Kraken, one of the largest cryptocurrency exchanges in the world, has announced that it will comply with a court order to provide the Internal Revenue Service (IRS) with information on its users who conducted transactions worth more than $20,000 between 2016 and 2020. The court order was issued in June this year, after the IRS filed a petition to obtain the records of Kraken’s customers as part of its efforts to enforce tax compliance in the crypto space.
According to a blog post published by Kraken on October 26, the exchange will start sharing the data with the IRS by November 30. The data will include the name, address, email, phone number, date of birth, taxpayer identification number, account activity, and transaction details of the affected users. Kraken said that it will notify the users who are subject to the data sharing via email and in-app messages.
Kraken also said that it tried to limit the scope of the court order and protect the privacy of its users, but it was unable to challenge the legal basis of the IRS’s request. The exchange added that it respects the rule of law and cooperates with legitimate requests from government agencies.
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The exchange advised its users to consult with a tax professional if they have any questions or concerns about their tax obligations. It also reminded them that they can use third-party services such as CoinTracker or TaxBit to calculate and report their crypto taxes.
Kraken is not the only crypto exchange that has been targeted by the IRS in recent years. In 2016, the IRS obtained a similar court order to access the records of Coinbase’s users who traded more than $20,000 in crypto between 2013 and 2015. Coinbase initially resisted the order, but eventually agreed to share the data of about 13,000 users in 2018.
The IRS has been ramping up its efforts to crack down on tax evasion and fraud in the crypto industry, as more people invest and trade in digital assets. In 2019, the IRS sent letters to more than 10,000 crypto users, warning them that they may have failed to report their income or pay taxes on their transactions. In 2020, the IRS added a question on Form 1040, asking taxpayers whether they received, sold, exchanged, or acquired any financial interest in virtual currency during the year.
The IRS has also issued guidance on how to treat crypto transactions for tax purposes. According to the IRS, crypto is treated as property, not as currency, and therefore subject to capital gains and losses rules. The IRS also clarified that crypto received as payment for goods or services, as income from mining or staking, or as a result of a hard fork or an airdrop is taxable as ordinary income. The IRS also said that taxpayers who donate crypto to qualified charities can claim a deduction for their charitable contribution.
DYdX Chain to distribute all network fees to validators and stakers
DYdX Chain is a new layer-2 protocol for decentralized derivatives trading, powered by StarkWare’s zero-knowledge proofs. DYdX Chain aims to offer fast, scalable, and low-cost transactions for traders and liquidity providers on the DYdX platform.
One of the key features of DYdX Chain is that it will distribute all network fees to validators and stakers, creating a strong incentive for participation and security. Validators are nodes that run the DYdX Chain software and process transactions, while stakers are users who stake DYDX tokens to support validators and earn rewards.
The fee distribution mechanism works as follows:
Every transaction on DYdX Chain has a network fee, which is paid in the same asset as the transaction. For example, if a user trades ETH for USDC, the network fee is paid in ETH. The network fee is calculated as a percentage of the transaction value, based on a dynamic fee schedule that adjusts according to network congestion and demand.
The network fee is split into two parts: 70% goes to the validator who processed the transaction, and 30% goes to a global fee pool. The global fee pool accumulates fees from all transactions on DYdX Chain and is distributed to stakers every epoch (a fixed period of time, e.g., one week).
The distribution of the global fee pool is proportional to the amount of DYDX tokens staked by each Staker, and the duration of their stake. The longer and larger the stake, the higher the share of the fee pool. Staker’s can claim their fee rewards at any time or reinvest them into their stake to compound their returns.
By distributing all network fees to validators and stakers, DYdX Chain aligns the interests of all participants and creates a positive feedback loop. Validators are incentivized to provide high-quality service and maintain network security, while stakers are incentivized to stake more DYDX tokens and support validators. This in turn increases the value proposition of DYDX Chain and attracts more users and liquidity, which generates more fees and rewards for validators and stakers.
Sen. Elizabeth Warren finds support in US House to tackle Crypto Finance Terrorism
Senator Elizabeth Warren, a vocal critic of the cryptocurrency industry, has found allies in the US House of Representatives for her proposed legislation to regulate the sector and combat its use for illicit purposes. The bill, titled the Digital Asset Market Structure and Investor Protection Act, aims to create a clear and comprehensive framework for the oversight and protection of digital assets in the US.
The bill would require any entity that offers digital asset services, such as exchanges, custodians, or brokers, to register with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), depending on the nature of the asset. It would also establish a new category of digital assets called “digital asset securities”, which would be subject to the same rules and regulations as traditional securities.
The bill would also empower the Financial Crimes Enforcement Network (FinCEN) and other relevant agencies to monitor and prevent the use of digital assets for money laundering, terrorist financing, and other criminal activities. It would require digital asset service providers to comply with the Bank Secrecy Act and other anti-money laundering laws, as well as to report suspicious transactions and maintain records of customer identities.
The bill has received support from several members of the House Financial Services Committee, including Chairwoman Maxine Waters, who said that she “looks forward to working with Senator Warren on this important issue”. Other co-sponsors include Representatives Stephen Lynch, Jesús García, Al Green, and Rashida Tlaib.
Senator Warren said that her bill would “provide the regulatory certainty and consumer protections that investors and innovators need in the crypto space”. She added that “by harnessing the potential of crypto while cracking down on its use by criminals and terrorists, we can ensure that this new technology benefits American consumers and businesses”.
Elliptic says scale of crypto base terrorism funding is being misrepresented.
Elliptic, a company that provides blockchain analytics and compliance solutions, has published a report that challenges the common narrative that cryptocurrencies are widely used by terrorist groups. The report, titled “Crypto Terrorism: How Serious Is the Threat?”, analyzes the available evidence and data on the use of crypto assets by terrorist organizations and their supporters.
According to Elliptic, the scale of crypto-based terrorism funding is being misrepresented by some media outlets and policymakers, who often rely on anecdotal or unverified sources. The report claims that the actual amount of crypto funds raised by terrorist groups is very small compared to their overall financing needs, and that crypto assets are not well suited for their operational requirements.
The report cites several examples of crypto fundraising campaigns by terrorist groups, such as Hamas, ISIS, and al-Qaeda, and shows that they have raised only modest amounts of money, ranging from a few thousand to a few hundred thousand dollars. The report also points out the challenges and limitations that these groups face when using crypto assets, such as low adoption rates, technical complexity, regulatory scrutiny, and traceability.
Elliptic argues that crypto assets are not an attractive option for terrorist groups, who prefer to use more traditional and reliable methods of financing, such as cash, hawala networks, charities, and state sponsors. The report concludes that crypto-based terrorism funding is not a serious threat at the moment but warns that the situation could change in the future if crypto adoption increases or if new technologies emerge that could enhance the anonymity and usability of crypto assets.
The report recommends that policymakers and regulators should adopt a balanced and evidence-based approach to addressing the potential risks of crypto assets for terrorism financing and avoid overreacting or imposing excessive restrictions that could stifle innovation and legitimate use cases.