White House Suggests Banning Proof-Of-Work Crypto

The White House Office of Science and Technology released a report on Thursday urging the Environmental Protection Agency (EPA) and the Department of Energy (DOE) to take measurable actions to control high energy consumption by crypto mining proof-of-work mechanism.

The report is among the first responses to US President Joe Biden’s executive order on cryptocurrencies.

The document acknowledges that cryptocurrency technologies use a high amount of electricity that contributes to greenhouse gas emissions, additional pollution, noise and other local impacts.

The first section of the report, which serves as an introduction, hints toward banning proof-of-work cryptocurrency mining operations if regulatory action fails to enable the country to achieve its climate goals.

“Should these measures prove ineffective at reducing impacts, the Administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining,” the report said.

The next part of the document explores the impact of crypto mining on national electrical grids. The White House’s Science and Technology team claims that Bitcoin mining, powered by a proof-of-work consensus mechanism, adds stress on the power grid that results in cases of blackouts, fire hazards, and equipment deterioration. According to the report, Bitcoin mining has raised the average electricity cost for local consumers.

“Depending on the energy intensity of the technology used, crypto-assets could hinder broader efforts to achieve net-zero carbon pollution consistent with U.S. climate commitments and goals,” the report elaborated.

The final section of the report suggested ways in which Bitcoin mining can benefit efforts toward achieving U.S. climate goals. The report advocated for the responsible development of digital assets and solutions to drastically reduce crypto energy consumption.

The report recommended the use of the “less energy-intensive consensus mechanism, called Proof of Stake (PoS), which is considered to consume less than 0.001% of global electricity usage.

The White House also encouraged crypto miners to consider using electricity generated from vented and flared methane at oil and gas wells and landfills as another viable alternative. 

Why Is the White House Taking an Interest?

In March, U.S. President Biden signed an executive order, calling on the government to examine the risks and benefits of crypto assets.

The measures focused on six key areas like consumer protection, financial inclusion, financial stability, U.S. competitiveness, illicit activity, and responsible innovation.

The executive order was a kind of a ‘call to action’ that laid out a series of policy statements, such as the need to protect consumers, investors, and businesses in the US, as well as the need to support technological advances that promote responsible development and use of digital assets.

The executive order expected a set of reports coordinated through the interagency process from a broad range of executive branch stakeholders.

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Ethereum Founder Vitalik Buterin Speculates the Merge Will Happen on September 15

Vitalik Buterin, Ethereum’s co-founder, has hinted that the much-anticipated merge might occur around September 15.


The transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism called the merge is speculated to be the biggest software upgrade in the Ethereum ecosystem. Nevertheless, it has been quite elusive since it was launched in December 2020. 


Despite these revelations by Buterin, ETH developers are anticipated to come up with a conclusive date next week, given that the final test called Goerli was finalized earlier this week.


A recent developers’ call had suggested September 19 as the most probable date for the merge.


Once the merge rolls out, the PoS algorithm will enable the confirmation of blocks in a more cost-efficient and environmentally friendly way because validators will stake Ether instead of solving a cryptographic puzzle. 


Meanwhile, American multinational investment bank Citigroup or Citi recently disclosed that transitioning to a PoS consensus mechanism would make Ethereum a deflationary asset.


As a result, the second-largest cryptocurrency would become a “yield-bearing asset.”


Citi also pointed out that the merge would slash the overall Ether issuance by 4.2% annually, making it deflationary. Therefore, shifting to a PoS consensus mechanism would enhance Ethereum’s quest to become a store of value. 


Therefore, as a “yield-bearing asset,” Citi added that ETH would experience more cash flows. As a result, prompting more valuation methods that were not available before. 


On the other hand, Buterin recently acknowledged that MakerDAO’s consideration to depeg its native token DAI from stablecoin USD Coin (USDC) was a risky and terrible idea, Blockchain.News reported. 


This decision might have been reached based on tornado sanctions because MakerDAO intends to replace USDC as collateral with Ethereum.

