Phantom Income and the Taxation of New Cryptocurrency Tokens

Abstract

New cryptocurrency staking "reward" tokens are not and should not be taxable when they are created. This article presents the basic economics of cryptocurrency staking and the applicable income tax law. It responds to counterarguments from the New York State Bar Association's Tax Section and other commentators.

Newly created property is never taxable income. Only taxpayer gains should be taxed. It would be doubly tragic if the first-ever breach of the first principle guaranteed the violation of the second principle as well. Staking rewards are not and should not be taxable income. Like all other new property, they will be taxed fairly when sold or exchanged.

Keywords: cryptocurrency, taxation, blockchain, economics, proof of stake, proof of work, Bitcoin, Tezos, staking rewards, block rewards

JEL Classification: E4, E42, E52, G28, H2, H20, H24, H25, K00, K34, L51