Will cryptocurrency staking be taxed after the launch of Ethereum 2.0?
According to a US Library of Congress report, cryptocurrency taxation differs from country to country, and most have yet to provide clear recommendations on how to tax cryptocurrency stacking taxed.
How things work in the crypto taxation matter around the world
The report, published by the US Law Library of Congress, has analysed how cryptocurrency is taxed in 31 states around the world. Dubbed “Taxing Rewards for Cryptocurrency Blocks in Certain Jurisdictions,” the report shows that while most major economies have tax rules rewards for cryptocurrencies obtained through mining, most of them failed to provide similar measures for staking.
The analysis showed that “most countries played catch-up”, as there is currently a discrepancy arose due to the fact that numerous blockchain projects are moving from the mechanism consensus PoW, when mining is used to obtain rewards, on PoS. In the PoS network, rewards are earned by validators through stacking — a process in which crypto assets are locked in the network of the block chain for a certain period of time to support ecosystem functionality.
The study also assessed how different jurisdictions tax new tokens obtained through airdrops, blockchain divisions and hard forks when free crypto assets are distributed among traders and network users to significantly promote the new project. While not all of the 31 countries have provided tax guidelines for airdrop, Australia, Finland, Japan, New Zealand, Singapore and the UK are among those who have.
In general, the approach to cryptocurrencies differs from one region to another, but most classify digital assets as investment property, financial instrument, intangible asset, or property, financial asset or commodity.
Of the 31 countries studied, 16 provided clear instructions for the application of basic taxes such as income, capital gains and value-added tax for extracted cryptocurrencies. States that have special rules on remuneration for extracted blocks include Australia, Canada, Denmark, Finland, France, Germany, Israel, Italy, Japan, Jersey, New Zealand, Norway, Singapore, Sweden, Switzerland and the United Kingdom.
U.S. Representative Tom Emmer, who is co-chair of the Congressional Blockchain Caucus, indicated that more detailed guidance will be needed to increase innovation in blockchain technology.
Ethereum goes to staking
As Ethereum transitions from a Proof-of-Work consensus to Proof-of-Stake via ETH 2.0, also called “Serenity,” different jurisdictions will undoubtedly move on to study this process, and release more inclusive tax rules for cryptocurrencies that are used in staking. Launch of ETH 2.0 could pave the way for other PoS protocol research projects, unlike PoW models, especially if greater scalability is achieved in the new chain, as Vitalik promises Buterin.
The co-founder of Ethereum assured that scalability will increase in the updated version of Ether. While the entire chain of updates may not be completed this year, once Serenity is complete, the ability to handle 10,000 transactions per second should be expected once completed. Ethereum’s scalability is currently limited to 30 transactions per second.
Ethereum 2.0 will be of great importance to the cryptocurrency industry, since most DeFi projects are located in the current ecosystem.
Its native ETH cryptocurrency is likely to soar to new heights after the release of an updated chain of blocks. It has now broken through a new historical high of $1,600, and is trading at $1,666.
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