Gilded Honour

Trick with cryptocurrencies and taxes that goverments may not be aware about

Governments have been dreaming up a whole bunch, and some have already been introduced in some first-world countries, new taxes on cryptocurrencies. In the US, as I know, every single transaction on a centralized crypto-exchange is taxed. It’s a nightmare, isn’t it?

Little do the governments know, I figure, that a cryptocurrency can be held not only a centralized exchange with KYC, or traided via a decentralized one, usually with no KYC, but also on one’s computer, or even on a peace of paper where a private key is written. For that matter, it can also stored nowhere but in one’s head, if one has a very good memory to remember a private key, of a seed phrase of a wallet. While it can be proved that a bitcoin, or any other crypto-coin, address on a centralized exchange belongs to a certain person, thanks to KYC, once one withdraws it from a centralized exchange to some address, it can’t be known whom that address belongs to. Technically, it belongs to the same person, alright. But how about this scenario:

Sam withdraws his Ethereum from Binance to his local wallet. Then he creates a new Ethereum address and moves all his coin there. But who, from the ouside, can know with certanty, whom a new address belongs to? Namely, Sam, in an effort to avoid paying taxes, may claim that a hacker has hacked his computer, or perhaps Sam himself has revealed his private key on a shaddy website by accident, and now all his Ethereum has been moved to that new Ethereum address which belong to a hacker.

Would Sam still have to pay taxes for Ethereum that’s been stolen from him? Who could, and how, prove that it’s not been stolen but Sam himself has moved it there? Vitalik Buterin? Or, perhaps, Sam and a hacker are close friends? Who khows. And who could prove anything? Are the govenments aware of such a scheme? How would they tackle it? That’s the power of decentralization, isn’t it?

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