The Tale of Cryptocurrency Staking and Taxation In the Eyes of Financial Regulators

Cryptocurrencies have grown over the past time to reach new heights and a market capitalization that cannot be ignored. Consequently, more people have joined in the hype, ranging from developers, investors, and founders of various crypto-based projects. Over time, more use cases for crypto come up to sustain their growth and lead the world to the next finance phase. Among them, staking has grown and become common over the past year as Proof-of-Stake rose. Staking is a way of rewarding participants in the blockchain system. Through staking, users assist in validating transactions in the blockchain hence minting additional coins through the digital assets they own. Stakers, on the other hand, face an unclear tax regulatory landscape in terms of taxation of their activity on PoS platforms. Since the IRS has not issued clear guidance on staking rewards, taxation has been contentious for many years. Since the IRS did not provide this guidance, many taxpayers opted to report income when they received rewards. Crypto Staking on Blockchain PoS networks are decentralized, so they do not have a central authority to oversee transactions. To ensure that transactions are conducted properly, they rely on a consensus mechanism that enables participants to verify transactions. Notably, validators provide the consensus of the PoS system. To become a validator, users must submit a transaction to the network. The network will randomly select val...