Crypto Taxes Have Finally Been Enforced. Do Them.

Recorded in the Hodl Up studio, with both guests joining remotely.

Hodl Up: Happy New Year, guys. Welcome back to Hodl Up. This is the first episode of the year, though not the first of the season. New year. But I have a question: have you done your taxes?

Hodl Up: Speaking of taxes, my friend, I will be doing my taxes, because we have until March, I think, in our jurisdiction. You have three months to report your taxes for the previous year. So I think I'm in the clear. I've talked to my lawyer.

Hodl Up: Oh, yeah?

Hodl Up: I have many lawyers. I have much money.

Hodl Up: Well, it's important that we talk about this, because of CARF reporting and everything it implies, and DAC8, or however it's pronounced, in Europe. The tax man is coming for all of us, whether you're in DeFi, in crypto, in prediction markets, or whatever. You have to be prepared. So without further ado, we have two people joining us on the podcast today: Florian Wimmer from Blockpit, which specializes in tax solutions for crypto users, and Sergiu Hamza from Coincub, which is based in Ireland and is one of the leading on-chain and off-chain analysis platforms in crypto. We know that because we both work with Coincub.

Hodl Up: We actually do, guys. We actually do. Without further ado, let's invite Sergiu and Florian to the call.

Hodl Up: All right, let's get into it. Hello, and welcome to another episode of Hodl Up. Today we have two very important guests. We have Florian Wimmer from Blockpit, who'll be talking with us about everything tax-related. We've all heard what CARF implies. And we also have Sergiu Hamza from Coincub, who can give more detail where needed on the new report that Coincub and Blockpit made together, the Global Crypto Tax Report. So without further ado, I want to hear from you guys. First, Florian, thank you for being here. I see a lot of people who are a bit scared about everything CARF implies. How do we go about alleviating people's fears and showing them it's not the end of the world? I know it's becoming a compliant world and we have to be very rigorous about how we approach crypto from now on, but talk to us.

Florian: Definitely. Hi, guys, and thanks for having me. Great to be here. I think you don't have to be scared of CARF unless you're a tax fraudster doing it on purpose, and I think most people don't do that. It's just a necessary step in bringing a certain trust to the sector. Obviously you can't leave open a hole for tax evasion, which crypto has been so far, if you wanted to use it that way. The authorities didn't really have the data or the know-how, and they're now trying to close this gap, as would be done with any technology you can imagine where there's an option to bypass laws. And ultimately, it's not immediately affecting you as a crypto investor. The first stakeholders affected are the crypto-asset service providers. They should probably be scared if they're not ready yet, because implementation started at the beginning of this year in most countries. But as a crypto investor, you probably won't have many touchpoints, at least in the next one or two years, until all the reporting has actually happened.

Hodl Up: All right. I know Dren. Dren likes taxes, I mean in terms of compliance and everything. He's more of a compliance guy. I like compliance as well. I know crypto can't continue to be the Wild West when it comes to taxes and everything else. But do you think there could be a different approach to taxes compared to what we have right now in Europe, the US, and everywhere else in the world? I know we have to report everything, but could it be done in a more private way, one that respects privacy a bit more? Or do you think this is the best we can do at the moment?

Florian: I'm pretty sure that if we put our heads together, we'd come up with a better solution. But the issue is that we're already so deep down the rabbit hole with everything that's happened over the last years and how the system works that I currently can't think of a better way than how it is now. You have the regulated institutions, and they need to do KYC. That's less of a tax topic and more of an anti-money-laundering topic. They need this data so that if you're committing fraud, you can be tracked down. If it's anonymized and you're breaking the law, it's hard to track you down. That's the whole purpose behind it.

I think the tax system in most countries is broken. Governments have a spending problem more than an income problem, and they raise taxes on everything. But fixing that would need a complete overhaul, and sadly it's just not realistic on a global scale, or even a European scale. It's a country-specific, national topic, and it likely always will be, because taxes are just so different from country to country, and that makes it hard to change things, sadly.

