India Plans 30% Crypto Tax

The biggest crypto news and ideas of the day

Feb. 1, 2022

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Welcome to The Node.

In today’s newsletter: India's 30% crypto tax. Coinbase lists Solana-based tokens. And Anchorage is in the final stages of bidding for a FDIC contract.

Questions? Feedback? We’d love to hear from you – simply reply to this email.

–Daniel Kuhn

Today’s must-reads

Top Shelf

30% TAX: Indian Finance Minister Nirmala Sitharaman announced a 30% tax on any income from the transfer of virtual digital assets, a first for the nation. She also said that the “digital rupee” will most likely be issued in the 2022-2023 time frame, which is the first time the Indian government has given a timeline on the launch of a central bank digital currency (CBDC). Analysts have called these efforts a legitimization of crypto in the country, as well as a move to deter retail investment.

TROUBLE AVERTED: An agreement to remove a provision in a U.S. House of Representatives bill giving the Treasury secretary the ability to block international crypto transactions has been reached, according to Jerry Brito, executive director of Coin Center, an industry think tank that lobbied against the provision. The poison pill showed up in America COMPETES Act, a bill aimed at spurring economic competitiveness with China.

TRUST CO: Anchorage, the digital assets custodian and the first crypto startup to receive a trust charter from the Office of the Comptroller of Currency, is in the final stages of bidding for a three-year contract with the Federal Insurance Deposit Corp. (FDIC) to act as a crypto asset management and solution provider, according to a Freedom of Information Act (FOIA) request.

COMMUNITY COFFERS: Terraform Labs founder Do Kwon floated a $38.5 million funding proposal to sponsor an undisclosed major American sports league team using the Terra community treasury. The funding would be in the form of TerraUSD stablecoins and would be managed using a multi-sig wallet controlled by a trust. The deal would help fund a five-year exclusive partnership to promote the Terra brand across “one of the major four American professional sports leagues – the NFL, NBA, NHL and MLB,” Kwon said.

SOLANA SYSTEM: Coinbase on Monday began accepting inbound transfers of two Solana ecosystem tokens, FIDA and ORCA, its first move beyond layer 1 coins and Ethereum-based tokens. You can expect more SPL tokens (Solana’s ERC-20 equivalent) added to Coinbase’s token menagerie. Meanwhile, the storied California music festival is making the jump into NFTs, Coachella is launching Solana NFTs through a deal with FTX.

In other news ... MicroStrategy’s bitcoin acquisition appears to be slowing. Meanwhile, $3.55 billion worth of BTC from the 2016 Bitfinex hack is on the move, and Ethereum incubator ConsenSys has acquired wallet company MyCrypto. Terms weren’t disclosed.

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"In the same way that people thought all cryptos are the same, or all blockchains are the same ... the reality is that not all DAOs are the same."

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Putting the news in perspective

The Takeaway

What ‘Line Goes Up’ Gets Wrong About NFTs

Hi – Daniel Kuhn writing today. Dan Olson, the Canadian videographer behind the “Folding Ideas” YouTube channel, has an important message for the world: NFTs are all fundamentally flawed. More so, crypto, Web 3 – those umbrella trends often discussed in hurried tones – would be a huge step back. Last week, Olson published a 137-minute documentary, “Line Goes Up – The Problem With NFTs,” going through the myriad issues crypto-based tech faces and creates.

The video already has 3.7 million views, making it Olson’s most popular release yet, and likely one of the most consumed individual pieces of media about crypto ever. It has been shared widely in broader tech circles. It’s not hard to see why. Olson tells a convincing story about the perils of market speculation and greed – it’s real, human drama. He starts off discussing mortgage-backed securities and the cascading market failure in 2008, the context in which Bitcoin and Ethereum were created, and shows how that capitalistic mindset rhymes with modern speculative subsectors like NFTs and DAOs.

Has crypto recreated the system it meant to circumvent?

For Olson, crypto is even worse. The technology is broken, he says, but, even if it worked, it would be net negative. His arguments are well researched and justifiable. Although there are a few factual inaccuracies (about Ethereum’s energy use, for instance), it’s tough to object to his overall point. Saying crypto fosters scammers and has real privacy issues and environmental concerns isn’t a matter of opinion. Still, there are gradations and contexts to consider, all of which could be a topic for a competing YouTube takedown video – a blog will have to do.

