August 25, 2023 - Daily news and crypto updates for the terminally online

I got quite a few interesting things on the docket today.

I know we're going to cover the IRS Treasury Department proposed rules here in a second.

But on our daily thread of what's going on in Frentech, Frentech released images last night.

I was talking about FrenTek releasing images last night.

1 of our faithful creators donned us with new images.

Can you explain to me in intricate detail what these images were like?

I can't because that would be violating the trust that...

I'm happy to share our index with you though.

Yeah, I made a funny meme that I posted this morning.

Barely looked over at Twitter, but I would love to see it.

I felt I got that inspiration last night to make some memes.

Anyways, Yeah, take a look when you get a chance.

Let's go into the US Treasury Department and IRS guidance, proposed rules.

All right, so for those that haven't seen it, come across the desk this morning.

So, originally the rules were part of the Infrastructure Investment and Jobs Act, which was passed, I don't know, a few years ago, and included more reporting around digital asset and crypto transactions, right?

This proposed new rule set would inquire a new type of form called 1099-DA.

You've probably seen the 1099-DIVs, the 1099, 1098, the MISCs, the interest ones.

There's quite a few for different types of income and gains that you have with your brokerage accounts.

But it would be a notification that a platform will provide you to help guide what types of taxes that you owe.

The rules kind of pretty much apply to all platforms, payment processors, some hosted, some unhosted wallets, and they are targeting DeFi, specifically DeFi.

The DeFi group would need to collect the customer information, report all the sales information, all the swap information, even goes into options, futures, forwards.

Right now, it's tentatively would go into effect in 2025 the tax year so the first time that you would see 1 would be in 2026 early 2026.

Now let's take a step back before we get into more detail like why I mean at least why I think this is happening right like people in the US are not paying their taxes on crypto.

If you're not paying your taxes on crypto, you know, that I think this year the expectation of tax collections in the US was down.

It was expected to be down like roughly at least 35% year over year, right?

That's a massive amount of tax collections down.

I'm assuming that it probably fell closer to like 50%, right?

And obviously 2021 was a large capital gains year with the market, not so much in 2022.

But then also I think a lot of people just, you know, didn't pay their taxes.

And that's why they wanted to hire like, what was it like something crazy, like 80, 000 people that Biden had.

Yeah, it was like had set aside a hiring 80, 000 IRS agents, which got shot down with the raising the debt ceiling.

However, so you know, I think that A is a lack of specialization.

IRS agents don't really know how to track Bitcoin or crypto transactions in general and then be like no one's paying for them, right?

And so this would not only adhere to US broker dealers, it would apply to foreign broker dealers that would provide their services to US users or could potentially provide their services to US users.

To be honest with you, that would make sense.

Well, The fact that you have to KYC is 1 thing.

Like, be able, it'd be 1 thing if you could put in your wallet address and it forms a 1099 that is not specific to an individual.

And so that the IRS can more so be like, provide the accounts that you own.

And then if you took any sort of like withdrawals from those accounts, then that would help legitimize those accounts.

But then you would be able to like plug it into 1 platform that has integrated to like Aave and Uniswap and all this stuff.

Similar to how it's already kind of done.

gonna say that, like we kind of already do that, you know, especially if you, I know for me, for like payroll purposes, I use the same exchange account and the same hot wallet to transfer funds between.

Every year, I usually update that and use 2 new ones, but I keep those the same So that way reporting is super easy for me and you know, I'm not mixing money or trading from those wallets.

And yeah, I kind of minimized the amount of transactions and addresses that I'm using for my ins and outs.

Yeah, I mean, like most like major services like the SushiSwap, DinaSwap, Staves, like if you are performing your taxes, then they don't necessarily provide the KYC, they don't necessarily provide the information to the IRS, but they do provide tax accounting based on your tax basis, capital gains, short-term, long-term income, stuff like that, right?

So they do the classification for you, And then you submit that to IRS as an added component to your investments, right, when you do your taxes.

Now, the 1 thing about the 1099, 1098 forms is that they provide them to IRS, right?

So like if you don't, if you don't put them on your taxes and IRS immediately knows that you're like, you know, you're underpaying your taxes, right?