Hodl Up: I think what Atis and people like him are scared about is that it sounds a little bit dystopian. For example, if the tax authority wants access to our bank transactions, they have to go through a procedure where they ask the bank for the details. At least that's how it works in our country. But if I'm not mistaken, in some countries with CARF, all your transactions go straight to the tax authority, and they'll be able to see every single one. For people like us who use crypto daily, we move money into this wallet, then that wallet, make a transaction, do this and that. When the tax authorities get that data, chances are they might misinterpret it and think we're earning crypto or income, when in fact we're mainly just paying for something, or receiving an unlock, or whatever. I think you get what I'm trying to say. That's the biggest concern, I think.

Florian: In most countries, at least in Europe, you already have this for normal bank transactions. It's called CRS reporting, the Common Reporting Standard, and CARF is basically that for crypto. You have it for traditional fiat, but only above certain limits. A transaction of 50,000 euros coming in or out is going to be reported to the financial authorities. And as CARF is currently designed, it's annual. They don't report your data immediately; it's aggregated reporting in the new year for the previous year. And as you said correctly, some countries go a bit further. They say, "We don't want aggregated reporting, we want every single transaction."

Obviously, exchanges can only report the transactions they have, which for an active crypto trader is often just part of the truth. You have other exchanges, maybe DeFi activity, so in many cases the picture isn't 100% clear, which could lead to misunderstandings. But ultimately, what the authorities are after is finding suspicious activity. It's not like they get your data and say, "You owe us money." It's more like they get the data and say, "This might not fit what we saw in your tax declaration. Could you please explain?" Then it's your responsibility to lay out and make sense of what you've been doing in crypto, and that has to fit the data they got. So you still have a chance to explain yourself with the whole picture. On the other hand, we know that isn't easy if you're active on many different platforms, exchanges, blockchains, and so on. But if you don't have the data, they don't have it either.

So I think we're going to see a lot of letters going out. They're getting data that's incomplete for most people, but it's the first step for them to follow up and demand an explanation. It'll likely be a top-down approach: who has the highest transaction volumes and the biggest portfolios, because that's potentially the biggest tax revenue. So I don't think everybody's going to get a letter. It's going to go step by step, top down, starting with the biggest whales, once they get their hands on the data.

Hodl Up: You mentioned DeFi. How does DeFi play a role in this? How will the authorities in most countries, the biggest ones, be able to track it down and get it to comply with current rules? I don't know how that works with platforms that are decentralized. They weren't designed to do this, right? So how will they do it?

Florian: No, the exact opposite. There's nobody you can ask for data. On the other hand, a blockchain is a transparent ledger, at least most blockchains are. So they can already read the data if they know how and have the tools, and most of them do. There are AML tracking tools, and now there are also tax tracking tools. But they don't know who's behind the wallet. And that's now a gap they're trying to close, because with CARF you also need to report outgoing and incoming transactions: crypto deposits and crypto withdrawals. And there's the Transfer of Funds Regulation, which has been active for a while now. You've probably seen that if you use a crypto exchange and deposit or withdraw, they ask whether it's your own wallet or the wallet of another exchange. So they get an indication: is that your DeFi activity? Is it somehow linked?

Obviously, if you're only in DeFi, it will still be close to impossible to identify what you've been doing. But at some point you need to get funds into DeFi to be able to use it, and I'd say 99% of that is purchased on a centralized exchange. So this is now the missing puzzle piece: connecting DeFi activity to the KYC data you provided to an exchange. Then it comes down to their ability to read blockchain data. If you're active on Ethereum, Bitcoin, and so on, they have the tools to do that. If it's super new, complex systems, protocols, and smart contracts, they'll probably hit the ceiling pretty quickly on what they can interpret. And then again, they come to you and ask, "Hey, what did you do here? Please explain." If you have an explanation that makes sense, then I guess you're done, in most cases.

Hodl Up: Now I want to talk about safety and privacy specifically. Take France, for example. There's a major conference that usually takes place in France, and they canceled it this year, because within just a month several kidnappings occurred, simply because blockchains are transparent. Criminals were able to track down who had a certain amount of money in their wallet, and they kidnapped those people, demanded ransom, and tried to get the money. That's why I'm quite concerned about this whole thing. I know the authorities are supposed to be the good guys, but what if there's one person in there who has access to that data? We all know you can't control everyone in a position of power. What if they sell that data, or use it some other way? How scary is that for the normal user?

