• The Internal Revenue Service (IRS) announced that US crypto traders staking rewards will now have to be treated as part of their taxable income.
• Staking involves investors locking up their crypto assets into the blockchain in order to validate transactions and obtain rewards.
• Jesse Powell, co-founder of the crypto exchange Kraken, expressed frustration at the ruling, saying it fails to account for inflation and the consequences of not staking.
IRS Announces New Crypto Tax Rules
The Internal Revenue Service (IRS) recently declared that cryptocurrency staking rewards must now be treated as part of a trader’s taxable income in the United States. This announcement pertains to when traders lock up their digital assets into a blockchain network in order to validate transactions and receive rewards for doing so.
Cryptocurrency staking is a process by which users lock up their digital tokens within a blockchain network in return for earning rewards when they participate in validating transactions on the blockchain. Stakers are essentially rewarded for helping secure and validate transactions on the network, while also increasing user participation on certain blockchains that utilize proof-of-stake consensus mechanisms such as Ethereum 2.0 or Cardano’s Ouroboros protocol.
The IRS has clarified that these validation rewards should be included in gross income for the year they are received, with fair market value determined from the date and time dominion and control is gained over them. Furthermore, if trading occurs through an exchange, those earnings must also be included in taxes due for that year.
Jesse Powell’s Critique
Jesse Powell, co-founder of Kraken Exchange, voiced his dissatisfaction with this decision by tweeting “Disappointing ruling that fails to account for the inflation component, and the consequences of not staking.” He argued that if no one stakes then all coins become worthless which reduces ownership percentage and voting power significantly lessening their impact on decentralized networks like Bitcoin or Ethereum 2.0 .
The IRS’ announcement means US citizens must now include any cryptocurrency staked into taxable income when filing taxes each year regardless whether it was done directly or through an exchange platform like Kraken Exchange or Coinbase Pro. Jesse Powell criticized this move calling it unfair and failing to factor in important aspects such as inflationary impacts associated with not participating actively in proof-of-stake networks such as Ethereum 2.0