And so that would require the KYC elements, you'd have to put in like, you know, your socials, you'd have to put in your EINs if it's a US company.

I mean, look, it's not a huge secret that the way that US approaches a lot of regulation, Europe as well, is that they come in really hard and strong with a proposal, right?

Because when they back off of it and when they ultimately get implemented, isn't the worst case scenario, right?

Like it wasn't as bad as it used to be, right?

So like in a compromise negotiation, you come in with like, you know, stringent demands that you know, aren't really going to be fulfilled.

But then when you meet a middle ground compromise, you can be like, well, you know, I gave some leeway based on what I originally wanted.

So, I mean, I think that's what the approach is here.

I'm sure there's gonna be so many, you know, VC-led comments that come in here.

Like, you know, they're just doing the dance, right?

So, look, I mean, yeah, like large, like the Uniswaps would have to KYC, like wallet providers would have to KYC, like so your MetaMasks, like yeah any any sort of like smart contract protocols and that could be upgraded via like you know individuals that's not like a hundred percent like compound like you know decentralized would have to have to do this kind of reporting and collect for KYC.

So, I mean, regardless of what ultimately gets implemented for, you know, there's what about a year and a half ish to prepare, then it would be a year of data collection in 2025, and then ultimately providing these 1099 DAs for individuals in the 2026 year.

I don't think it'll be implemented in its current form, I think that it's more likely that they make you pay for some sort of service provider that does this.

And maybe everyone that's in crypto does something similar.

Like if you're already using TurboTax, then most people in the world are not doing their taxes individually.

There's just gonna be another software provider that can provide this for you.

And then they just make it so like if you're making any withdrawals from crypto to fiat through a centralized exchange and you're depositing money, then you need to self-declare those wallets.

I could see something like that happening.

1 thing I do find useful is more clarification around something like a notification for employees that you bankrupto.

It's kind of difficult on exactly how that's done.

Are these contractor bases, are they out of these contractors, right?

Because contractor rules versus employee rules are different.

Are you considered freelance or like a gig worker?

There's a lot of different unknowns and it's kind of difficult if you're running an organization in the crypto space and you're paying people in crypto and you're trying to give them benefits.

Some more clarification on how the tax treatment of those individuals would be helpful for sure.

And I don't think that if you are a full-time employee employed by a company that's paying you in crypto, that you would be like, I'm not going to pay taxes.

You have to pay taxes to kind of get that money out without, you know.

There are some third-party services that actually will do that for companies and protocols.

Like I know years ago when I worked at a crypto company, DC, Working there, there was a company they started working with that withheld our taxes, you know, for us.

And we essentially, you know, just got like a pay stub every every month with our like BTC deposit.

And then we had W two's that we were able to use at the end of the year.

However, they are expensive and they're charging 1-2% of your right?

Which could be a significant amount per individual.

And they, a lot of the times they play as like the freelancer role.

So like, let's say you're a gig worker, you're a, you know, whatever.

What happens is they act as the intermediary between you and receiving payment.

And so you actually pay this third party company.

They will then prepare all the documents for you.

Then they will do tax withholdings and send you the rest.

And then they will make the quarterly tax payments on your behalf.

And I just, I think that there's better ways to do it.

I think these groups need to be integrating with projects more instead of at the individual basis.

And then you do like a fixed flat fee for all of this because you know 1 to 2 percent per individual Like that's a decent amount of money Yeah,

I'm not sure of the structure at the time, but it was like at the company level Whether or not they charge them like per individual or they said like, you know, we charge this much per 50 employees 100 employees or something I'm not too sure but On our end is like the the employee.

We didn't see any You know additional fees for them doing that.

It was more of just a slap in the face because you were used to being paid as a contractor, freelancer, and getting all of your quote unquote cash up front.

And now you're feeling the traditional kind of work payment that you had moved away from when you start getting your taxes taken out and given to you, or the rest of your pay given to you?

Yeah, I mean, I'm all for tax collections.

I still don't think that we should be doing transactional tax.

