Ethereum’s Merge dominated the crypto world in September with promises of quicker transaction times, improved security and a 99% reduction in energy consumption. However, will you end up with a surprise tax bill too? Let’s examine.
During the Merge event, the Ethereum mainnet — the then current proof-of-work (PoW) blockchain — merged with the proof-of-stake (PoS) Beacon Chain, marking the end of PoW as the consensus mechanism for the Ethereum blockchain.
On the Beacon Chain, Ethereum joined ranks of other major PoS blockchains such as BNB Chain, Cardano and Solana. Ether (ETH) is the second largest cryptocurrency by market cap after Bitcoin (BTC), and Ethereum is the chain that has spearheaded decentralized finance (DeFi) and nonfungible token (NFT) activity. The Merge heralds ramifications aplenty, but what of the potential tax implications to investors, traders and businesses alike? It’s doubtful anyone will be too pleased with a surprise tax bill — but that is, potentially, exactly what they’ll get.
If we take a short trip down memory lane back to Bitcoin’s civil war in 2017, it eventually concluded in a split in the chain into Bitcoin and Bitcoin Cash (BCH). This event was coined — no pun intended — as a hard fork.
In this instance, new BCH coins were issued to BTC holders and, as a result, this gave rise to taxable income at the fair market value upon receipt of BCH for the recipients. Furthermore, if any BCH holders went on to dispose of their coins, any accumulated gains or losses were subject to capital gains tax.
Related: Post-Merge ETH has become obsolete
Is a civil war brewing among the Ethereum community due to the Merge? There are certainly rumblings, and it looks as though the PoW consensus could continue to be
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