkadot, up 15% to $21.60; Avalanche, up 10% to $78.36; Litecoin, up 10% to $121.95; Near Protocol, up 18% to $13.29; and Decentraland, up a whopping 26% to $2.99. 

News of the week

On Monday, the International Monetary Fund’s financial counselor, Tobias Adrian, warned of creeping ‘cryptoization,’ his term for cryptocurrency crossing over into the financial mainstream. The senior official said “capital flow management measures will need to be fine-tuned.”

Adrian highlighted some of the risks we’re facing: “Crypto is being used to take money out of countries that are regarded as unstable [by some external investors].” 

Adrian also noted that Bitcoin is now showing a strong correlation with traditional financial markets: “The correlation between crypto and equity markets has been trending up strongly. Crypto is now very closely tied to what is happening in equities. We can’t just dismiss it.”

On the same day, JP Morgan sent a note to investors warning that Bitcoin is still too volatile for mass institutional adoption. Meanwhile, Ethereum, which has enjoyed second place in the market cap table thanks largely to the NFT and DeFi capabilities of its smart contract-enabled blockchain, is facing pressure from competitors like Solana and Terra.

On Tuesday, Indian finance minister Nirmala Sitharaman announced a 30% tax on crypto income with no exemptions or deductions. Investors filing their tax returns won’t be able to show losses due to price crashes or theft in order to offset the tax on their profits. 

At the same time, Sitharaman said that the Reserve Bank of India (RBI) will introduce a digital rupee in the next financial year. The minister confirmed that this will be a blockchain-based CBDC, but gave no further details. 

The British government updated the rules on DeFi and staking on Wednesday. Her Majesty’s Revenue and Customs (HMRC) confessed that “it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return,” and offered crypto investors four “guiding principles” to help them fill out their tax returns. (Across the pond, a U.S. lawsuit may have implications for how the Internal Revenue Service taxes staking rewards.)

Finally, Meta (formerly Facebook) had a tough week. Shares plummeted 21% in pre-market trading on Thursday. CEO Mark Zuckerberg blamed a fall in projected first-quarter earnings on “increasing competition,” particularly from TikTok, but the billions Meta has thus far spent in developing its metaverse pivot could also be a major factor in the expected shortfall. 

Meta was also hit by allegations of verbal abuse and sexual harassment during a tech demo for the company’s virtual reality metaverse. Add to that the fact that the company’s “borderless global currency” Diem is now dead in the water: Meta officially announced it was selling off all of the project’s assets and intellectual property to Californian crypto-friendly bank Silvergate.

Still, in spite of, or perhaps because of Meta’s bad news, Metaverse-related tokens are surging right now.

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Myanmar Junta Wants Own Digital Currency After Government in Exile Pushes Tether

by Decrypt

A military government is proposing creating its own digital currency a year after overthrowing the democratically elected leader. 

What could go wrong?

Major General Zaw Min Tun, deputy information minister for Myanmar, said the military leadership wants to create its own digital currency to “improve financial activities” in the country, according to a report from Bloomberg. He indicated that the government might create the currency on its own or work alongside local firms.

The country’s central bank, meanwhile, has already banned Bitcoin and other cryptocurrencies; it says it’s still just in the research phase of central bank digital currencies (CBDCs), electronic versions of national currencies. It’s nowhere as far along as China, for example, which is piloting a digital yuan, or the Bahamas, which has been using “Sand Dollars” for more than a year. 

So, why is the junta suddenly so gung ho about a digital currency?

It may have gotten the idea from supporters of ousted head of state Aung San Suu Kyi, who was deposed in a February 2021 coup. The National Unity Government consists of exiled government officials from Suu Kyi’s National League for Democracy, as well as other parties and interest groups. Its goal is to take down the junta. In December, it recognized USDT, a stablecoin issued by Hong Kong-based company Tether, as its official currency. The stablecoin tracks 1:1 with the U.S. dollar and can be used just about anywhere with an internet connection, which is better than cash for a government in exile.

