Nevada Just Became The First State To Squash Blockchain Taxes

Nevada Gov. Brian Sandoval signed a historic cryptocurrency bill into law Monday, Senate Bill 398, which blocks local governments from taxing blockchain transactions or requiring a permit for them. That’s good news for blockchain businesses because the lack of fintech regulation is one of the biggest obstacles facing the burgeoning cryptocurrency industry.

Las Vegas is already home to some of the most profitable bitcoin ATMs in the world, Fast Company reported, thanks to a combination of international tourists and cash withdrawal limits on traditional ATMs. Sin City’s the Legends Room strip club soon is expected to become the first adult entertainment venue running exclusively on cryptocurrency. Yet legal recognition could help bolster Nevada’s blockchain businesses beyond gambling and the sex industry.

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“With Nevada’s don’t-fence-me-in mentality and pro-business policy, the state is uniquely positioned to create policies that foster such innovation,” state Sen. Ben Kieckhefer, the mastermind behind SB398, told the Reno Gazette-Journal. Chris McAlary, CEO of the bitcoin ATM company Coin Cloud, said the law is a step in the right direction.

“Nevada is sending a clear message to entrepreneurs that they are welcome here and have [the] support [of] basic rights of communication and commerce,” McAlary told International Business Times. “This helps clear up some gray space around the industry, helps add legitimacy to the industry in the eyes of those who may not understand the tech yet.”

Although the general public has been slow to adopt blockchain currencies, awareness and monetary value are both growing. Bitcoin recently broke another record, hitting a market value of more than $2,875 on Tuesday. The world’s second most widespread cryptocurrency, Ethereum’s ether tokens, also skyrocketed to $250 per digital token. CNBC reported ether’s jump represents a 2,800 percent rise in the past year. The growth of competing cryptocurrencies show how important Nevada’s new law is because it applies to all blockchain transactions — not just bitcoin.

“There are strengths to Ethereum, which means it may exceed bitcoin’s market cap,” entrepreneur Jack du Rose told the IBT. “There could be millions or even billions of people using apps that run on Ethereum in the future.”

Du Rose is the co-founder of Colony, a blockchain platform for professional collaboration. CoinDesk reported the Nevada law also officially recognizes blockchain-based records as legally verifiable, which is important for businesses like Colony working with smart contracts. Several other states have similar legislation in the works, including Vermont and Arizona,

What sets Nevada’s law apart are the restrictions on local taxes and certification. New York’s problematic BitLicense process quickly proved local certifications create a pipeline issue for startups. Likewise, special county taxes might discourage blockchain businesses from operating in Nevada. Cryptocurrency will need to be treated differently than other fintech markets since there’s already a sort of unofficial cryptocurrency tax on tokens like ether and bitcoin.

These decentralized networks require a lot of energy for mining cryptocurrency, processing transactions and contributing to the ecosystem. Huge warehouses have sprouted up across China, full of powerful computers mining bitcoin 24/7. That makes the real bitcoin network less democratic than the ideology behind it.

On the other hand, Ethereum requires contributors to pay for computation with something called “gas,” which requires ether tokens. The cost of an action on the Ethereum network is generally determined by an equation: Gas cost, how much computing power it takes, multiplied by the gas price.

Why not pay for the processing power with ether directly? Because then the rising value of ether might make it too expensive for regular users to contribute. This is already a widespread concern among blockchain enthusiasts. Theoretically, using gas should help Ethereum scale up as businesses develop their own blockchain apps.

“Gas is used so the price of computation doesn’t increase,” du Rose explained. “The price of ether continues to rise, but the price [of gas] could stay the same or even go down.” Systems can, hypothetically speaking, becomes more fuel-efficient while users adjust how much gas they use, like driving a hybrid to the store instead of a big truck.

But if any local government, say Las Vegas, taxed blockchain transactions it would make it even harder for startups to keep up as the value of cryptocurrency fluctuates. McAlary said blockchain technology actually could help improve Nevada’s other financial regulations, as long as local power players understand the technology and don’t overregulate it while blockchain is still in its infancy. His company currently operates 25 bitcoin ATMs nationwide, including eight in Las Vegas alone.

“This transparency should be every casino compliance officer and regulator's best friend,” McAlary said. “It's only a matter of time until this technology is implemented in the gaming industry. ... I hope the support and clarity provided by Nevada lawmakers can change this [misunderstanding] going forward and provide entrepreneurs with a robust business environment to succeed.”

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