It should be straight how like France used to do it, Where it's like when you move it from 1 domain to another domain you get taxed a flat rate on that So if you move it from crypto to fiat how much you move to see how you get it to 20% flat rate and then maybe there's certain special handling that if it's just like a USD payment and there's no like capital gains on it or anything, then it's, you know, it's a different transactional based tax.

But if it's something that, et cetera, like if you're doing investments and it's like long, short-term capital gains and you're moving back to fiat, then yeah, do something like a maximum of 20% tax and then if it's less than that, the amount that you made on it, or 20% tax on your game.

Support the cozy and froggy localized monarchy and Will tax much less

Okay Well this it's open to public comment till the 30th of October then I think the 7th and potentially the 8th they will be having a Hearing So we'll see what happens then.

I'm sure there's going to be a lot more takes.

It's a 300 page document so by no means that I was able to read all of it.

So I think we're pretty all encompassing on it.

But at 1 point I thought that it said that if you do a swap from crypto digital asset to another digital asset or digital asset to fiat, then you get, and then I was like, oh, option space are safe.

Especially if you're doing like, you know, premiums paid in the native asset because it's not a digital asset to another digital asset, digital assets are the same.

But then they have an entire portion that's dedicated to options, regulated futures, forward swaps, stuff like that.

In other news, there's a movement in Shaken in Hong Kong.

They're going to be doing some more meetings here in I think the next month on either STO, Securitized Token Offerings, or just like securities that are then kind of settled on the blockchain.

They had a green bond back in February that did like 100 million in volume.

And then they're going to start focusing on that more for like securities token offerings, which I think STOs instead of an IPO makes sense to me.

A lot of times it's like for like, you just do it on the blockchain instead of through a traditional registrar.

If you remember Overstock, Overstock did this a long time ago where you had the option to receive your shares on the blockchain or through the normal registrar And that's when I worked in Trayfi and I thought that was super interesting, even though like we didn't even as a broker dealer, we didn't even allow you to take that option.

But still, you could do If you wanted us to handle that corporate action for you, we wouldn't do it.

But if you wanted to handle it yourself, then you could take that option.

I don't think anyone chose the option at the time, but it was still interesting nonetheless.

He's up in, he's up north in what, like Rhode Island or Massachusetts or something, wherever all the libertarians are.

Can't think of his name right now, off the top of my head.

And there was another platform at the time that required like, You know, it was pretty cumbersome, required KYC and they were going about it kind of the, I don't know, you could say regulatory friendly way.

And Raven, anyone could create like an STO.

So there were a lot of tokens being created at the time just for fun.

It was very similar to a friend tech kind of thing where people were creating social tokens and them as kind of the company offering.

1 of my friends, I think, mined the first block of that coin, UZ.

But besides the fact that, yeah, the STOs were kind of like, I don't know, making noise at the time.

And then that launched and I think just like all kind of proof of work tokens of that era, it got quickly trumped by the offerings of DeFi and the shiny new things popping up that you can make quick gains on.

There's a lot of cool shit from back in that era that nobody cares about because they don't have the attention gravity that the new fun things to they don't have the memes and the quote-unquote community and the same like form or fashion like decret is 1 I talk about a lot because they have a really, they probably have the most, I don't know if I'd say robust,

successful or functioning on-chain governance system.

They've been doing a hybrid proof of work, proof of stake Thing for a really long time.

I remember like interviewing what I think Marco is not with them anymore But he was 1 of the old like core devs maybe like 4 or 5 years ago.

And Dash, you know, we talked about that I think on the last stream, like people were putting weed patents on Dash to try to register these different strains before Monsanto could.

So like little things like that I think are always cool.

But yeah, Raven was was STOs at the time.

On Hong Kong, Hashkey is the first to kind of receive the license under the new regime.

There's planning to get a million users by year end and what, 10 million users by 2025?

And they already have like 5 partnerships with different brokerages in Hong Kong.

A million users by year end is a decent undertaking.

But Hong Kong only has 7.4 million people.

So I don't know if 1 million and 10 million is quite happening.

Maybe if everyone's like, you know, jumping at the bit, but I think there's like a few that are trying to do that.

