27th August 2023 > > The DEA and US tax rules.

tl;dr

The DEA falls victim to an address poisoning scam. New US tax rules demonstrate the US is still trying to stifle the crypto industry.

Market Snap

Market Wrap

The annual gathering of the elite of the elite, or at least that’s how central bankers view themselves, at Jackson Hole has produced nothing of note. Everything was seamlessly choreographed in advance. There was literally no point in all those private jets pumping out greenhouse gas emissions for a bunch of overpaid, under-worked individuals to scoff fabulous food, and down rare wines, at our expense.

Occasional Series – The Fringe

Amos Gill:

“Last year I had a great joke about inflation. But it’s hardly worth it now”.

Curious Cryptos’ Commentary – The DEA and a warning about address poisoning

You may not yet be familiar with the concept of address poisoning, but it is one of the latest tools used by feral crypto scammers. And it is worth taking note of this lesson.

Over to the Milk Road who gave a perfectly decent description of the mistake made by the DEA:

“The DEA seized $500K in crypto from a recent multi-year investigation

As part of standard processing, DEA agents sent a test amount (~$45 worth) to the U.S. Marshals Service before sending more

A crypto scammer saw the transaction on the blockchain and decided to use a scamming tactic called address poisoning

Address poisoning = creating a fake wallet address that's similar to an existing one (i.e. they’ll have the same first and last numbers/letters)

The crypto scammer then “airdropped” fake tokens to the DEA’s wallet, in an attempt to trick them into thinking it was the U.S. Marshals' wallet

It worked like a charm. The DEA ended up sending $55,000 to the crypto scammer’s fake address.

By the time any of the government agents noticed, the scammer had already moved the funds to different wallets.”

Curious Cryptos’ Commentary – US tax rules

On Friday, the Internal Revenue Service released its proposed tax rules regarding gains made from crypto assets:

https://public-inspection.federalregister.gov/2023-17565.pdf

This document is 282 pages long. The bureaucratic, administrative nonsense that is heaped on us daily by civil servants is just so damaging, on so many levels.

…

The basic concept behind these new rules is a sensible one. Crypto gains should be taxed in the same way as any of the more traditional investments, such as stocks and bonds. I don’t think anyone would try to argue otherwise.

The new rules place requirements on crypto brokers to provide information to their clients (known as Form 1099-DA) to make tax reporting simpler and more transparent. The same requirements are made of traditional stock and bond brokers.

All well and good so far.

But the thorny issue concerns the definition of brokers.

Clearly, centralised exchanges such as Coinbase and Binance are crypto brokers. They already must adhere to KYC (Know Your Customer) rules, and they have a database of everyone’s trades. Producing a Form 1099-DA will simply be a matter of pressing a new report button.

But these new rules extend further than that. As currently constituted, brokers include DeFi platforms and self-custodial wallets like MetaMask. Clearly, this is nonsense, and is totally impractical.

Either the bureaucrats fail to grasp the significance of the concept of decentralisation, or they are purposely ignoring it, seeing it as a threat to their hegemony, and not as the boon it is for humankind’s prosperity.

Crypto supporter Patrick McHenry, Chairman of the Financial Services Committee, is not best pleased:

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408956

Over to you Patrick:

“The notice of proposed rulemaking on digital asset reporting requirements is another front in the Biden Administration’s ongoing attack on the digital asset ecosystem.

The Biden Administration must end its effort to kill the digital asset ecosystem in the U.S. and work with Congress to finally deliver clear rules of the road for this industry. I look forward to advancing my bipartisan solution—the Keep Innovation in America Act—to fix these misguided reporting requirements, protect the privacy of market participants, and ensure the digital asset ecosystem can flourish here in the U.S.”