You get a tax! You get a tax! You get a tax!
Greetings from Osaka, Japan, where it is 3am, and I have not been on Japan Time at all this week except for maybe one day. Thankfully, I will be leaving in just a few hours, ahead of typhoon Hagibis so my body will soon be reunited with the time zone that it just flat out refused to give up.
Anyway, this week saw several bits of huge news that, for once, did not involve Libra too much. The IRS released more crypto tax guidance around basic accounting matters and caused crypto tax consternation with its guidance on hard forks and air drops. Another agency, the SEC, weighed in on the Bitwise ETF application with a big fat no — and by that, I mean the disapproval clocks in at 112 pages.
At DevCon 5, there were a lot of questions about the transition to Ethereum 2.0. However, there was also a buzz in the air about DAOs, DeFi, practical applications, adoption and more. And MakerDAO set a date for the launch of its long-awaited multi-collateral Dai. There are also a couple great think pieces this week on protocols from Chris Burniske and Ali Yahya, plus a final update on the QuadrigaCX saga.
Make sure to listen to this week’s episode of Unchained with David Andolfatto of the Federal Reserve Bank of St. Louis. His pragmatic approach was by turns, refreshing and frustrating. When asked about the possibility of the USD losing its global reserve status, he said, “who cares?” I was not expecting a Federal Reserve economist to be so blase!
Also, at DevCon, I sought out an interview that would showcase real-life usage of Ethereum and found Deborah Simpier of Althea Network, which a decentralized internet service provider that enables pay-as-you-go internet from your neighbors using Ethereum. It was fascinating learning about how this works in her community in rural Oregon.
This Week’s Crypto News…
The IRS released more crypto tax guidance that caused a ruckus. While it cleared up some accounting-related questions, some viewed the new rules around how to tax airdrops and hard forks as either difficult to implement or based on misconceptions. The difficult to implement part is that you can receive cryptocurrency via an airdrop, not be aware of it, and still have to pay taxes on it. As Coin Center put it, “It’s like owing income tax when someone buries a gold bar on your property and doesn’t tell you about it. It’s absurd and impossible to reasonably comply.” The other wrinkle was that the IRS does not use the terms airdrop or hard fork correctly; the agency sometimes conflates the two.
Coin Center director of research Peter Van Valkenburgh also pointed out that one of the scenarios the IRS used in its guidance has never happened. Blockchain president and chief legal officer Marco Santori said the guidance seems not to take into account the possibility of receiving an airdrop into a self-custodial wallet. Crypto lawyer Patrick Murck expressed the unpopular opinion that the hard forks and airdrops guidance made sense.
In the middle of DevCon 5 and the myriad other adjacent events, Ethereum creator Vitalik Buterin managed to publish two posts addressing some of the bigger questions overhanging the shift to 2.0. One addresses the question of what exactly developers will need to do for a smooth transition to Ethereum 2.0 — mainly, increase gas costs and download the code to implement the upgrade. Otherwise, he says the changes for applications and users will be quite limited. The other question he answers is whether applications will be able to talk to each other once sharding is implemented. He says yes, and explains how.
At least they gave it careful consideration. The SEC released a 112-page rationale for the disapproval. Bitwise’s Matt Hougan released a statement saying, “What matters is continued progress and the investment of time from regulators, and that’s what we see here.” The company also tweeted, “Historically, the journey to approval for first-of-a-kind ETPs —bonds, gold, non-transparent, leverage— has taken multiple yrs.” It’s a good thing they have that perspective, because Compound general counsel Jake Chervinsky says, “At this point, it’s reasonable to assume that Jay Clayton’s SEC will never approve a bitcoin ETF.”
MakerDAO made a slew of announcements at DevCon, including the launch of multi-collateral Dai on November 18. (Listen to the two-part Unchained interviews with CEO Rune Christensen to hear how MCD works.) Meanwhile, just before DevCon, Bloomberg published a more detailed piece on the governance issues that have dogged the project, which raise questions about how compliance with the existing regulatory system and the ideals of decentralization can coexist.
Chris Burniske of Placeholder Ventures explains why protocols are not businesses but instead provide structure for businesses. He says, “they are systems of logic that coordinate exchange between suppliers (businesses) and consumers of a service.”
Ali Yahya of a16z crypto had a tweet storm on why he does not believe there will be one dominant blockchain. As he puts it, “the tradeoff space that blockchains inhabit is far too large and high dimensional for a single blockchain to span all of it.”
Wired came out with a great graphic showing the ways in which more than half the Libra Association members have direct or indirect ties to Facebook. In particular, investors DST and Andreessen Horowitz are huge connectors.
CoinDesk reports that Jennifer Robertson “will be turning over all assets except for roughly $162,700 in personal assets, which include cash, her retirement savings, a 2015 Jeep, some jewelry, personal furnishings, clothing and some outstanding shares of Quadriga and affiliated entities.”
Xapo CEO Wences Casares spoke on a panel while sporting a huge ‘fro. Vijay Boyapati tweeted, “I personally cannot wait to see what Wences’ hair will look like when #Bitcoin hits 100k.”