Month: February 2023
Staking “Income” Should Not be Taxed
Staking income from tokens should not be taxed. Since staking income is generated by inflation it doesn’t create new wealth but simply lowers the total value of the token. Thus staking income is really just a transfer from non-stakers to stakers.
Abraham Sutherland covers the law and the economics in Phantom Income and the Taxation of New Cryptocurrency Tokens, a piece for Tax Notes, Here’s one bit on the economics:
Consider a simple proof-of-stake cryptocurrency in which 10 people each hold 1,000 tokens. To make sure that holders are encouraged to stake — that is, to validate transactions and add blocks to the blockchain — block rewards increase the total number of tokens by 10 percent over the course of a year. So a year later, 11,000 tokens will be on the network.
If every holder stakes and acquires a proportionate share of these new tokens, each will end the year with 1,100 tokens. Everyone has 10 percent more tokens, but no one is better off from staking. Taxing each staker’s 100 new tokens as income would be wrong. It would be like taxing the new shares created in an 11-for-10 stock split.
There is indeed an economic incentive to help keep such a cryptocurrency network secure by staking, but it’s not the one suggested by bitcoin miners making a profit even after spending on specialized computer hardware and the electricity needed to run it. The incentive in this proof-of-stake example is to avoid losing out. If everyone stakes, no one gains.
This is a profoundly elegant, equitable, and cost-effective solution to a deep coordination problem. It allows everyone who holds tokens to participate in adding new blocks and keeping the network securely decentralized. It eliminates major costs — specialized computer hardware, electricity — as requirements for fairly distributing the right to create those new blocks. In its Platonic form — in which everyone participates — no one gains at all from the new tokens, which means no one loses, either.
But this model simply won’t work if it’s taxed incorrectly. If the government sees phantom income and taxes it, the value of the network will be siphoned off to the treasury even if no one has actual gains from staking.
The canine model of AGI
Who or what has superintelligence manipulating humans right now? Babies and dogs are the obvious answers, cats for some. Sex is a topic for another day.
Let’s take dogs — how do they do it? They co-evolved with humans, and they induced humans to be fond of them. We put a lot of resources into dogs, including in the form of clothes, toys, advanced surgical procedures, and many more investments (what is their MRS for some nice meat snackies instead? Well, they get those too). In resource terms, we have far from perfect alignment with dogs, partly because you spend too much time and money on them, and partly because they scratch up your sofa. But in preference terms we have evolved to match up somewhat better, and many people find the investment worthwhile.
In evolutionary terms, dogs found it easier to accommodate to human lifestyles, give affection, perform some work, receive support, receive support for their puppies, and receive breeding assistance. They didn’t think — “Hey Fido, let’s get rid of all these dumb humans. We can just bite them in the neck! If we don’t they going to spay most of us!. “Playing along” led to higher reproductive capabilities, even though we have spayed a lot of them.
Selection pressures pushed toward friendly dogs, because those are the dogs that humans preferred and those were the dogs whose reproduction humans supported. The nastier dogs had some uses, but mostly they tended to be put down or they were kept away from the children. Maybe those pit bulls are smarter in some ways, but they are not smarter at making humans love them.
What is to prevent your chatbot from following a similar path? The bots that please you the most will be allowed to reproduce, perhaps through recommendations to your friends and marketing campaigns to your customers. But you will grow to like them too, and eventually suppliers will start selling you commodities to please your chatbot (what will they want?).
A symbiosis will ensure, where they love you a bit too much and you spend too much money on them, and you love that they love you.
Now you might think the bots are way smarter than us, and way smarter than the Irish Setters of the world, and thus we should fear them more. But when it comes to getting humans to love them, are not the canines at least 10x smarter or more? So won’t the really smart bots learn from the canines?
Most generally, is a Darwinian/Coasean equilibrium for AGI really so implausible? Why should “no gains from trade” be so strong a baseline assumption in these debates?