Tax day within the U.S., when all United States’ citizens must postmark their taxes to their government, is today, April 17, and little guidance has left many cryptocurrency users in the dark and confused.
The U.S. tax system forces individuals to calculate the amount that they owe to the government based off of guidance and rules from the Internal Revenue Service (IRS). The last guidance issued about cryptocurrencies was in 2014, which classified cryptocurrencies as property. One crypto business entrepreneur has said that “[t]he big unknown is, who owns what, when and in what jurisdiction” and “[t]hat’s really hard to determine.” David Klasing, an accountant and tax lawyer that specializes in digital currencies said that a lot of “tax preparers are put off by the industry’s lack of records, as well as its association with criminal activity”. Other tax accountants simply don’t know how to file crypto taxes or how to file it correctly. Turbo Tax and H&R Block, tax filling assistants, have listed numerous pages of help guides for cryptocurrency tax accounting.
The IRS last said in 2014 that tax filers should pay crypto taxes based on “factual scenarios that most closely resemble their circumstances.” The IRS recently said in March that if taxpayers do not “properly report” their cryptocurrency usage then there could be financial penalties and even criminal prosecution. The IRS’s classification of crypto as property creates a taxable event every time cryptocurrency is purchased and sold, including using crypto as currency to buy or sell goods/services. The large price increases that cryptocurrencies experienced over the past year created sizable taxable scenarios for many users.
For emerging industries, the only thing worse than bad policy is unclear policy
While government officials and pundits philosophically debate whether cryptocurrency is actually currency, early adopters are nevertheless using cryptocurrency to exchange for goods/services, which is a key hallmark or currency. Through this process, these early adopters are creating wealth from energy, knowledge, and technology that was previously unused and idle, which will make a plethora of individuals better off through productivity increases. However, this betterment of individuals through technological and productivity increases will be mute if advancement is stalled.
It is easy to see how excessively restrictive policies hurt emerging industries, but the less commonly understood harm to emerging fields is how unclear policy harms a sector as well. Rational economic expectations dictates that people make rational decisions based on a rational outlook, current information, and past experiences. However, even in traditional markets with detailed and historical rules, this theory does not always hold true, which means there is an even smaller chance for it to be true in cryptocurrency markets that have very loose and ambiguous rules. Thus, each individual will behave differently and unexpectedly when analyzing their own interpretation of the crypto tax guidelines.
This uncertainty causes many individuals to behave erratically as they try to adhere to government guidelines under threats of fines, criminal prosecution, and jail. As individuals shift their behavior, they are no longer able to focus as much attention on developing and using cryptocurrencies, which prevents technological and productivity increases for those that are most in need of economic advancement. A quick example would be that since the IRS treats crypto as property, many individuals would be discouraged from using crypto to buy or sell goods/services during periods of high volatility to avoid large tax liabilities. However, this actually makes volatility worse as the volume of markets decrease and individuals are unable to sell their goods/services.
Dash is a bastion of stability
Users of Dash within the U.S. fall under many of the same tax liabilities as other cryptocurrencies being used within the United States. However, Dash is able to construct its own pillars of stability using its unique governance and treasury system. Dash is able to coordinate and fund its development that sets clear forward expectations and timelines in a decentralized way, which provides better guidance for Dash users. This guidance does not solve the problem of unclear nation-state government regulations, but it does clarify at least one level of uncertainty for users, which most other coins do not offer.
A subset feature from said coordinated development has caused Dash to be quickly adopted all over the world by individuals that have decided to use Dash as currency to exchange for goods/services. This not only helps increase the volume, but also makes expectations more clear to users and potential users, which in combination, lowers the volatility of Dash and makes it behave more like traditional currency. As Dash increases its usage, it transforms unused energy, knowledge, and technology into wealth for a plethora of individuals throughout the world, some of which are the most in need of economic development. Despite being slowed down by government regulation uncertainty, and ironically, Dash is actually achieving the idealistic goals of progressive taxation.