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No precedent: IRS court settlement doesn’t clarify crypto staking taxes

In May 2021, a Nashville couple known as the Jarretts filed a lawsuit against the United States Internal Revenue Service (IRS) over taxes they had paid on unclaimed and unsold Tezos (XTZ) staking rewards. At the beginning of February, news broke that the lawsuit filed by the Jarretts had come to an end, resulting in the IRS issuing the couple a tax refund for $3,793. 

Confusion among crypto holders

Not long after this news made headlines, confusion among the crypto community piqued. One crypto media publication sent a tweet from its official account on Feb. 2, 2022, saying, “BREAKING: IRS will not tax unsold staked crypto as income.” The tweet generated over 4,000 retweets and over 18,000 likes, as Crypto Twitter rejoiced over the assumed notion that the IRS would not tax unsold staked crypto.

More confusion resulted as mainstream media outlets proceeded to publish articles implying that the IRS would not tax passive income from staked crypto. For example, a recent Forbes article published by a senior contributor stated:

“This is a huge win for crypto holders in the U.S. In light of this new information, even without this formal court ruling, some taxpayers might decide to follow a bit aggressive approach and not report staking income at the time of receipt.”

Clearing the air: A ruling was never made

Seth Wilks, head of government relations and SME at TaxBit — a platform specializing in cryptocurrency taxation — told Cointelegraph that a slew of misinformation was spread and false conclusions being made regarding the lawsuit:

“In the eyes of the IRS, nothing has changed. Their position on staking income is the same as it has been for the last several years. This case was really more about a legal procedure than anything else. There was no court ruling that another taxpayer could point to as precedent. Settling this case was the only thing in contention here.”

Wilks said that a court ruling is still to be made, as the IRS has only settled the dispute by paying the couple a refund. He added that assuming the plaintiffs don’t come up with an unexpected legal argument to keep the case moving forward, the likely outcome would be for the judge to fully dismiss the case. “From a legal standpoint, I envision the Department of Justice — which is the law firm for the IRS in these matters — will file a motion with the court to have the case dismissed, citing mootness, meaning it’s no longer applicable since a refund was issued.”

On the other hand, Wilks pointed out that the Jarretts may continue to push the case forward, noting that the couple is working with a team of savvy lawyers while also receiving support from the Proof of Stake Alliance (POSA), which is an industry advocacy group. Given this, the Jarrett’s recently released a statement indicating their goal to have the IRS clarify its position on taxing staking and block rewards “for both proof-of-stake and proof-of-work” systems. 

This is important since no clear guidance currently exists for taxing unclaimed staking rewards. As of now, the IRS only asks taxpayers whether they have “received, sold, exchanged or otherwise disposed of any financial interest in any virtual currency.”

Alison Smith Mangiero, a member of the POSA board of directors and president and founder of Tocqueville Group — an asset management firm — told Cointelegraph that the Jarretts’ case may represent the first legal opinion to be written on the subject of taxation of crypto staking rewards. 

“This is huge, as POSA has been working on this issue since we started almost three years ago,” she remarked. According to Mangiero, many taxpayers are in similar positions as the Jarretts. Therefore, she thinks it’s crucial for legal arguments to be made around this issue. “This is an argument backed by over 100 years of tax law, and it’s important for people to understand this is a viable position,” she said.

Mangiero added that the POSA worked with law professor Abraham Sutherland in 2019 to initially make the argument around taxation for block rewards. As a result, a detailed report was published by Sutherland in the SSRN, formerly known as Social Science Research Network. The report’s abstract notes that Sutherland “concludes that for both proof-of-work and proof-of-stake cryptocurrencies, the best approach is to tax reward tokens only when they are sold or exchanged.”

With this in mind, Mangiero remarked that the IRS does not determine what is taxable income, but rather its job is to enforce the tax code. She further noted that Sutherland is a legal advisor for the POSA, who also serves as a counsel in the Jarretts’ case.