One of Olson’s most salient points is that people in crypto rarely take criticism well. This is fair. It was certainly on display in reaction to his video. Even industry leaders often fall back on responding to negative news or comments by labeling it FUD (fear, uncertainty and doubt). Olson’s video found an audience because his concerns resonate with people. Crypto would do well by actually watching and listening to the video.

Even though crypto personalities can be abrasive or borderline antisocial, it’s worth noting they’re often self-aware and ironic. Take “right-click save,” the rallying cry of both NFT notables and critics. It’s an obvious line of attack to say supposedly “scarce” digital goods are infinitely reproducible by right-clicking and saving that JPEG. However, NFTs have utility by giving digital goods unique identities and that identity a market price … sharing an image across the web and giving it virality in some sense only makes it more valuable. But it’s an idea you sort of have to lean into.

The Defiant’s multimedia guru Robin Schmidt published a 10-minute video response to Olson, arguing that NFTs are really just a glorified file format. There’s good and bad with any technological standard, and the societal concerns Olson raises are just as easily applied to any social media environment. Casey Newton, writer of “The Platformer” Substack, similarly noted that Olson’s hatred of crypto is as a vector of “rising inequality, pandemic-era isolation and loneliness, self-dealing venture capitalists, and a desperate sense among young strivers that the future is only ever getting smaller.” Again, those issues do not belong to crypto alone.

For as substantial as Olson’s video is, he doesn’t really present any solutions. And who can blame him? We’re talking about rewriting the rules of the internet and society so speculative bubbles like NFTs wouldn’t be so attractive in the first place. Digital scarcity, empowering people to create markets for anything and letting people monetize their digital lives is a massive sea change – and one that comes with its own benefits. If there is a critical flaw in Olson’s video, it’s that he never truly considered the other side.

People young and old are excited about crypto because it presents an alternative to the current economic system. Just to say one thing: Those bankers Olson discussed at the beginning of his documentary, the ones that turned the U.S. housing market into a casino and blew up the economy – what happened to them? Did Jimmy Cayne go to jail? Did Lloyd Blankfein lose his job? I don’t bemoan wealth or value creation, but I’m a little perturbed that there’s a yacht shortage today. Crypto doesn’t fix all of that, it may even make it worse. But at least, if done right, it eliminates moral hazard. Crypto puts responsibility on the individual – and if they lose their keys, or lose their savings, that’s on them. It’s a high degree of responsibility and no one forces you to buy a JPEG.

Olson argues that NFTs are particularly perverse because they act as the top of the funnel to the crypto market. They’re one of the few things you can do with ETH or SOL, and have easy cultural tie-ins. He sees brands issuing NFTs, or brands being born from them, and thinks this is a pipeline to the larger crypto ecosystem. This appears bad if you think crypto is bad in itself, rather than just another potential avenue for monetization. The digital economy today is fundamentally broken. There are plenty of people who would willingly trade their personal data for free services, but we shouldn’t bemoan an alternative. Online payments are surveillance and can be censored – why not have an alternative?

Digital media likewise struggles. Streaming companies are unprofitable and likely unsustainable. Journalism is in crisis. NFTs are not the perfect or only solution, but they present an alternative. Just today, legacy magazine Sports Illustrated announced an NFT marketplace. Digital artist Pak is issuing NFTs to benefit WikiLeaks founder Julian Assange. The Associated Press is auctioning historic photographs from its collection, with the profits going to support AP’s journalism. Despite being plagued by scams, crypto provides real avenues to assist real people.

There are moments in “Line Goes Up” that truly soar. Calling NFTs the “aesthetically vacuous representations of the dead inner lives of the tech and finance bros behind them” is poetry because it’s true. He goes on, calling them “the vanguard for a new system,” one that’s littered with pyramid schemes and “fugly” cartoon apes. “A different system does not inherently mean a better system. We replace bad systems with worse ones all the time,” Olson said. (He didn’t return a request for comment, by the way.)

The question I’d ask is how much of the new system is really the old?

–Daniel Kuhn

The Chaser...

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