Bozzlife: Protecting the Minnows
The other day I was reading this really great post by @edicted. You can find the post here. There was a section that talked about how the current tax laws can't even begin to cope with the complexities of cryptocurrecy. There was a point made about the parallels between crypto holders and the early .mp3 downloaders and how the 1% were dragged into court to serve as an example to everyone else.
Please take the time to read the whole post, it is a really great read.
Anyway, it got me thinking.
I am a pretty small fish. There is little chance the IRS or whoever would come after me to be an example, but if they did, I would probably be screwed. Paying for lawyers, accountants, or whatever would not be much of an option if I wanted to still be able to pay my mortgage. So what would I do?
Then I got thinking about the price of BTC and ETH are rising so exponentially lately and how at any point they could rise even higher. There is a group of people who are sitting on a ton of money. More than they will probably ever be able to reasonably spend in their lifetime.
Why not create some form of non-profit that can help anyone who finds themselves in hot water due to simply holding cryptocurrency. It could be staffed with lawyers, accountants, finance experts, etc. and those people could help others navigate the rough waters of this ever changing domain.
Let's say I am a whale holding a hundred million or so in crypto. At that point they could totally spare a million dollars to donate to the foundation. They probably lose more than that in one day on a bad trade (or, ahem, ETH gas fees). What if I only own a couple million in crypto? I could totally spare $100,000. I know a foundation would take a lot of money to run, but even if you get five whales from any chain to donate, it would add up over time.
Then I got thinking this morning, what else could the non profit do to bring value to end users. I started contemplating the idea of crypto/blockchain startups and how difficult the laws can be depending on the country for them. What do you have to do to avoid being considered a "security", etc. There are probably lots of people with awesome ideas that will never come to fruition. While they have the skill, they don't understand the legal or political pieces that would allow them to launch a successful product.
Think of it as a Red Cross/United Way/ACLU but for crypto, standing in the gap for those small users and coming to their aid when they need it.
One of my colleagues mentioned that this could potentially be accomplished by the EFF (Electronic Frontier Foundation), but I think we would need something more focused specifically on blockchain and cryptocurrency.
Who knows, maybe it is something no one will ever need. I just know I got some positive feedback when I brought it up a couple of times yesterday, so I thought I would throw it out there.
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https://twitter.com/JayBosworth5/status/1354764550600417281
Great idea!
I'm happy to provide legal assistance via this foundation and in setting it up if some whales put up the money.
The Foundation can also lobby for sensible tax laws and challenge unreasonable behaviour.
One of the issues I face as a lawyer in blockchain is its global nature while lawyers are registered in by jurisdiction.
I'm only legally allowed to charge for Australian law advice, but actually know enough in the crypto space to advise across quite a few jurisdictions.
A foundation would allow me to assist on a pro bono basis but still get some compensation for my time.
Those who aren't financially savvy that get into crypto, particularly Hive and the ability to earn without spending anything, are certainly not going to be thinking "I should get my taxes and check local government guidelines on crypto".
In the UK, I've had to read a tonne and explain how things work to my friend who's an accountant just to even translate it in to a recognisable format to fill out tax forms. Thankfully there are a couple of online tax calculators like Koinly which make things easier but in the UK, it's a real minefield and taxable events are literally everywhere, even me writing this comment if it gets an upvote becomes income taxable!
I've also been studying how the UK HMRC is changing its approach to crypto again in the coming months as they reach out to investors, insurance companies, lawyers, all stake holders really, for feedback on the "best way forward" to regulate the space.
I get the feeling they are taking things seriously although only 4% of the UK is into crypto so it's a small population, at the moment!
Not sure where I was going with this reply anyway!
Perhaps a DAO proposal might be worth it if you can band some of your lawyer colleagues and accountant network across the globe? Not sure but I'm all about educating people on what they are getting themselves into so they know what to expect, not to scare them away but rather so they can learn from mistakes of others who have walked their path already.
I just come up with the ideas. I leave it to someone else to implement it. :) I wouldn't even know where to start with something like this or if it would be feasible. @bigtom13 brought up some pretty relevant concerns about the logistics of the idea. Thanks for your offer though! Perhaps one day someone will run with this and you will find yourself helping out. That sounds like it would be a great fit for your expertise!
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The problems I see here are two fold: 1. Convincing anybody in the crypto world (or any other world) that parting with even a tiny fraction of their wealth to help the little people is pretty unlikely.
If you are getting into the question "Am I going to sell a security?" is probably not in this discussion. P2P transactions of existing assets are not illegal.
The difference I see in your examples is that there was an 'injured class' (the rights owners for the music) in the Mp3 case. If you didn't pay for the song and you listen to it on your I pod then you stole it. Simple legal foundation.
If you buy a crypto you do not make any money until you convert it to fiat OR use it to purchase goods or services in which case it is a taxable asset. Trading one crypto for another does not make a taxable value. It might make it so that you can't prove that you actually put money into said value and introduces the likelyhood that the entire amount you sell for is eligible for capital gains tax. Like if you can't prove that you paid $10 for the asset you sold for $100 then the whole amount is capital gains or worse, ordinary income. If you sold any part of the chain in less than a year from buying it.
If hive goes up 1000x I'll just sell enough to go to Dominican Republic. You can buy a passport there for $250,000 and be a legal citizen tomorrow.
I didn't say it would be easy! Also, that wasn't my example originally and I did consider what you said before I typed the post. The logistics are something that are beyond me. I just come up with the ideas :). As I was typing I did start to realize that a majority of these things really only apply to the US, but by then I was halfway through my post and at the heart I really do think it is a good idea. If nothing else it would be a good case study. All of this might not feel too relevant right now, but with the first question on this years 1040 asking if you hold any crypto, I think the first time they go after someone who isn't considered to be a whale and it gains some publicity, it is going to hit home for a lot of people out there.
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I can categorically prove that I am getting smarter as I get older. I am using LEO to respond this time, rather than farting it off all together.
I get it. I really do. It would be nice if it could happen that way.
I really think the difference is the value and the run up of value. In the Mp3 debacle people downloaded tens of thousands of songs and not only made their value to the owner very small but also reduced the value for the actual rights holder by a significant amount. Enough to class it as theft.
With crypto the question is how and when you need to pay tax. If you are trying to buy and sell for fiat (USD) without paying tax that constitutes fraud or theft. The IRS and the government in general take a very dim view of that.
I think, that just like everything else, keeping good records will be the key difference between needing lawyers and an account at the Federal Prison Service is the ability to prove what you have done and when you did it. And the willingness to pay tax on income.
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It will be interesting to see what happens with crypto and taxes in the long term. I know our inland revenue has some advice on it, but I'm not sure the small amounts I make would bother them, especially as I am not spending it.
The hope is that things will become a lot clearer over the next year or two now that the big institutions are buying in.
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