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IRS Targets Crypto Staking Income

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The Internal Revenue Service (IRS) has set its sights on cryptocurrency investors in the United States who earn rewards from staking services, delivering a significant development for the crypto community. According to the recent announcement, these rewards will now be subject to taxation, requiring investors to report their value as part of their gross income in the year they are received.

Gross income, as defined by the IRS, encompasses all forms of income, including money, property, and services. With this latest ruling, staking rewards join the list of taxable income sources. Cryptocurrency staking has gained popularity as a lucrative revenue stream for both investors and exchanges. However, regulatory bodies are now scrutinizing staking activities, with the IRS at the forefront of the regulation efforts.

The IRS clarified that cryptocurrency investors who receive rewards for participating in validation activities on a proof-of-stake (PoS) network must treat those rewards as income in the year they gain control of the tokens. The fair market value of the rewards is to be included in the taxpayer’s gross income for the taxable year in which they gain dominion and control over the validation rewards.

“Dominion” in this context refers to the point at which investors obtain control and the ability to sell, exchange, or dispose of the cryptocurrency rewards obtained through staking. This means that as soon as investors have access to their staked tokens and can make decisions about them, the rewards are taxable.

The ruling also impacts those who stake crypto assets through cryptocurrency exchanges. If investors receive additional units of digital assets as rewards from the staking process, the value of these rewards must also be included as part of their gross income.

Crypto Community Reacts: IRS Ruling

The IRS’s decision has sparked a range of reactions within the digital assets community. Jason Schwartz, a tax partner and co-head of digital assets at Fried Frank, expressed disappointment with the ruling. On the other hand, Ryan Selkis, Messari’s founder, compared the treatment of virtual assets staking to stock dividends, suggesting that the concept of a “stock dividend” has been applied to the crypto space through this ruling.

However, the ruling has left some individuals confused about which tokens would be subject to taxation. The lack of specific clarity has caused uncertainty, particularly regarding whether the ruling applies to the native tokens of a PoS blockchain. Until further specifications are provided by the IRS, it seems that the rule will likely apply to all staking activities involving virtual assets.

The digital asset market is constantly evolving, and the IRS’s attention to staking activities reflects the increasing interest of regulatory bodies in this sector. As virtual assets continue to gain traction as an investment and revenue source, it is crucial for investors to stay informed about tax implications and remain compliant with evolving regulations.

Notably, Ethereum’s total value staked has reached an all-time high of 26.789 million, signaling the growing importance of staking in the crypto ecosystem. As the industry progresses, investors must remain vigilant and adapt to changes in tax requirements to avoid any potential penalties from the IRS.

Chipotle honors Ethereum’s PoS through 99.95% “Proof of Steak” discount

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Chipotle, a well-known restaurant business, emerged in the cryptocurrency world in 2021 when it gave away $100,000 in bitcoin for National Burrito Day. The platform then continued to add additional items to its giveaway list over the course of the following few months. More recently, the switch to proof-of-stake [PoS] on the Ethereum network appeared to have captured Chipotle’s attention.

For a very long period, the Ethereum network and its eagerly awaited update, the Merge, have drawn attention. This ground-breaking upgrade altered a wide range of factors both inside and outside the ETH ecosystem.

The well-known restaurant establishment announced in its most recent Twitter thread that its steak bowl will be discounted by a staggering 99.95 percent. The tweet from Chipotle undoubtedly perplexed the neighborhood. However, the company emphasized that this offer took into account the fact that the Ethereum network now consumes 99.95% less energy as a result of the Merge.

Payments platform Flexa noted in a Medium post that the deal was only valid through October 4th. However, in order to take advantage of the promotion, consumers would need to spend ETH at Chipotle.

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The post further stated,

Now until October 4, when you use Flexa to spend ETH at any Chipotle restaurant in the US, you’ll save 99.95% off your purchase — an amount equal to the projected overall energy savings from Ethereum’s transition to proof-of-stake consensus.

Chipotle’s offer too good to be true?

While the offer did attract many, quite a few others thought it was a hassle. Many others grumbled about having to download an app, make a brand-new account, and go through the entire login process. Numerous people continued to complain about the app’s malfunction or the store’s ignorance of the offer even after this.

Others pointed out that while they would have received free lunch through Chipotle’s most recent program, they would have ended up paying a lot for gas.

