The Bait Of PoS Tokens And Why Taxing Them Can Easily Lead To A Negative Balance

    The Bait Of PoS Tokens And Why Taxing Them Can Easily Lead To A Negative Balance

    Apparently, the lure of PoS cryptocurrencies yielding annual rewards seems to be another farfetched fallacy and a huge tax burden. Many had invested in them, naively believing that the bonus of between 4% and 15% annually would allow them to earn from their funds without breaking a sweat. Yet, according to a report by the co-founder of BitGo and Beluga, Ben Davenport, Proof-of-Stake tokens, the whole idea is nothing more than a brazen lie.

    Ben has already published a report detailing the effect that taxes have on PoS tokens. In the report, he makes a clear conclusion that details how taxes affect the potential ROIs that the cryptocurrencies have. He further reveals that the only place where the promised returns could be sourced from was by taking from those who didn’t stake their tokens.

    Basically, what the report exposed is that anyone with the PoS tokens should stake them for if they don’t, then their share would undoubtedly be steadily diluted. If everyone holding the tokens stake as advised by the report, they will all retain their shares. And so, the message is clear; if you would like to break even, don’t hesitate to stake.

    Taxing Them Makes The Matters Even Worse

    The report reveals another false notion that’s widely believed by tax agencies. According to these agencies, any yield that’s earned by staking the tokens is regarded as an income. They think so, even though one has to stake them lest the tokens get depleted financially.

    Well, one could argue that the earnings are taxable because they are similar to the dividends earned on the virtue of being a shareholder. And still, not declaring your taxes is a serious crime, and you wouldn’t want to go down that route.

    But, what they ignore is that the rewards are a return for the stake that one must have worked hard for. This simply means that it is not logical to stake and diligently wait for the earnings only for the taxman to knock and claim a share of it!

    Ben Davenport explains this through a thought-provoking experiment that takes into consideration what could happen if tax agencies were to accept taxes remitted as PoS coins. The analysis is based on a 10% annual return, a 35% tax rate, and coin holders staking their entire holding. He also assumes that the taxman is a committed holder who will not sell them off.

    The graph developed paints a stark picture of why taxing income earned from it isn’t a good idea. The main idea portrayed by the chart is that, by the 22nd year of earning rewards yearly, the taxman will be taking away over 50% of the entire market cap.

    You would say the tax authorities don’t accept tax payments made in form of crypto and so holders will have to sell their stake to remit taxes in the conventional fiat currency. But selling them off automatically lowers the pressure on the price of a token.

    In conclusion

    In short, when the issue of tax is brought into the mix in the long run, the Proof-of-Stake coins automatically lead the holder to a negative balance.

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    Lillian Peter
    Lillian Peter
    Lillian P has a knack for anything that teases the mind, with a keen interest in the blockchain technology, cryptocurrencies, and anything in between. Can bring to life the most difficult and boring concepts in the blockchain space. Lillian is a brilliant writer working with various publications.

    [Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

    [Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer


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