Florian: It's definitely an attack vector. We already have that in traditional finance, but there it's not that easy to transfer money away. Nobody can hold a gun to your head and say, "Transfer this money to my wallet." The bank will probably call you to approve a transfer, and the person would have to convince the bank that it's a legal transfer. We have those security measures in place. On the other hand, you don't have sovereignty over your funds, because if the bank goes bankrupt, as we've seen with Wirecard and others, your money is gone. That's the balance between traditional finance and crypto. And obviously a lot of safeguards are in place. We know that from working with authorities: personalized data never leaves there, and it's really hard to get. I'm not sure it's the same in every country, and there are probably some countries where corruption is higher, but ultimately it's probably one of the more secure things.

Then there's the second part, your own responsibility. If people flaunt their crypto wealth on social media, they shouldn't be surprised if they become a target, and that's still what's happening in most of these cases. It's influencers, or someone who publicly flaunts that they've made a lot of money in crypto. If you care about your privacy, I'd say compliance is not the part that's going to blow you up. The chance that some government leaks your data to a criminal organization and they come after you is pretty low compared to you messing up, saying too much in public, and becoming a target.

Hodl Up: Speaking of the user perspective, I have a feeling that, especially this year, since this reporting framework is just beginning, people will tend to make more mistakes, honest mistakes, or deliberately avoid it in the first years. Do you expect that as well? And is it more dangerous if the data is missing or if the data is incorrect?

Florian: I'd say incorrect is obviously more dangerous, because then there's an issue somewhere, and it's hard to explain. I've already gotten a lot of emails from different services I have accounts with, informing me that as of the 1st of January they've started reporting my data to the authorities because of CARF. So a lot of education is going to be necessary, and people are going to make mistakes. Mistakes like selling crypto at a profit, owing taxes, and not declaring them. That's an honest mistake. People just aren't educated about crypto taxation. It's not something we learn in school. That also means that for your first encounter, you probably won't be fined or anything. It's more like, "Hey, you have crypto. We know that now because we got the data from the exchanges. Please declare your taxes." Do that once, and everything is fine. It gets complicated if you're doing it on purpose. Deliberate tax fraud can even mean jail time in many countries, and I don't think people will make mistakes like that without doing it on purpose.

In terms of mistakes on the exchange side, if they report wrong data about you, that's their responsibility. They're liable if they report wrong data. You're liable for your own tax declaration. So if you have DeFi, other exchanges, and so on, putting that whole picture together and declaring your taxes correctly is your responsibility. If there's a mistake in there, on the one hand they have to prove it, because they'd need better data than you, and you'll still be able to explain. If it wasn't on purpose, then maybe you'll have to pay some more taxes, but at least you won't be fined or face jail time or anything like that.

Hodl Up: We don't get taught about taxes at all, or how to file them, in any of our schools. So all in all, crypto taxes, normal taxes, you have to do them at the end of the year. I know many people who joined crypto at 17 or 18, and when they worked in the traditional world, at a regular job, they didn't really have to deal with taxes, because their employer did that for them. But with crypto and DeFi, you can't ask Uniswap to declare your taxes. So what do you think will be the biggest issue for these 20-year-olds who aren't really familiar with taxes, crypto taxes specifically? What challenges will they probably face in this process?

Florian: I think the first challenge is being aware that they have to do the taxes themselves. There's no information; the government doesn't inform you that for crypto you have to do it yourself. Obviously crypto exists because of sovereignty. We want third parties and middlemen gone, but then it's our responsibility to do everything ourselves again. That's the trade-off. Awareness is the first issue, and I guess with CARF people are going to become aware, because they may get a letter. That won't happen this year, but probably towards the end of next year or in 2028, when the data is actually with the authorities, because that takes time.

The next step is getting your history together: getting your documentation ready. What have you been doing for the last few years? You probably don't remember. Maybe you don't have access to certain platforms or wallets anymore. So once you're aware that you have to pay taxes, calculating what you owe and declaring it starts with getting your complete documentation together, and that's the biggest challenge, not just for 20-year-olds but for everybody in the space, because it's still so new. It's new technology. Every blockchain has a different programming language, and every exchange has different exports, connections, and interfaces. That's the biggest challenge, and it's going to stay that way, because we're never going to get a global standard for transaction data on crypto exchanges. That won't happen. But there are tools out there that help you with that, although they also struggle to keep up. The good thing is that the authorities don't have better tools than the ones you have access to, and it's important that it's balanced, that you have the same ability to declare your taxes correctly as they have to potentially prove you wrong. And the third step, and challenge, is then how you minimize your taxes, but to do that, you first need an overview of everything you've been doing.