But it appeared that most Crypto Twitter users took advantage of the offer. The Chipotle comment section was covered in images of the bowl. At the time of writing, Ethereum was trading at $1276.95 and had taken a plunge of 0.41% over the last 24 hours.

Ethereum PoS nodes being centralized? 2 addresses dominate 40%+ nodes

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The merge was a significant event not just for the Ethereum network alone.  The conclusion of one of the most anticipated events in history was celebrated by the whole crypto sector. Many people and a select few view the network’s switch from Proof-of-Work (PoW) to Proof-of-Stake (PoS) as revolutionary. While ETH miners and Bitcoin maximalists opposed this change, the majority of the crypto community was eager to see how it would affect the network.

Meanwhile, there has been a new discovery regarding the PoS nodes. According to Santiment’s analysis, only two addresses control 46.15% of Ethereum’s PoS nodes.

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Source: Twitter

Approximately 188 blocks, or 28.97% of the nodes, have been validated by the first address hours after the Merge, and 105 blocks, or 16.18%, have been validated by the second address. The data became a contentious subject on Twitter as users discussed how the Merge would affect centralization for the biggest network in the globe.

Five firms held 64% staked Ethereum prior Merge

The blockchain analytics platform Nansen published a report before the Merge that showed five firms held 64% of all staked ETH, with Coinbase, Kraken, and Binance accounting for over 30% of ETH staked. Reports also indicated that centralized web service providers like Amazon Web Services control the majority of the 4,653 active Ethereum nodes (AWS).

Ryan Rasmussen, crypto research analyst at Bitwise, further explained,

“Since the successful completion of the Merge, the majority of the blocks — somewhere around 40% or more — have been built by two addresses belonging to Lido and Coinbase. It isn’t ideal to see more than 40% of blocks being settled by two providers, particularly one that is a centralized service provider (Coinbase).”

Since PoS rewards those with a higher token supply over those with a lower one, it is frequently thought to promote centralization. For instance, the Ethereum blockchain’s new consensus mechanism relies on validators, rather than miners, to validate transactions. Participants must stake 32 ETH, which at the time of publication is equivalent to about $48,225, in order to run a validator and be rewarded.

Supporters of PoS, however, contend that the technique is safer and more environmentally friendly than PoW. Vitalik Buterin, the co-founder of Ethereum, predicted that the transition would not only reduce energy consumption by about 95% but also help scale the network, with features that are anticipated to take place in the second half of 2023. Transaction processing is expected to match that of centralized payment processors.

Ethereum to get ‘Forked’ 24 hours after Merge

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Ethereum has been the talk of the town ever since the transition to Proof of Stake (PoS) was announced. The entire community has been keeping track of all the events leading up to the same. While the majority of the industry seemed to be anticipating a seamless transition, a few of them were hoping for another delay. However, it appears that everything has gone according to plan, and all that is left is for the PoS to launch.

The Ethereum PoW community said that a “hard fork is inevitable” back in mid-August, and that work was already being done to make the hard fork successful. According to information provided at the time, the community had already removed the difficulty time bomb, changed the Chain ID to give replay protection, and finished setting up the testnet, advancing the plans.

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Source: Twitter

The team has now revealed the precise date of the fork’s formal introduction, which is the most recent development. The hard fork will happen one day after Ethereum’s Merge materializes, according to their most recent Twitter thread. Notably, the latter is scheduled for September 15, implying that the former would likely be launched on 16 September 2022.

The Ethereum PoW team tweeted to elaborate further on this,

“ETHW mainnet will happen within 24 hours after the Merge. The exact time will be announced 1 hour before launch with a countdown timer and everything including final code, binaries, config files, nodes info, RPC, explorer, etc. will be made public when the time’s up.”

Furthermore, the block height of the Merge block “plus” 2048 EMPTY blocks will be the starting point for the mainnet. As a result, the first block on ETHW that might include any transactions will be the Merge block + 2049.

The company also disclosed that the initial mining difficulty will not be less than ~220 T, which translates to 15 TH/s in terms of hashrate.

