IRS To NOT Go After Miners If Considered Brokers

Is it a law if nobody enforces it?

In another twist of the American legal system, the IRS has chimed in on the cryptocurrency debate which arose from the inclusion of being in the infrastructure bill that went through the Senate.

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At the core of this is considering cryptocurrency miners and block validators as "brokers". This means that a differing set of financial regulations applies to them. One is that they could have to adhere to KYC policies, something that is near impossible. Another is that they fall under the same tax system that exchanges do.

Division Within Governments

This is something we are seeing all over the world. The challenge is governments are trying to view cryptocurrency as another asset class when, in fact, it is something completely new. Hence, they do not know what to make of it. Is it a positive or negative?

The United States is no exception. Here we see division not only among the different politicians but also different branches. Here, the IRS is not making a decision so much about cryptocurrency. Instead, it simply is interpreting the potential law as it sees fit.

For the Biden Administration, it claims the view is not to go after cryptocurrency miners.

In a Decrypt article that cited Bloomberg:

The Treasury Department, which oversees the Internal Revenue Service and the Financial Crimes Enforcement Network among other bureaus, is gearing up to offer guidance that won't require third parties who aren't actually asset brokers to follow new crypto tax reporting rules, according to a report Friday from Bloomberg citing an unnamed official.

This shows how these bills often lack clarity in their wording. Therefore, the different agencies are given the freedom to determine how they view it. For now, it appears that the Biden Administration is going to be favorable towards the industry.

Nevertheless, there is a problem here. This could change at any time. A new head of Treasury (or different Administration) might opt to interpret the language in a way that leads it to target every miner. Thus, it is better not to have it on the books at all.

This is a situation occurring with many governments throughout the world. We see the flip-flopping of many countries. China is the prime example of this. It appears since they are intent on the CBDC version of the Yuan, they are going to do all they can to rid themselves of cryptocurrency.

We see similar activity in India, Nigeria, and South Korea. All those countries instilled favorable policies at times, and then switched only to crack down. Many of them later reversed course with a more accepting approach.

This is likely to continue for the next few years as governments try to figure this out while also maintaining control.

Take Matters In Our Own Hands

Whatever governments decide should not be a major part of our focus. The only reason this bears any applicability to the cryptocurrency industry is to figure out how to code around it.

In short, we should not be looking for government approval or involvement. The goal is to make them less effective. Most of us are aware of how corrupt the system is. We are presently building an alternative.

Hence, we need to think of how to establish things so that the government is impotent to do anything. It is evident that the digital realm is not their forte. For all their efforts to regulate, police, and control the Internet, it is safe to say those measures were a major failure.

SEC Commissioner Hester Pierce outlined what the industry needs to do. She has been an advocate since her entry into the SEC. This is a women who is working on the side of the industry from within the system. Granted she is still part of it yet she is telling everyone what needs to be done.

In an article in Cointelegraph she basically admitted the shortcomings of the regulators at the SEC:

“If you want to be decentralized, you really need to be decentralized, and that is going to then put you in a different category from the perspective of regulators because that’s just not something that we’ve dealt with before.”

She goes on to add:

“If you want to make a case that you’re something different than the CeFi or TradFi system, then you have to show that you’re doing something radically different, which, from my perspective, requires decentralization.”

In short, she is telling the entire industry to decentralize and we can't touch you. The reality is the government won't even know what to do. This just shows how they have no idea how to handle this.

The government was established to govern in a physical world. When we add in digital, it takes things to a new level. Of course, they succeeded to the degree they did by being able to target the centralized entities that operate online.

All of this changes when we incorporate true peer-to-peer systems. Then something is run completely in that manner, where does the government or its entities target?

Decentralized Autonomous Organizations

A major point to all this is the idea of the DAO (decentralized autonomous organization). This is the umbrella which can assist in the expansion of the cryptocurrency industry.

We are still in the mindset of control. This is evident by the approach of Venture Capital entities. The goal is simply for a few to make as much money as they can.

Regulation is going to alter this mindset for many. Certainly, for the larger institutions accustomed to dealing with this, nothing will change. However, for the average project team, it will.

The concept is to build something that is not owned or controlled by those putting it together. We see a lot of projects that have "Founder's Stakes" in them. This is a point of vulnerability.

A DAO is the legal cover that is required to keep the governments on the sideline. It is starting to get legally recognized in some areas. This allows for further business expansion within the existing system (while it is necessary) while also maintaining the decentralized aspect to things. Hence a decentralized organization can do things such as open a bank account and other basics that are needed to operate, at least while we are in the hybrid phase.

Satoshi's vision was not to construct something that met the approval of the regulators. Instead, the vision was to build something they could not touch; that was completely outside their reach.

While Bitcoin has done that, we seem to be intent on developing layers that the governments can target. This is not the proper approach and even Commissioner Hester is openly making the case.

If we truly want to be an alternative system, we need to erect something that is completely different. Taking what we see and simply tokenizing it, especially in a fairly centralized manner is not the way to go.

It starts with the goal of being decentralized from the start. Then there is nothing to target.


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16 comments
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I think DAO cannot be denied anymore. We can do some financial operations thanks to decentralized organization, no need any financial institution.

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There is do doubt the DAO is going to become a bigger force in the future. We will have to see what is established as a DAO from the start.

I would imagine it is hard to convert something over to one once it is operating under another structure.

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As absurd as it is to control this system, it is also absurd to let it go completely. Let's see where it will go.

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We need a way to incentivise people setting up more API nodes...

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Sadly i see people saying that defi apps with anon devs are too risky, but imho this is the only way to go.
Doxed devs are an attack vector for the bankers and their government lapdogs.

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That is true. Open source code that is done by ANON developers is not risky in my opinion as long as it is reviewed by many. I think the projects are where the risk comes in since we see rug pulls.

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It's still dangerous territory. At any point, they could change their mind on a whim. The best strategy would have been to refuse to comply with any and all regulations in the first place, but NOOOO.. "Muh mass adoption!" 🙄

But, Here we are... I think you're right with this though.

Whatever governments decide should not be a major part of our focus. The only reason this bears any applicability to the cryptocurrency industry is to figure out how to code around it.

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Well refusal to comply would mean they simply pull out the big sticks and start targeting. While it is good in theory, when you have a few hundred major developers you can go after, that would take down a fair portion of the entire industry.

Plus much of it was set up centralized. Look at what most everyone uses, and see how targeted they are. For example, all centralized exchanges would be instantly eliminated.

Until we move past the hybrid model, we simply have to deal with the government. Let those that are apt do deal with them do so. In the meantime, we just code around all that stuff.

Decentralization is still key.

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The problem I see is that most organizations tend to be centralized and only decentralized later. It just makes things much easier when it is centralized to start up so it may cause some issues.

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What I don't believe in is the government trying to tax newly created "property" or crypto. You shouldn't have to pay taxes on Mined bitcoin, staked coins being earned and newly created until point of sale or a transaction takes place. To tax it both when mined and then again when sold is the DUMBest thing ever and makes no sense at all.

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And yet... they get away with it in every other sense. Taxing pay when earned and when spent being the obvious example. It is their MO to take a cut at every conceivable opportunity.

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I don’t believe for a second they won’t selective inforce things when they want down the road.

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Yes! Ignore their system and watch it die like a neglected house plant.

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We have to continue pressuring the governmenet and senators in order to show that we will not let them overule and kill the innovative crypto space.
It will be a long war with many battles, but we will come out victorious.
We have to spread the crypto virus !

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