But the junta also needs to get the economy going. Its GDP per capita is the lowest in Southeast Asia. That’s likely bound to get worse in the near future. The U.S. has sanctioned 65 people for their involvement in the coup, as well as 26 organizations with ties to the junta, limiting their ability to do business. That includes the government-owned gem mining company, a major source of income for the generals.

Other sanction-hit countries have turned to crypto to get around U.S. sanctions and boost sagging economies, with mixed results. In February 2018, Venezuela began issuing the Petro (not a digital version of the bolivar), which is ostensibly backed by its oil reserves. Though the government has mandated its use for a variety of services, it’s failed to spur growth. Venezuela’s GDP ranks near Myanmar’s and its annual inflation sits above 680%. 

Iran, meanwhile, saw Bitcoin mining as a potential source of profitability, at one point mandating that regulated miners sell any mined BTC back to the central bank to replenish its dwindling foreign reserves. But that’s been dampened by strains to the country’s electrical grid, resulting in several temporary moratoriums on mining.

China, meanwhile, has cut off access to global cryptocurrencies while promoting its CBDC, which regime critics contend will have the effect of increasing financial surveillance and making citizens and companies fearful of crossing the state—lest their bank accounts be frozen.

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What the IRS Court Case Over Crypto Staking Taxes Really Means

by Decrypt

In brief

  • A couple sued the IRS after they were denied a refund request for taxes paid on Tezos staking rewards.

  • After the lawsuit started, the IRS offered a refund.

  • But the plaintiffs now want a more definitive ruling about crypto taxation.

Should a person be taxed when they receive a staking reward in the form of cryptocurrency—or when they sell it?

That’s the question at the heart of a lawsuit being decided in a U.S. federal court, after a Tezos user was denied a refund request from the Internal Revenue Service on taxes owed for earning staking rewards.

The case has caused some confusion about the IRS’s current stance regarding these kinds of rewards. In reality, however, the IRS has only partially capitulated, saying it would refund plaintiffs Joshua and Jessica Jarrett after all in exchange for ending the lawsuit. However, they declined the offer—they want a ruling to ensure the same thing doesn’t happen to them or others in the future.

Staking refers to locking up your cryptocurrency so it can be used by the network to keep it secure and validate transactions. For those who don’t plan on cashing out their coins, it’s a way of earning passive income—set aside some of your coins and build a small stash in return.

Current U.S. tax policy is a tad unclear on whether these rewards are taxable. In fact, it doesn’t mention staking at all. But it does say that mining rewards—using one’s computing power and electricity to validate blockchain transactions in exchange for Bitcoin or another cryptocurrency—is taxable as income for its “fair market value” (i.e., the going exchange rate) on the day it is earned.

The guidance clearly states that Bitcoin and cryptocurrencies are taxed as property. But per cryptocurrency lobbying organization Coin Center, Joshua Jarrett is “arguing that the rewards should be treated as newly created property (e.g. like ears of corn grown in a field) and therefore shouldn’t be taxed until he sells them.”

That’s a stance that crypto advocacy groups such as Coin Center agree with, as do the leaders of the Congressional Blockchain Caucus.

To be clear, even though the IRS has in this instance offered to pay back the Jarretts for collected taxes, there’s been no shift in the Treasury Department’s crypto tax policy. The U.S. district court case continues, and even a positive ruling for the couple won’t automatically mean stakers get to stop paying taxes.

But Coin Center and the Proof of Stake Alliance both see the IRS’ offer as hopeful, with the latter group calling it a “sign that the IRS may no longer attempt to tax tokens created through staking moving forward.” 

Coin Center is thinking even bigger. In its eyes, an IRS backtrack could affect both staking rewards and mining rewards, both of which are “most accurately described as the creation of value through one’s own capital and labor rather than the receipt of value from an employer.” 

Says Coin Center, “The network allows users to create wealth from their own resources, it does not pay people for their labor.”

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