Ethereum miners to lose significance

Miners will become less important on the Ethereum network after the Merge. Ethereum miners made $1 billion more than Bitcoin miners did the previous year. The advantage held by Ethereum miners has persisted from this year to the present. However, by mid-September, the income figure is expected to decrease to zero. Colin Wu tweeted the precise numbers after tallying them up,

ETH miners earned 11 billion, 18 billion, and 2 billion in 2022, 2021, and 2020, compared to 10 billion, 17 billion, and 5 billion for BTC miners. Ethereum miners’ income will likely be reduced to 0 after this week.

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Source: Twitter

OpenSea Is Extending Support to the Merge With Proof-of-Stake NFT Support

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Once the Merge is complete, OpenSea, the biggest NFT marketplace, intends to offer NFTs built on the proof-of-stake variant of the Ethereum blockchain.

According to The Block statistics, almost $31 billion in Ethereum-linked NFTs have been exchanged on the platform so far. The entire amount is composed of trading in NFTs supported by the current proof-of-work (PoW) Ethereum version, which surpasses the volume of trade for NFTs tied to other blockchains.

“First, and most importantly, we are committed to solely supporting NFTs on the upgraded PoS [proof-of-stake] chain.”

OpenSea wrote in a Twitter thread

OpenSea doesn’t speculate on any potential forks

OpenSea wrote in the tweet that it won’t speculate on any potential forks post-merge on ETHPoW and won’t be supported on the platform.

“Beyond our commitment to supporting the upgraded PoS chain, we’ve been preparing the OpenSea product to ensure a smooth transition.”

This month, as part of The Merge, which marks the culmination of Ethereum’s shift from proof-of-work to proof-of-stake, the so-called Beacon Chain and its validators will form the core of the blockchain network.

The move will have an impact on many different crypto enterprises, and they have been putting a lot of effort into preparing. There won’t be just one phase in the Merge process.

There won’t be just one phase in the Merge process. The Bellatrix network upgrade and the Paris upgrade are two separate steps that will be completed. The last update before the integration will be the Bellatrix upgrade.

The Ropsten, Sepolia, and Goerli are just a few of the public testnets that the Ethereum testnet has traversed. The Bellatrix is described as a network improvement by the Ethereum Foundation. Additionally, Bellatrix is the final update before the merging is finished with the Paris upgrade.

The Merge is anticipated to be completed by September 20 and the implications on the ecosystem can only be analyzed post Merge.

Ethereum’s Vitalik Buterin Is Set to Release His ”Proof of Stake” Book

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The Ethereum merge is right next door. The developers are concentrating on educating the community as the cryptocurrency sector gets ready for the much anticipated Ethereum Merge.

Vitalik Buterin, a co-founder of Ethereum, just published a book based on his essays about the development of the blockchain network over the years. The name of the book PROOF of STAKE is “The Philosophy of Blockchain and the Making of Ethereum.” The publication of the book couldn’t have come at a better moment as the community waits for Ethereum to switch to proof of stake.

Ethereum’s transition to proof of stake

On September 27, which is two weeks following the Merge deadline, the book is slated for release. A compilation of Buterin’s essays on the development of ETH throughout the years is available in Proof of Stake: The Making of Ethereum and the Philosophy of Blockchain.

Writings by the co-founder were compiled from his essays written during and before the emergence of ETHH. According to Gitcoin, the essays would show Buterin to be “a colorful and inventive writer.”

Buterin tweeted on Wednesday to herald the publication of the book. On the Gitcoin platform, readers may purchase autographed digital copies and NFTs.

Ethereum staking service started by Ethermine

The biggest ETH mining pool in the world, Ethermine, has introduced a new staking pool for users in front of the quickly approaching September (ETH) Merge. However, it should be noted that American miners cannot use it.

Members of Ethermine now have the opportunity to stake their ETH collectively and collect interest on top of their deposits thanks to the new service. Users can deposit as low as 0.1 ETH ($159). However, the cost increases with decreasing holding size. Currently, the platform provides stakers with a yearly interest rate of 4.43%.

These kind of staking pools are important because they provide competitive interest rates and lower entry hurdles than individual staking as node operators, which needs a minimum of 32 ETH to run a node.

Ethereum co-founder urges clients to upgrade; Details

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The Ethereum [ETH] network has gained attention in the cryptocurrency community as a result of the Merge. The developers have put a tremendous amount of effort into the background work as the community gets ready to switch to Proof-of-Stake [PoS]. For a while now, the ETH community has been eagerly awaiting the Merge. However, the community might be experiencing yet another development as a result of this network-wide upgrade.

