Ethereum Merge and the hefty tax bill you could be in for

Ethereum Merge and the hefty tax bill you could be in for

The Ethereum Merge may constitute a taxable event if it results in a chain-splitting hard fork, tax experts warn.

Ethereum (ETH) hodlers that don’t play their cards right following the Ethereum Merge may be in for a hefty bill come tax time, according to tax experts. 

Around Sept.15, the Ethereum blockchain is set to transition from its current proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS), aimed at improving the network’s impact on the environment.

There is a chance that The Merge will result in a contentious hard fork, which will cause ETH holders to receive duplicate units of hard-forked Ethereum tokens, similar to what happened when the Ethereum and Ethereum Classic hard fork occurred in 2016. 

Tax compliance firm TaxBit Head of Government Solutions, Miles Fuller told Cointelegraph the Merge raises some interesting tax implications in the case that a hard fork occurs, stating:

There has been a growing push by Ethereum miners and some exchanges for a PoW hard fork to occur, as without a hard fork these miners will be forced to move to another PoW cryptocurrency.

Vitalik Buterin suggested at the 5th Ethereum Community Conference held in July that these miners could instead go back to Ethereum Classic.

Contrary to what is suggested in the associated CoinLedger article, the post-merge Ethereum will not be called ETH 2.0, but simply ETH or ETHS, with any potential forked token referred to as ETHW.

Crypto investors should be wary of any tokens that claim to be ETH 2.0 post-Merge. 

The cryptocurrency exchange Poloniex, which claims it was the first exchange to support both Ethereum and Ethereum Classic, has given its support to a hard fork and has already added trading for ETHW.

Cryptocurrency exchange Bybit told Cointelegraph that in the event of forked tokens, Bybit’s risk management and security teams have criteria in place to determine whether a PoW token would be listed on their exchange.

Bybit claims that exchanges already listing ETHW tokens are putting profits over user safety, and caution traders against moving their ETH to exchanges that are supporting the PoW tokens due to volatility and security risks.

“We caution traders that the potential Ethereum PoW forks may be extremely volatile and entail increased security risks. Exchanges that are already listing tokens for potential PoW forks are putting profits over user safety.”

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