Ripple CTO David Schwartz Shares Insights on Crypto Staking Amid Tax Debate
In the latest X post, Ripple CTO David Schwartz shared important insights into the nature of staking in the cryptocurrency market. The comments come amid an ongoing debate over whether cryptocurrency staking should be considered taxable.
Staking rewards and interest income
Schwartz explains that creating new value and transferring existing value are two different things. “Pledge is the former. Interest income is the latter,” he emphasized. “You don’t earn staking rewards, you create them. They didn’t exist before you created them. It’s different when someone transfers existing value to you.” He highlighted the benefits of staking rewards compared to traditional financial income uniqueness.
How cryptocurrency staking differs from dividends
Previously, an X user asked how cryptocurrency staking differs from receiving stock dividends. Schatz responded by explaining, “You receive dividends from the stock, someone else created/earned the dividend and transferred it to you. With cryptocurrency staking, you create property on what you receive.” “Staking is creating property, Rather than acquiring property from someone else who earned/created it,” he added.
IRS says cryptocurrency staking is taxable
This clarification is particularly important as regulators and tax authorities continue to determine how various cryptocurrency activities will be classified and taxed. According to the latest report from Bloomberg, the U.S. Internal Revenue Service (IRS) formal Indicates that cryptocurrency staking is taxable, noting that tax liability arises once staking rewards are received.
The ruling comes amid a lawsuit filed by a Tennessee couple who staked on the Tezos network, who are suing the government over tax clarification on cryptocurrency staking and the IRS’s view of it.
According to guidance issued by the IRS in 2023, block rewards from staking or mining are considered taxable income upon creation, with tax liability determined by their market value at the time of creation.
Cryptocurrency 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 receive rewards, usually in the form of additional cryptocurrency. Cryptocurrency staking allows users to generate passive income without having to sell their assets.