Prior to the Merge, those operating nodes on the blockchain have been asked by ETH developer Vitalik Buterin to upgrade their clients.

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Source: Twitter

Buterin urged individuals operating Ethereum nodes to upgrade their clients to meet the necessary requirements even before the Merge takes place in a tweet on Monday.

The co-founder of the world’s second-largest cryptocurrency stated that even though the Beacon Chain hard fork would happen on September 6, the Merge would take place between September 10 and September 20, thus all nodes should have their clients updated before the Merge to guarantee a seamless transition.

A node is a computer network that runs the client software, whereas a client is a program necessary to allow Ethereum nodes to read blocks on the ETH blockchain and smart contracts.

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The Merge’s first stage, the Bellatrix update, is slated to be live on September 6 at 11:34:47 UTC.

In a blog post, last week, the ETH foundation stated,

“Following years of hard work, Ethereum’s proof-of-stake upgrade is finally here! The successful upgrade of all public testnets is now complete, and The Merge has been scheduled for the Ethereum mainnet.”

The much-awaited transition from a proof-of-work (PoW) consensus to a proof-of-stake (PoS) consensus has numerous good effects on the network, including a 99.95% reduction in energy consumption, which has been of particular interest to many ETH supporters like Mark Cuban.

Here’s how Ethereum merge can change the idea of decentralization

The system will be negatively destabilized by the upcoming merge. ETH recently said that between September 6 and September 20, 2022, it will switch from “proof-of-work” (PoW) to “proof-of-stake” (PoS). This transition is known as a ‘merge”.

There will be significant reverberations in the area after the merge. The market value of mining Ethereum (Eth) is projected to be $19 billion, and merge is anticipated to completely shut down the industry.

Although there is a lot of excitement surrounding it, blockchain activists are worried about the occasion. According to them, merge based on PoS will put an end to “decentralization of network” and eventually result in centralization.

Entities with more tokens are given precedence over those with fewer tokens under the PoS mechanism. Larger investors have bigger profit margins, thus practically speaking, they would keep their coins to increase the manufacturing capacity. A bigger stakeholder will therefore develop more quickly than a smaller one. It would soon become unaffordable to participate in the mining business, driving away small partners and promoting centralization.

However, at the time of writing, Ethereum (ETH) was priced at $1,594.70 with a daily rise of 0.36%.

Ethereum’s [ETH] share of AUM hits record high; PoS coins’ popularity rises

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Ethereum might have been struggling with the recent market, but Institutional investors have remained unfazed for the most part. This cohort of market players have only recently started favoring Ethereum more than Bitcoin and by the looks of it, this sentiment is here to stay for some time.

According to the latest ‘Digital Asset Fund Flows Weekly’ report by the digital asset management firm CoinShares, Ethereum investment products have gained massive traction. The subsequent market corrections led many investors to add positions with net flows into investment products of $74 million last week. Ethereum emerged as a clear winner.

Ethereum, Alts Gain Traction, Bitcoin Trails Behind

Well over 60% of institutional inflows were induced into Ethereum products, as the digital asset saw a resumption in inflows which summed up to a total of $47 million last week.

Along the same lines, the report stated,

“The price correction had a minor impact on investment flows the previous week, but this looks to have recovered, with all product providers seeing inflows. Ethereum achieved its highest share, peaking at nearly 27% of all investment products last week.”

Things were not the same for Bitcoin as institutional investors continue to exit the king coin. Coinshares stated that outflows remained focused on BTC which accounted for $4 million this week alone. With this, the total outflow in the past three weeks totaled $246 million which reflected 0.8% of the combined assets under management [AUM].

The recent inflows to Bitcoin might have slowed down owing to back-to-back crashes and the outbreak of debates with regards to the mining impact on the environment, the total inflow figure, however, remained positive in terms of year-to-date. According to the stats, it was found to be at around $4.4 billion.

The recent figure for investment product flows demonstrated that products offering exposure altcoins have also risen to prominence. Especially, proof-of-stake coins such as Cardano [ADA], Polkadot [DOT], and XRP have become quite popular and saw inflows of $5.2 million, $3.8 million, and $4.5 million respectively.