So, I mean, I have multiple exchange accounts, so who knows?

Yeah, the Singapore thing is just that they're, you know, laying out more groundwork for stablecoin issuers Trying to make it so it's a crypto friendly area Everyone Yeah, I don't know what their CBDC plan is, but they've had like, they've had real world assets, RWAs for quite some time.

Because there was there was all those, like, gold backed coins that had all of their reserves in Singaporean vaults.

Cause from a jurisdiction perspective, like holding precious metal commodities, like Singapore is the place to be.

It's like Singapore and London, but Singapore was more friendly at the time, I think.

You're giving me PTSD thinking about gold back tokens.

Hey man, that's around when I got into crypto was like the gold back era.

On other stablecoin stuff, I thought this was really funny.

The DEA was engineered out of 50k RIP Bozos.

It happened by something that's pretty common for, I don't know, most of us who are pretty active on chain.

But you'll get the, especially if you have like Zerion, Rainbow, like a mobile wallet where you're watching an address, you'll often times see that you get these notifications for assets being sent or received to your wallet that you know you didn't ask for or you know you didn't send.

Well, a lot of times what they do is they're sending or showing that you sent from or to an address that almost matches yours.

They'll use a similar prefix and postfix so that if you were to just look real quick, it will look like the address that you're trying to send to or you've sent to in the past so you'll copy that and actually send them your tokens.

And the DEA did a test transaction to I believe the US Marshals and this hacker or a group of hackers was monitoring the address, saw them do it, sent 1 of these spoof airdrop things, and then they copied the exploiter's address and sent them the 50K.

Not only do you lose the money, you still got to pay tax on it.

Yeah, confiscation is something that's not really talked about, I think, too much, but the amount of capital that's confiscated by authorities, and you see it a lot in the DEA space is why it reminds me of this, is like a hidden funding source that a lot of people don't ever see that money again.

Because even if you like sometimes, you know, if you have a large amount of cash and then they take you to court and you know, you lose that court proceeding or I mean you win that court proceeding that says that like, okay, this was like legitimate cash or this was you know, they couldn't attribute it to maybe drug sales, a lot of times you're not getting that money back regardless.

In my city they have a couple Hummers and other kind of nice SUVs and they're decked out for whatever purpose they are.

1 of them is like a canine unit and other ones a DUI 1 but on the side it says paid for by you know local drug drug dealers or paid for by it's like really funny because you could read it it was like paid for by drunk drivers.

And you know, so like you could read it and think it 1 way, and it's kind of funny to look at.

And on the other end, yeah, they confiscation is a huge thing people don't talk about very often.

I've never, I always wonder, who are they hiring to manage these things, right?

Is it just a guy that's already worked there?

They're just like, hey, we're gonna need you to send this money here.

He's like some like, you know, 55 year old desk jockey that's.

Even had to approve a Trezor transaction to accidentally send it to the wrong spot.

They're not doing UI checks, I'll tell you that much.

Which is funny, but to be fair, I have a friend who, he was click jacked with a ledger and, you know, he was like shook for a really long time after that.

Kind of doing something similar where it wasn't a like address, it was something totally different, but he had like copied address from somewhere, pasted it, and it was, you know, some malware that was on his computer that gave him some different address.

And he just kind of chucked it up to a loss and never pursued it or anything, but it's pretty shitty.

So it can happen, but those ones are funny when they go to Etherscan, they copy the wrong address and they send it out.

It's just some fucking boomer sitting at the desk that is used to typing up reports.

When the influencers on Twitter will be like, I got hacked.

And it's like, what they actually did was like, egregious, like, I can't like you did what?

But yeah, I think that people use that word hacked.

it's like this guy, I wouldn't say that the DEA got hacked per se They just had they had poor control internal controls.

I think of it more of like being engineered.

Let's see other security related stuff I didn't see too many people talking about this yesterday.

I know Nomad had mentioned it, but there was a cybersecurity incident at Kroll, which led to the compromise of a bunch of customer data from FTX and BlockFi.

It was actually pretty sensitive information, like your name, your address, your account balance.

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Eden Aesthetix : Episode #03