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Block 1: Essential news
- Europe's various crypto taxes
According to the latest study by HelloSafe, crypto taxation varies considerably across Europe, from countries with no capital gains tax to rates of up to 50%, notably in Denmark. Four countries do not tax cryptocurrency gains: Cyprus, Estonia, Malta and Slovenia. This tax diversity demonstrates the heterogeneity of approaches in Europe, despite a trend towards harmonization, particularly with the EU planning to introduce a new cryptocurrency tax applicable to businesses from 2026.
- Base reaches one billion
Coinbase's layer 2 solution, called Base, has reached a total locked value (TVL) of $1 billion. This increase in TVL marks the adoption of Base to store customers' USDC stablecoins. Based on Optimism's source code, OP Stack, Base shows the path Coinbase wants to take, including migrating its operations to the blockchain, and with the ultimate goal of attracting a billion users through reduced fees and improved settlement times.
- Worldcoin folds up store in Portugal
Worldcoin (WLD), a blockchain-based identity verification project via biometric data, powered by OpenAI founder Sam Altman, has been banned from collecting biometric data in Portugal. This ban, issued by the National Data Protection Commission, follows complaints concerning the collection of data from minors and the impossibility of deleting this data. This ban, which follows a similar measure in Spain, demonstrates the regulatory and data protection challenges facing Worldcoin in Europe. The company recognizes certain loopholes and is working to enable the deletion of user accounts and consultation of stored data. The company itself chose to stop collecting biometric data in France, just as the Commission Nationale de l'Informatique et des Libertés (CNIL) was beginning to look into its case.
- KuCoin in the crosshairs of the US regulator
Cryptocurrency exchange KuCoin and two of its founders are facing charges of money laundering and terrorist financing by the U.S. Attorney's Office for the Southern District of New York. The charges include failure to comply with KYC (Know Your Customer) procedures, the transit of $9 billion in illicit funds, and operating without regulatory registration with US authorities. The founders are threatened with prison sentences, while KuCoin assures that its operations continue as normal and that user assets are secure. This case underlines, once again, the importance of exchanges complying with US legislation.
Block 2: Crypto Analysis of the week
Reports published by CoinDesk and Fortune media, show that the US Securities and Exchange Commission (SEC) is reportedly mulling the idea of making Ethereum ether (ETH ) - the native token of the second largest blockchain - a security. Such action could have a significant impact on the cryptocurrency sector, and potentially disrupt the development of an ETH-based exchange-traded fund.
Citing several anonymous sources, Fortune revealed that the SEC has issued subpoenas to various US companies for documents relating to their interactions with the Ethereum Foundation. This Swiss-based non-profit organization played a central role in the launch of the Ethereum blockchain. The investigation appears to have begun shortly after the 2022 Merge event, which introduced staking on the Ethereum network.
After this event, SEC Chairman Gary Gensler dropped a bombshell, suggesting that blockchains operating with a proof-of-stake mechanism were a lot like investment contracts, i.e. securities, because of their token reward systems. Although he didn't mention ether by name at the time, it was a bit of an elephant in the room.
But Mr. Gensler hasn't hesitated to take cryptocurrency platforms to court, accusing industry behemoths like Coinbase, Kraken and Binance of selling securities without the SEC's seal of approval, with digital assets like ADA (Cardano) and SOL (Solana) particularly targeted. Yet they share much in common with ETH.
Typically, both the Ethereum Foundation and the Cardano Foundation have raised millions of dollars via the sale of tokens to finance network development ($18.3 million in bitcoins versus $62 million, respectively) ; both manage their respective networks through foundations based in Zug, Switzerland; and both have allocated tokens to their founders and foundations.
They also both put elbow grease into increasing the value of their tokens. Typically, Ethereum's burn mechanism, introduced in the EIP-1559 update in August 2021, has made the network (sometimes) deflationary, i.e. with fewer and fewer ethers in circulation. So, to some extent, investors may perceive the token as an investment with expectations of value appreciation.
Unlike Bitcoin, which is unanimously accepted as a commodity in the eyes of US law, Ethereum's founding fathers, such as Vitalik Buterin and Joseph Lubin, are still very much involved in Ethereum's development. The Bitcoin Foundation, on the other hand, has minimal impact and does not financially support Bitcoin Core developers.
However, not everyone agrees with the SEC's potential decision to label ether as a security. The Commodities Futures Trading Commission (CFTC), another SEC arm in the family of regulators, has let ETH futures trade freely, implying that it views it more as a commodity. The fact that the SEC regards ether as a security could undermine US companies and investors who have rallied behind Ethereum, and affect platforms, including major exchanges such as CME Group and Cboe Global Exchange, which trade millions of dollars worth of ETH futures.
But many experts believe that ETH is more similar to BTC than any other token, particularly in terms of decentralization. The SEC has repeatedly stated that it considers BTC to be a commodity rather than a security, mainly due to the lack of centralized control. According to Ethernodes, over 6903 nodes that secure the network and validate transactions are spread around the world, with 34% of them in the USA, 15% in Germany and 4% in France (Cocorico!).
Ethernodes
By way of comparison, for the Bitcoin network, according to Bitnodes, there are over 18,500 nodes securing the network.
The SEC has generally tended to use the Howey test, devised in 1946, to determine whether an investment qualifies as a "security". It comprises four key criteria: an investment of money (1), in a joint venture (2), with an expectation of profit (3), derived primarily from the efforts of others (4).
Typically, bitcoin is today considered by the SEC to be a commodity, not a security, given that BTC is interchangeable, meaning that each coin is identical. But also because the price of BTC is determined by supply and demand and is not dependent on or influenced by a producer or "centralized entity".
As for ether, and a good number of other cryptocurrencies, the question of their qualification as a security remains unresolved. Such a reclassification would entail numerous regulatory changes. As a security, ether and its distribution would be subject to strict SEC regulations. This means that ETH trading would require SEC approval.
In addition, many Ethereum-derived projects and tokens could also be considered securities, complicating Initial Coin Offerings (ICOs) and fundraising for projects based on this technology. Projects would then have to comply with securities laws, which could limit innovation and expansion in the crypto space.
Finally, US-based cryptocurrency exchange platforms would have to register as official securities brokers or exchanges to continue offering ETH. This could limit the availability of ETH to US investors and create barriers to entry for new exchange platforms.
The final answer will be given in a few months' time.
Block 3: Gainers & Losers
Crypto chart
(Click to enlarge)
Block 4: Things to read this week
The death of effective altruism (Wired)
The science of forensic cryptography survives a court battle (Wired).
Bitcoin: The byte tree (Bitcoin Magazine)
