
This is sponsored content. Barchart is not endorsing the websites or products set forth below.
Cryptocurrency has long been tipped as the future of the financial world. Decentralization means it is freer and more flexible than traditional currencies, and these digital assets are buoyed by cutting-edge technology.
However, cryptocurrency has come under increasing scrutiny in recent years. As regulatory bodies turn an eye to crypto, traders and investors fear the industry could soon be strangled by new rules and laws, changes which could impact things like the Litecoin price and Bitcoin’s performance.
In recent news, a proposed crypto tax law has been floated by the US Treasury. While miners appear to be exempt, it will still have far-reaching implications. Let’s take a look at what has happened in more detail and discuss what it means as we move forward.
What are Crypto Miners?
Before we dive in, let’s clarify exactly what we’re talking about when we mention crypto miners. If you want to understand what crypto miners are, first you need to understand how cryptocurrency works.
Transactions made using cryptocurrency are stored as blocks on a digital public ledger called the blockchain. These blockchain networks are decentralized, which means it’s up to users of the platform to validate new transactions.
Every new block generates a unique code, and users on the network must generate a code of equal or lesser value. This is done through intensive computational work, and the user who eventually generates the correct code will validate the block. As a reward, they will be given freshly minted cryptocurrency, which is why the process is commonly referred to as mining.
Regulatory Attention on Crypto
For many years, the cryptocurrency industry has existed in a kind of legal gray area. Not quite currency and not quite stocks, these assets have floated somewhere in the middle, and have thus far escaped any real attempts to control them and bring them under regulatory management.
However, this month the US Treasury Department published a long-awaited report on the crypto industry. This 300-page dossier sets out some key principles in an attempt to wrangle control of what has proved to be a slippery and unpredictable sector.
The definition of a crypto broker has long been a point of contention, with regulatory bodies adamant that crypto exchanges should be required to adhere to standard tax reporting obligations.
In the report published this month, the US Treasury stipulated new rules that will require certain crypto-affiliated organizations and individuals to follow tax reporting procedures.
Who is Included in the New Rules?
Who is included in this report and what will it mean for them as we move forward? The US Treasury has identified centralized crypto exchanges, wallet providers, and payment processing companies, ruling that they should now be required to report taxes.
In addition, some decentralized exchanges have also been included in the report. This has created grumblings throughout the crypto industry, with critics maintaining that this kind of government overreach is exactly what decentralized cryptocurrencies and blockchain platforms were designed to avoid.
Essentially, the law is intended to ensure the middlemen of the crypto industry, that being brokers and exchanges, report taxes and declare the income they generate through their operations. These organizations would also have to provide detailed information about user activity and asset exchanges.
In the report, the Treasury detailed that it would create a new tax form specifically for the crypto industry. This 1099-DA will help organizations compile their tax reports more efficiently and reduce the risk of errors.
Why are these changes being proposed? The reasons are largely financial, with research last year predicting that more stringent tax rules on the crypto industry could boost the US economy to the tune of $28 billion annually.
What About Crypto Miners?
Crypto miners are the heartbeat of the crypto world. Without them, cryptocurrency transactions could not be verified, and new coins would never be minted and released into circulation.
As the Treasury readied the report, the industry waited with bated breath to find out whether or not new rules for miners would be put in place. Upon its publication, crypto miners the world over breathed a collective sigh of relief when it became apparent that miners would not be included in the new regulations.
When a miner is rewarded with crypto for validating new transactions on blockchain platforms, they will not be required to file tax reports. This is because they are not acting as a middleman in the same way a broker or exchange is, according to definitions set out by the treasury.
When Will These Changes Happen?
As things stand, these are just proposals set out by the Treasury. Before they can be enshrined in law, they must first go through some additional stages.
Public hearings have been penciled in for the 7th and 8th of November, during which the government will hear arguments for and against the new regulations. The rules may then be reworked, and we could expect to see them rolled out by 2025.
This will give crypto exchanges the chance to get things organized and in place before the rules come into effect.
Conclusion
Regulations for the crypto industry have been coming for a long time. While cryptocurrencies and blockchain networks were conceived to exist outside of the powers of government control, there was only so long they could last before rules were imposed upon them.
On the date of publication, Barchart Impact did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.