Is cryptocurrency mining/staking profits &quot;newly created property&quot;?
<p>Forbes Feb 2, 2022:
<em>&quot;According to a May 2021 civil lawsuit filed by the couple, Joshua and Jessica Jarrett, any tokens gained through proof-of-stake should be considered “new property” created by the taxpayer—and therefore not income which “comes in” to the taxpayer. &quot;</em></p>
<p>I think that Crypto profits from staking/mining should be treated as payment received for performance of a service, i.e. assembling a new block. In this case, the party making the payment is a &quot;decentralized autonomous organization&quot;.</p>
<p>Creation of &quot;new property&quot; should only apply when the &quot;creator&quot; owns the raw materials. For example, when a oil company owns the mineral rights and simply transforms the oil from a state of buried to a state of being in a barrel, such an activity is not taxable.</p>
<p>However, if an oil company is rendering a drilling service for the owner of the mineral rights, and gets paid not in fiat cash at the end of the month, but in barrels of oil immediately upon extraction, then the oil company's revenue is the market value of the oil at the moment of extraction.</p>

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<p>Is cryptocurrency mining/staking profits &quot;newly created property&quot;? I think that Crypto profits from staking/mining should be treated as payment received for performance of a service, i.e. assembling a new block.</p>
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<p>Your rationale mistakenly conflates two modalities of profit, one of which certainly constitutes newly created property.</p>
<p>Mining/staking profits have two components: (1) [crypto-]coins (whether fractional or not) which are new insofar as they did not exist before, and (2) transaction fees (in terms of the cryptocurrency) each payer determines in a competition for a timely processing of his transaction. Only the second component fits the notion of <em>service</em>, which <a href="http://heimatundrecht.de/sites/default/files/dokumente/Black%27sLaw4th.pdf" rel="nofollow noreferrer">Black's Law Dictionary</a> defines as &quot;<em>[t]he being employed <strong>to serve another</strong>; duty or labor to be rendered by one person <strong>to another</strong>, the former being bound to submit his will to the direction and control of <strong>the latter</strong>.</em>&quot; (emphasis added). In other words, a service involves a party and a counterparty.</p>
<p>The first component is not cognizable as &quot;service&quot; because there is no reasonable way to attach to a counterparty the act and outcome of mining/staking (that is, other than processing the specific transaction the anonymous/pseudonymous payer submitted). Indeed, the additional coins pursuant to the first component are not traceable to other's balance. The scheduled existence of additional coins pursuant to the first component does not change the fact that these coins come out of nowhere. Hence these coins are newly created.</p>
<p>It is in this sense that <a href="https://www.proofofstakealliance.org/wp-content/uploads/2021/05/IRS-Tax-Litigation.pdf" rel="nofollow noreferrer">Jarrett's pleadings</a> (paragraph 35) cite from <a href="https://www.leagle.com/decision/1920441252us1891420" rel="nofollow noreferrer"><em>Eisner v. Macomber</em>, 252 U.S. 189, 207 (1920)</a> the language &quot;<em>coming in</em>&quot;. However, <em>Macomber</em> seems largely unavailing to Jarrett's claim because <em>Macomber</em> addresses whether &quot;<em>a true stock dividend made lawfully and in good faith</em>&quot; is taxable. For that purpose, the court delves in &quot;<em>the nature of a corporation and the stockholder's relation to it</em>&quot;, a framework that is foreign to the cryptominer's/staker's relation to a quite abstract &quot;entity&quot; such as a cryptocurrency protocol.</p>
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<p>In this case, the party making the payment is a &quot;decentralized autonomous organization&quot;.</p>
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<p>That is inaccurate in regard to the first component of profit because there is no such entity or organization in the first place. Simply put, one cannot file suit against &quot;Bitcoin&quot; or against &quot;the blockchain&quot;, just like it would make no sense to file suit against the US dollar or against abstract entities such as a &quot;decentralized economy&quot;. The economy does not pay the agent. Other agents acting in that economy do, but that brings us back to the second component of miners' profit.</p>

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