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Abstract

The United States federal government has attempted to use its existing regulatory and taxation schemes to regulate and tax cryptocurrencies, while many individuals are still unsure as to what cryptocurrency really is. The Securities and Exchange Commission and the Commodities Future Trading Commission have both asserted their jurisdiction over cryptocurrency, resulting in unclear guidance for developers in the cryptocurrency space and a failure to adequately protect investors. Further, the Internal Revenue Service taxes cryptocurrency like a security rather than a currency, which disincentivizes adopting cryptocurrency as a form of payment. Nevertheless, although cryptocurrencies are taxed like securities, there are tax breaks for securities and commodities activities that are not currently available for cryptocurrency activities. Under the United States’ current approach, investors will remain vulnerable to fraud, and businesses and individuals using cryptocurrencies for goods and services will be subject to an extra level of taxation. This paper’s initial purpose is to provide readers with sufficient background knowledge on the architecture underlying a blockchain network. The paper then endorses creating a joint self-regulatory organization and providing the organization with original jurisdiction over all cryptocurrency activities to provide uniform registration and reporting requirements. Further, the paper offers suggestions on how the United States can change its approach to taxing cryptocurrencies, so they are treated more like currencies when used for goods or services, and treated more like securities when the taxpayer is an active trader or participant node on the blockchain network.

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