Will the tax become a fatal injury to the cryptocurrency of the equity certificate?
One of the most important attractions of equity proof cryptocurrency is that you may receive an annual return of 4-15% when you hold an equity token. However, as Ben Davenport analyzed, the equity invested by the community proves that the less the cryptocurrency, the higher the rate of return, and the more the investment, the lower the return. This approach is primarily intended to motivate the protection of the network. Ethereum developers need to set a rate of return (similar to interest) to motivate those who have their own ETH to contribute to the protection of the blockchain. Since the total amount of equity ETH on the Ethereum network is 30 million, the interest rate should be approximately 2.20%. However, if the number of equity ETHs declines, the rate of return will increase accordingly, aiming to motivate more verifiers to go online. Conversely, if the number of equity ETHs rises, the rate of return will decrease, aiming to ensure that the Ethereum network does not pay excessive fees for the certifier's work.
But where does the equity proof cryptocurrency return come from? There may be only one place, that is, those token holders who have not invested in equity.
Therefore, as long as you hold an equity token, the most concern is those who have not invested in the equity, mainly because they continue to invest, then your share of equity will be happy. Of course, if the total number of holders and the total amount of cryptocurrency are the same, then the total share of the holder's final equity will not change.
However, tax officials will look at the equity proof cryptocurrency from another angle.
Although the purpose of providing rewards for the proof of cryptocurrency is to prevent the holder from losing money economically, many tax authorities do not think so. Only if any form of income occurs, the taxpayer will be regarded as income. If you look at the stock arbitrage of the investment equity, you will understand why the tax collector has to collect taxes on the equity certificate cryptocurrency.
The Ethereum incentives are dynamic, depending on how many ETHs are locked. In a system with a very low stake, you definitely want to encourage more people to invest in and lock in more ETHs to improve the security of the blockchain and get more returns. However, tax officials will see it as your extra income… and will be treated as cash!
How bad will the situation be?
Ben Davenport has done a "brain-opening" thinking experiment to understand the consequences of tax authorities' taxation on the cryptocurrency of equity certificates.
Ben Davenport assumes a scenario where the equity proof cryptocurrency has an annual return of 10% and a tax rate of 35%, and all holders hold 100% of the cryptocurrency. In addition, he also set the tax agency to be a promised currency holder, although they will levy a little tax on the cryptocurrency of the equity certificate, but promise never to sell the token they have collected.
In this case, the equity held by the tax authorities will prove that the cryptocurrency share will increase. For example, after 22 years, they will have more than half of the market value of the cryptocurrency. As shown below:
The problem is that tax authorities do not use the collateral currency as a means of payment, so other token holders have to find new buyers, which in turn leads to downward pressure on prices.
Therefore, Ben Davenport believes that if the tax is considered, the equity proves that the cryptocurrency is likely to have a negative return. (bitcoinist)