Taxation in the Age of Smart Contracts: The CryptoKitty Conundrum

Abstract

Smart contracts are the latest twist on automated programming. Their tax implications are still emergent: regulators may seek to fight, join, or try to dominate the market for virtual assets in direct competition with the ambitions of private law orders. This paper reviews the technology to date and examines these possible government responses, using the Ethereum-based CryptoKitties application as a concrete example. The paper concludes that the most likely tax regulatory scenario is the road taken to date, which is to narrowly address the worst tax system abuses with familiar safeguards to the best ability of the tax administrator, subject to resource constraints as well as legal barriers.

Keywords: Taxation, Blockchain, Smart Contracts, CryptoKitties

JEL Classification: D23, D78, D81, D82, E62, F42, H20, H26, H87, K34, O17, O34, O38