In a latest X post, Ripple CTO David Schwartz has shared crucial insights into the nature of staking in the crypto market. These comments come at a time when there is a debate going on over whether crypto staking should be considered taxable.
Staking Rewards And Interest Income
Schwartz explained that the creation of new value and the transfer of existing value are two different things. “Staking is the former. Interest income is the latter,” he highlighted. “You don’t earn staking rewards, you create them. They didn’t exist before you created them. Someone transferring existing value to you is not analogous,” he noted as he highlighted the unique nature of staking rewards compared to traditional financial income.
How Is Crypto Staking Different From Dividends
Previously, an X user had asked how crypto staking is different from getting dividends on stocks. Schartz responded expalining that “you get dividends from stocks, someone else created/earned them and transferred them to you. With crypto staking, you create the property you receive.” “Staking is creating property, not receiving it from someone else who earned/created it,” he added.
IRS Says Crypto Staking Is Taxable
This clarification is especially relevant as regulators and tax authorities continue to determine how to classify and tax various crypto activities. As per the latest Bloomberg report, the Internal Revenue Service (IRS) officially said that crypto staking is taxable, stating that tax liabilities arise as soon as staking rewards are received.
This ruling came amidst an ongoing lawsuit from a Tennessee couple staking on the Tezos network, who filed a lawsuit against the government regarding the tax clarification for crypto staking and how the IRS views it.
According to IRS guidelines released in 2023, block rewards from staking or mining are considered taxable income as soon as they are created, with tax liabilities determined by their market value at the time of creation.
Crypto staking allows token holders to participate as validators in a proof-of-stake (PoS) system by locking their tokens in a staking contract. In return, they earn rewards, usually in the form of additional cryptocurrency. Crypto staking enables users to generate passive income without selling their assets.