Cardano, Polkadot Tops Staked Cap Dominance; Tron Slides To 11th Spot

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Cardano and Polkadot have just added a new feather to their respective caps.

Over the past couple of years, a large number of ETH ‘killers’ and rivals have emerged whose popularity has exploded in Q1 of 2021. One such is Charles Hoskinson’s brainchild with a highly ambitious roadmap – Cardano blockchain, whose staking metrics demonstrated strong fundamentals.

So much so that Cardano is now dominating the charts in terms of the staked capitalization rankings according to the latest stats published by Staking Rewards.

Cardano Dominates, Polkadot Trails Behind

Staking Rewards
Cardano, Polkadot Tops Staked Cap Dominance; Tron Slides To 11th Spot 8

The blockchain is currently leading the pack and users reportedly staking $27.12 billion worth of ADA on it. In short, out of the total market cap of $38.28 billion, 73.27% of circulating ADA are being staked by the users. Staking Rewards site also estimated that the ADA stakers of the network receive an annual reward of 7.23%

Trailing just behind Cardano is Polkadot with a staked amount of $22.941 billion worth of DOT being devoted to securing the network, at the time of writing. Of the total $33,07 billion market cap, 64.16% are being staked by the DOT users, The annual reward received by the DOT stakers was estimated to be around 13.15%.

The Proof-of-Stake [PoS] consensus mechanism has become rapidly prominent among several notable cryptocurrency projects, especially with the launch of Ethereum 2.0. PoS model and its variants do not need validators to use their computational power through mining rigs to secure the network as in the case of PoW models.

Here, validators instead lock up a certain amount of their native tokens to authorize transactions and subsequently add new blocks to the blockchain. This process is known as staking.

Ethereum 2.0, on the other hand, is now the fourth spot by staked value with $8.24 billion. with a minuscule 3.31% of the total $249.5 billion market cap being staked by users. In addition, ETH stakers are generating a 7.57% in terms of annual reward. Eth 2.0, however, fell from the third spot for staked capitalization recently after Solana intensified its race and recorded a total staked value of $9.36 billion.

Tron Exits Top 10

Over the past several months, TRX has been extensively used for the purpose of staking. The native token of the highly scalable, DPoS-based [Delegated Proof-of-Stake] Tron blockchain has been widely popular among stakeholders. Despite this, Tron has slid way down to the 11th position as it amassed a staked value of $3.62 billion.

Proof of Stake Alliance Dialogues with SEC Over Blockchain

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The Proof of Stake Alliance (POSA) met with the Securities and Exchanges Commission (SEC), to dialogue over the surging adoption of Proof-of-Stake protocols, the substitute to Bitcoin Network’s Proof-of-Work believed to be scalable and efficient.

The alliance consists of Coinbase Custody, Cardano Foundation, Tezos, Polychain, and others; is aiming to improve regulatory coherence on how security laws at the watchdog apply to various blockchains. POSA’s fundamental goal is to oversee legal and precise regulation of the growing proof-of-stake sector.

Developments in SEC meeting with Proof of Stake Alliance

The meetings between POSA and the SEC back in February aimed at enlightening the watchdog on PoS technology; and debate an efficient regulatory structure for STaaS offerings. During the week-long Consensus Distributed virtual conference, the founder of POSA, Evans Weiss, revealed their targets with the SEC, a whitepaper that was published, and also how they plan to offer standards in the industry.

According to Weiss, who is also Chief of Staff at Bison Trails, POSA is aiming to convince the SEC that the staking of networks should be viewed as a service rather than as a product. The businesses that offer staking services should be considered as service providers to financial product providers. Weiss stated:

“We are grateful that they have taken the time to meet with us and start a dialogue around how staking can be successful here in the U.S. We see this discussion as an on-going opportunity to learn from each other, to help ensure that staking-based protocols have the potential to flourish here in the U.S. while also ensuring that consumers and token-holders are protected.”

It is crucial for the industry to dialogue with the watchdogs

Moreover, POSA believes that educating regulatory agencies to understand blockchain technology better is favourable to the entire ecosystem if the underpinning blockchain, instead of the crypto, can circumvent regulation.

Furthermore, the product manager at Coinbase Custody, Bryce Ferguson, noted that it is essential that the industry is holding open dialogues with the regulators. He adds that industry players can guarantee the growth of PoS networks by working together.