How IRS Tax Rules May Apply to Ethereum 2.0

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How IRS Tax Rules May Apply to Ethereum 2.0

Ethereum 2.0 is here, but IRS guidelines for how it might be taxed are not.

The first phase of the 2.0 upgrade, which launched earlier this week, sees Ethereum officially begin its transition to a proof-of-stakeconsensus mechanism, from what’s known as proof-of-work.

Proof-of-work involves verifying transactions with raw computational power, whereas proof-of-stake relies on “validators,” who stake tokens for the chance to verify blocks. In the context of Ethereum 2.0, rather than “mining” coins, computers are awarded ETH (the coin, not the protocol) as they verify in good faith (malicious validators can have their ETH stashes “slashed” by the system).

Right now, the IRS has released zero guidance as to how stakers should go about reporting investments in Ethereum 2.0. And according to Roger Brown, the head of tax and regulatory affairs for Lukka, a blockchain data and software company, the best we can do at this point is try to divine some potential guidelines from the current iteration of the tax code.

One thing you probably won’t be taxed for, says Brown, is transferring ETH into the Ethereum 2.0 deposit contract. This is a process that’s already been going on for some time—the launch of Ethereum 2.0’s “Phase 0” earlier this week (it’s the first stage of a planned three) was made possible by community members pouring ETH into this deposit contract; the contract required 524,288 ETH in order to lay the foundation for Ethereum’s proof-of-stake future.

Per existing tax principles, Brown told Decrypt, deposited ETH is “not treated as a disposition, because you still own it













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