As lawmakers debate bringing in new tax requirements for cryptocurrency, greener forms of blockchain tech look set to suffer the most significant blow.
As cryptocurrency becomes progressively more mainstream, it’s no surprise that lawmakers are lobbying for new tax systems.
The White House hopes to bring in new framework to offset the rush of crypto spending with a $28 billion levy over the next 10 years.
An initial bill was drafted together over the weekend, which placed a broad requirement on crypto brokers to report transactions within their tax returns. Welcome to the real world Doge buffs.
While the general consensus in the financial sector is that crypto rightfully should be taxed, the fine print of who will bear most of the brunt is causing several issues.
Chief among them is a technicality that would leave emerging (and greener) forms of blockchain technology at risk. If passed, this deal could drive even more people towards the most energy-intensive forms of trading.
After this week’s harrowing IPCC report, that would not be a good look for crypto.
‘Proof-of-work’ vs ‘proof-of-stake’
Advocates are concerned that uneven bookkeeping requirements within the tax bill could lead to a lasting split between different blockchain technologies.
If, like many, you’re still confused by exactly what blockchain is, it refers to the background applications that allow for crypto transactions to be made in the first place.
The two main variants of blockchain are ‘proof-of-work,’ which uses a supercomputer to certify trades along one continuous ledger without a third party, and ‘proof-of-stake,’ which uses physical validations in the form of equity stakes – much like a deposit.
Because the proof-of-stake method is using validators (albeit inadvertently) to create blocks on its ledger and not an autonomous algorithm, crypto companies employing this mechanic will be registered as ‘brokers’ on the tax amendment.
This decision is obviously divisive, as the vague definition could lead to proof-of-stake currencies fronting the bulk load of this $28 billion quota, whilst proof-of-work systems like Bitcoin avoid most fees.
Not only would this effectively deaden any momentum proof-of-stake has as a burgeoning mode of blockchain, it could drive all crypto traders back to the energy intensive methods of proof-of-work.
Many had hoped proof-of-stake would address the lack of sustainability in crypto trading going forward, but as Senator Ron Wyden declared, the current bill resembles a ‘safe harbour for the most climate-damaging form of crypto tech.’