Coinbase cooperation with IRS will cause more peer-to-peer trading, darker crypto web

June 23rd 2022 640 reads

@wbelk
William Belk

Coinbase will be delivering full user account data to the United States Internal Revenue Service (IRS) for ~ 13k customers. It’s reasonable to assume that these 13k accounts will include EVERY whale account from the United States. There are some folks who transferred very large amounts of crypto into USD in 2017, untold millions.

According to the court documents:

[The U.S. Government] requested nine categories of documents including: complete user profiles, know-your-customer due diligence, documents regarding third-party access, transaction logs, records of payments processed, correspondence between Coinbase and Coinbase users, account or invoice statements, records of payments, and exception records produced by Coinbase’s AML system.

The IRS is the U.S. government’s tax division and has broad authority to impose penalties on U.S. citizens ranging from tax liens, wage garnishment, bank levy, property seizure and jail time. If the IRS suspects that a tax return was purposefully untrue, a person “may face a larger penalty for fraud that’s equal to 75 percent of the underpayment.”

While all of this is consistent with failure to pay tax on securities trading and unreported income, the crypto community members are likely not prepared for full compliance — either ideologically or due to unclear tax enforcement policies to date.

The Coinbase / IRS move is a huge signal to the community that things are real now — the government is ready to use economic and physical force to enforce new rules. This is particularly important in light of the developing narrative that crypto brings with it: the Chaos of distributed anonymity, privacy and autonomy vs the Order of regulation and local governmental compliance.

In response to compliance initiatives like this from Coinbase, we will see more of the following:

Peer-to-peer trading via distributed exchanges: This is already being heavily proven on exchanges like EtherDelta. The real excitement will come once the various communities agree on protocols to jump networks and provide cross currency trading between peer-to-peer exchange, i.e. BTC / ETH, XRP / BTC, XMR / BTC, ZEC / XMR — then pandora’s box will be ripped open.
Peer-to-peer trading in person: It’s best to keep quiet here as some of the heaviest operators in the world already exist in this space.
On-chain analysis will explode as a budget line-item for banks and governments. Compliance enforcers and compliance partners will do everything they can to connect the dots on anything that resembles public transaction data.
Commercial cryptocurrency exchange for goods and services will continue to be a trivial component compared to global money exchange (and/or) laundering. If micro-transactions continue to incur large network/transfer fees, crypto will never be realistic for small daily transactions. Off-chain networks may affect this, but it remains to be seen to what extent.
Countries that are pro-privacy, pro-autonomy and anti-extradition will continue to attract interest of high net worth individuals.

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Coinbase cooperation with IRS will cause more peer-to-peer trading, darker crypto web

@wbelkWilliam Belk

@wbelk
William Belk