The Economics & Taxation of Block Rewards: Getting the Terminology Right

In Marketing/Advertising there’s a saying, “for a product/service to be successful, the specifications need to be relevant, but more importantly, the communication process requires equally if not more focus” (paraphrasing). Similarly, with the decentralized technological platform(s) and applications becoming modified constantly, an appropriate mixture of context and content needs to be applied for the potential customer to learn and eventually cherish the fruits of the technology. Implementing this process distinctly in various clusters around the globe in time would help debunk the misconceptions being created and spread by intellectually naïve individuals, concerning the technological functioning of decentralized platforms and applications. As mentioned by Mathew Sweezey, in his “The Context Marketing Revolution” book, the ‘who’, ‘what’, and ‘how’ is getting altered and will continue in the coming times. Understanding these 3 keys of context marketing will be beneficial in communicating with distinct clusters of customers effectively.  This piece dwells into the relationship between economics and taxation of blockchain blocks rewards.

Transforming the entire ecosystem of economics and taxation from a centralized to a decentralized platform requires multiple steps to be implemented in a specific interval. The hypothetical but potentially practical theory mentioned in this piece talks about BEEM (Blockchain-Enabled-Electronic-Marketplaces). The distinction proposed here is that the core component of the business model will be blockchain, and exclude business cases where blockchain is imbibed only for specific business processes like Smart Cases. Decentralized electronic marketplace is an initial step for altering the entire economic and taxation ecosystem. As shown in figure 1, in a decentralized electronic market place business mode, the number of transactions is greater between the seller and the buyer. As the transactions happen in a peer-to-peer format, there’s more transparency, leading to greater trust between the two parties. Another factor for the same is the utilization of time-stamping algorithm, consensus algorithms like Proof of Work, Proof of Stake, and hyper-ledger(s) as well. You could say that transforming the electronic marketplace would give a ray of hope and idea as to how to change economic and taxation structures in the public sphere. Being a decentralized platform, the demand/supply actor focuses on mutual value creation (a win-win scenario, as said in business perspective). Figure 2 showcases you with more clarity about the degree of cooperative structure meaning, the proportion between user/s and user-operator/intermediary-operator. Just like a blockchain platform or an application can get modified via a consensus algorithm, similarly, BEEM encompasses the pivotal idea of exiting electronic marketplaces but can also foster cooperative values and principles. To know about potential scenario/s of over-taxation with someone with cryptocurrency tokens, read the paragraph written below.

Dilution in financial terms refers to the loss faced by the reigning owner/s since the creation of fresh-owned units/tokens. One factor that’s discussed in this paragraph is of over-taxation. It should be kept in mind that the scrutinizing has been done on Tezos only here. Dilution helps in understanding and validating the reason that cash value technique catastrophizes taxpayer’s gain and isn’t desirable for tax policy. The research done here suggests that some ways of developing a realization-based annual tax fairly. The 3 ways of doing it include:

1. Depletion
2. Market-based
3. Imputed Dilution

Building new potential practical illustrations is as crucial as blueprinting architecture/s on paper. The following content will look into a few illustrations that are being utilized on the ground in the present day. One area which is being discussed and debated from some time is Decentralized Renewable Energy Systems. According to this piece of research, to consume and sustain energy for future generations, P2P based smart grids would be an appropriate option. Figure 1 showcases the uniqueness in a central, decentralized, and distributed network (figure showcases simplified forms). As the backend functioning wouldn’t be authoritative, appropriate energy required would be generated and distributed. In a nutshell, the supply and demand of the energy would be in equilibrium as data would be available based on the weather forecast and other relevant factors for the distinguished city(s)/town(s) etc. Another advantage in the short-term, as well as the long term, would be getting instant updates as the functionality would be real-time. Proper synchronization of decentralized energy development and distribution is essential as more homes are becoming smart i.e. using IoT (internet of things) technology and related technology also. Integrating IoT with decentralized smart grids will help in deploying the technology quicker. One ingredient that would assist in achieving the desired output is back-to-back power conversion (shown in figure 3). Proof of Importance (POI) consensus algorithm will assist in prioritizing whom to give first and of what quantity as well as time. You should keep in mind that the prototype mentioned here could get altered or just used for future research purposes only. There’s a small illustration mentioned in Figure 4, showcasing a TESEI framework applied from Tanaka et al.

In this piece, figure 3 indicates how blockchain can impact the economy and taxation ecosystem at micro-level as well as macro-level. Data could be integrated into numerous formats (audio, video, and written/back-and-white) into a single block or different blocks depending on the scenario.

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Last modified on July 31st, 2023 at 2:08 pm