Table of Links Abstract and 1. Introduction Abstract and 1. Introduction Bitcoin and the Blockchain 2.1 The Origins 2.2 Bitcoin in a nutshell 2.3 Basic Concepts Crypto Exchanges Source of Value of crypto assets and Bootstrapping Initial Coin Offerings Airdrops Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.3 Tokens 7.4 Non-Fungible Tokens Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets Conclusion and References Bitcoin and the Blockchain 2.1 The Origins 2.2 Bitcoin in a nutshell 2.3 Basic Concepts Bitcoin and the Blockchain 2.1 The Origins 2.1 The Origins 2.2 Bitcoin in a nutshell 2.2 Bitcoin in a nutshell 2.3 Basic Concepts 2.3 Basic Concepts Crypto Exchanges Crypto Exchanges Crypto Exchanges Source of Value of crypto assets and Bootstrapping Source of Value of crypto assets and Bootstrapping Source of Value of crypto assets and Bootstrapping Initial Coin Offerings Initial Coin Offerings Initial Coin Offerings Airdrops Airdrops Airdrops Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.3 Tokens 7.4 Non-Fungible Tokens Ethereum Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.2 Smart Contracts 7.3 Tokens 7.3 Tokens 7.4 Non-Fungible Tokens 7.4 Non-Fungible Tokens Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Finance and 8.1 MakerDAO Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs Decentralized Autonomous Organizations - DAOs Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs 9.2 Taxation issues of DAOs International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets International Cooperation and Exchange of Information International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets 10.4 The Challenge of Anonymity Enhancing Crypto Assets Conclusion and References Conclusion and References Conclusion and References 2. Bitcoin and the Blockchain 2.1 The Origins The Oxford English dictionary defines Bitcoin as “a system of electronic money, used for buying and selling online and without the need for a central bank” and “a unit of the bitcoin electronic system of money” which essentially captures the notion we attribute to Bitcoin, when we refer to the Bitcoin network for storing and transmitting value, whose unit of accounting is unsurprisingly known as, Bitcoin. It also refers to the protocol or software that various nodes in the Bitcoin network run to transmit and include the transactions on the blockchain in the form of blocks. At a very basic level, the Bitcoin Blockchain records transactions between entities on a public ledger structured in the form of blocks by using cryptographic techniques without involving any central authority like a bank. However, to prevent fraud and double-spend transactions[6] the blockchain relies on a network of nodes which maintain the integrity of the chain of transactions cryptographically and are in-turn rewarded for that. 2.2 Bitcoin in a nutshell Bitcoin has an open permissionless blockchain where anyone who generates a correct cryptographybased pseudonym (Bitcoin address) and its corresponding private key, can start transacting. Also, anyone with appropriate hardware and network capabilities can join the network and get rewarded (depending on their computational power) for adding transactions bundled into blocks on the blockchain (mining), securing and maintaining the blockchain. Unlike a banking system where users must undergo a Know Your Customer (KYC) procedure and risk profiling before opening an account, one can instantaneously generate Bitcoin pseudonym(s) and start transacting on the blockchain. In a common banking transaction between Bob and Alice the account balance of Bob is reduced by a certain amount and that of Alice is increased by that amount by a central authority. Bob may also pay some transaction fee to the bank for facilitating the transaction. The central authority essentially plays the role of minimizing the counter party risk involved in the transaction. Similarly in the Bitcoin Blockchain, users transmit amount denominated in Bitcoins to each other. However, instead of relying on the bank for processing the transaction they use the Bitcoin Blockchain which approves this transaction with the help of various nodes(miners) which cryptographically record the set of transactions called a block in a public blockchain using a process called mining. Instead of paying the bank fee the users pay fees to the miners who maintain the integrity of the Bitcoin Blockchain and get this fee along with an in-built economic incentive in the Bitcoin Blockchain as a reward. Transmitting value through the Bitcoin Blockchain involves no settlement intermediaries and the blockchain is oblivious and agnostic to the geographical location of the owner of the Bitcoin pseudonymous address. This creates and maintains an immutable global public ledger in which all the BTC value ever exchanged by a Bitcoin pseudonymous address is readily and publicly available, and is used to verify and validate future transactions. Author: (1) Arindam Misra. Author: Author: (1) Arindam Misra. This paper is available on arxiv under CC BY 4.0 DEED license. This paper is available on arxiv under CC BY 4.0 DEED license. available on arxiv available on arxiv A double-spend transaction is one in which a Bitcoin owner in the ecosystem, Alice, owns a certain BTC value and transmits it to Bob for buying a good or a service. However, the flaw in the network does not prevent her from resending the same BTC value to Carol, a third user. This allows Alice to spend the same Bitcoins twice. A double-spend transaction is one in which a Bitcoin owner in the ecosystem, Alice, owns a certain BTC value and transmits it to Bob for buying a good or a service. However, the flaw in the network does not prevent her from resending the same BTC value to Carol, a third user. This allows Alice to spend the same Bitcoins twice.