Next steps: Clarification on staking

Even if the case does progress, Wilks said that the IRS must still issue clear guidance around the definition of staking before an official court ruling can be made. As of now, there is no specific IRS guidance on the definition of staking, resulting in added confusion. Wilks said:

“The IRS needs guidance on delegating staking rewards and staking on DeFi [decentralized finance] networks, for example. I’m guessing they are trying to sort this out now, which is why it’s also inaccurate to say that the IRS has just given up on the matter entirely.”

As such, Wilks believes crypto staking rewards and taxation will remain a crucial issue for the IRS, noting that advocacy groups like the POSA will keep pushing for clarity. Indeed, Mangiero noted that the POSA has been working on educating Congress around the issue of how staking rewards should be treated. She explained that the POSA worked with leaders from the Congressional Blockchain Caucus to help write a letter to the IRS in 2020 on issuing formal guidance detailing why staking rewards should be treated as created property. She added:

“We will continue to fire away on all fronts. In terms of defining staking, we are focused narrowly on people participating in securing PoS [proof-of-stake] blockchains and being rewarded for creating those tokens. That is what the focus is for The Jarretts’ case, and this is where we are trying to focus first since it’s one of the least complicated staking situations.”

While educational initiatives from the POSA may help with clarity on the topic, Wilks pointed out that the IRS guidance on mining could also potentially support tax implications for staking activities. He mentioned that this may be likely due to the similarities the IRS perceives between staking crypto rewards and mining.

“It is very unlikely that the IRS would make a policy change on staking without taking into consideration mining,” said Wilks. Although it’s difficult to predict what such a policy would entail, Wilks


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Report crowns Solana for using least energy per transaction, but there’s a catch

Solana (SOL), one of the most active proof-of-stake (PoS) blockchains, appears to be a PoS protocol consuming the lowest amount of electricity per transaction, according to a new report.

The Crypto Carbon Ratings Institute (CCRI), a research startup focused on the environmental impact of cryptocurrencies, released on Wednesday a new report calculating the electricity consumption and carbon footprint of major PoS blockchains.

The CCRI specifically analyzed PoS networks including Cardano, Solana, Polkadot, Avalanche, Algorand and Tezos.

According to the CCRI’s findings, the Solana blockchain consumed 0.166 watt-hours (Wh) of electricity per transaction within the study, becoming the most energy-efficient PoS protocol in terms of energy used per transaction among the six analyzed networks.

Cardano, a PoS network that has the biggest market capitalization at the time of writing, consumes the biggest amount of electricity per transaction, which is 52 Wh, according to the report. However, when it comes to a “per-node” comparison, Cardano uses the least amount of electricity per node, the CCRI found.

Electricity consumption per transaction for PoS systems and Visa. Source: CCRI

“This metric depends on the amount of transactions taking place on the respective blockchain, also the overall electricity consumption per transaction further depends on the number of nodes connected to the respective network. Generally, these numbers are expected to go down with an increase in the transaction rate, regardless which blockchain is in use,” the study reads.

Despite Solana’s low energy consumption per transaction, the PoS protocol still consumes a lot of energy due to the network’s massive usage, compared to other PoS networks. According to the CCRI’s study, the Solana blockchain emits 934 tonnes of carbon dioxide equivalent per year, compared to 33 tonnes for Polkadot.

At the time of writing, Solana is the most-traded PoS protocol, with $2.9 billion in daily trading volumes, while Polkadot has about $900,000 in daily trading volumes, according to data from CoinGecko.

Yearly carbon footprint of PoS networks compared to a roundtrip flight in business class. Source: CCRI

Related: Fossils vs Renewables, PoW vs PoS: Key policy issues around crypto mining in US

Unlike major blockchain networks like Bitcoin and Ethereum, which use mining operations to confirm transactions based on a proof-of-work (PoW) mechanism, PoS blockchains rely on users simply locking up tokens. As PoS blockchains do not need extra energy from miners in order to validate transactions, they are considered as being more energy efficient.

As previously reported, many global financial regulators have used PoW’s high energy consumption rates as yet another reason to ban the use of cryptocurrencies like BTC. They would probably also want to ban global banks as the traditional banking system was reportedly consuming twice more energy than the entire Bitcoin network as of March 2021.