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Tari is a Rust-based blockchain protocol centered around digital assets.
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The new regulations from the IRS in the United States target Decentralized Finance, and the taxation oversight on encryption has sparked controversy in the industry.
New US Tax Regulatory Rules on Encryption Assets Spark Controversy in the Industry
Recently, the Internal Revenue Service (IRS) of the United States issued a new regulation regarding the reporting of digital asset transactions, which has sparked widespread attention and controversy in the cryptocurrency industry. The regulation requires that starting from January 1, 2025, all brokers involved in customer digital asset transactions must use the new 1099-DA form to report detailed information on each transaction to the IRS.
The scope of this new regulation is very broad, encompassing not only traditional encryption asset trading platforms, payment processors, and custodial wallet providers, but also including decentralized finance (DeFi) front-end service providers within the category of brokers, requiring them to assume corresponding tax reporting obligations.
In response, the industry reacted strongly. Michele Korver, the regulatory head of the renowned venture capital firm a16z Crypto, publicly stated that this new regulation poses a direct threat to the development of DeFi and may hinder the future of U.S. innovation in the DeFi space. To this end, a16z Crypto supports multiple industry organizations in filing lawsuits, accusing the IRS and the Treasury of overstepping their statutory authority, violating relevant laws, and potentially raising constitutional issues.
Looking back at the history of the United States' tax regulation on encryption assets, a trend of gradual tightening can be observed. From defining cryptocurrencies as property in 2014, to requiring all encryption asset transactions to be reported in 2021, and now to the strict reporting requirements, the U.S. tax regulation on encryption assets has entered an unprecedented phase of rigor.
The new 1099-DA form requires brokers to provide extremely detailed transaction information, including transaction dates, types, amounts, and personal information of investors. This comprehensive and detailed reporting requirement will undoubtedly place significant compliance pressure and operational costs on brokers.
Supporters believe that this new regulation is a necessary measure to combat money laundering, counter-terrorism financing, and prevent tax evasion. The transaction data and customer information held by brokers are an important basis for regulators to carry out effective supervision. However, critics argue that these strict reporting requirements could seriously affect the core characteristics of DeFi, such as anonymity and decentralization, thereby impacting the innovation and development of the entire industry.
The impact of the new regulations on DeFi is particularly profound. To meet reporting requirements, DeFi platforms may have to change their core operating models and increase KYC processes, which will not only raise operational costs but may also weaken the market appeal of DeFi.
From a broader perspective, this new regulation may intensify market competition, leading some small or startup brokers to exit the market due to their inability to bear high compliance costs. At the same time, it has sparked controversies regarding privacy rights, data security, and constitutional rights.
Although the original intention of the new regulations is to improve tax transparency and combat illegal activities, the urgency of their implementation has raised concerns in the industry about the potential hindrance to innovation. Finding a balance between encouraging innovation and strengthening regulation has become an urgent issue that needs to be addressed.
It is worth noting that, considering certain political factors, this regulation may still face some variables before it officially comes into effect. Nevertheless, the encryption industry has consistently demonstrated strong adaptability and innovative spirit in the face of regulatory pressure. Although the road ahead is full of challenges, the future of the encryption industry remains full of possibilities.