Hodl Up: One question: as a user, I'm a bit scared right now. Let's take Kosovo, my country. Say we implement CARF and everything and become compliant as a country. Do I have to go back five years to check what transactions I made in all my wallets that could be connected to my name on a centralized exchange, and then report them all?

Florian: You should, actually, because you might be liable to pay taxes for past years. The exchanges won't report that data, not initially, not under CARF. They'll only report everything from the 1st of January this year onwards. But if the authorities get your 2026 data and say, "This guy is interesting, he's doing a lot of stuff," they can go back to the exchange and demand the history of the last 10 years. Those subpoenas already happen with larger exchanges, where user data is requested, and they get it, because there are court orders behind it. So they could unravel what you did in the past. To be on the very safe side, you should do it. If you're certain you didn't make any tax-relevant profits in the past, then you might just not do it and hope for the best. But ultimately, to sleep well, I would try to get everything in order.

Hodl Up: I see. Okay, enough questions from the user perspective. Now the business perspective. I can't help but think that with CARF, DAC8, and MiCA last year as well, everything is becoming more expensive for companies. This core infrastructure comes with a lot more cost to be compliant. Do you think this favors big players like Coinbase, Binance, and other exchanges like that? And if I want to start a startup, is it over for me?

Florian: 100%, it favors the big guys. It's been the same in traditional finance. You want to found a bank? Good luck. It's probably cheaper and more efficient to buy a bank that already exists. So if you want to build a financial service provider in the crypto space as a startup right now, you need a lot of funding, and I think that window of opportunity is somewhat over. The market is going to consolidate. It's really hard to compete with Coinbase in terms of security, fees, marketing, and all that. You'd probably need some genius feature idea they didn't think of, and then they might buy you. So coming from nowhere and starting a fully regulated business in the crypto sector now is going to be super hard. I'd rather try to build something in a completely decentralized way. I think there are still a lot of opportunities for innovation there.

Then there's this Web2.5 mixture with centralized finance. All the big exchanges are now starting to offer stocks; that's the new hype, and it's merging. I think the only players who will challenge them now are the traditional banks moving into crypto. They have the licenses and the compliance setup. They just need the tech and the products. It had to come. There was a window of opportunity to launch a crypto exchange, somewhere between 2012 and 2020, and since then it's been almost impossible for a young startup. That's the trade-off. But there are always other opportunities to build a great company in the financial industry. I don't know exactly what I'd do, but compliance, for example. We're a compliance company, and I think our time to shine is now coming. But obviously it might hinder innovation. If you block startups with too much regulation, innovation is hindered, the bigger players consolidate and do things the way they do, like a big ship. That's a concern: not much room for innovation anymore. But at some point, someone will come up with a new idea, get financing, grow big, and change everything.

Hodl Up: Talking about privacy and VPNs: I personally use a VPN every day, just out of habit, because I feel safer on the internet. And I know a lot of countries that banned crypto, where people kept using crypto and making transactions via VPN, so those countries banned VPNs too, and now you can't do anything there or you get jail time. Should we expect something similar for DeFi products? If I have a DeFi product, should I expect that only people with VPNs will be able to use it in Europe, because it's difficult for tax authorities to get data from my DeFi product? And if so, should we expect a wave of VPN bans like in other countries?

Florian: If it's truly decentralized, that should be impossible. What they can do is force Uniswap to block its website for anyone accessing via VPN. But that's only an interface for controlling the smart contract. It's just convenient for the end user. You can still use Uniswap and everything behind it by other means, so there will always be some point of access. If they want to regulate users themselves and say, "VPNs are forbidden, and if you use one you go to jail," that's a dystopia. That's crazy. That's pure dictatorship. So I think, and hope, it won't come to that. And the beauty of decentralized finance is that there's always some way to access it, because you can only censor the centralized counterparties, and if it's really decentralized, they hopefully don't have enough power to change anything at the smart contract or protocol level. It's only the interfaces they provide.

Hodl Up: Now I want to go back to startups, because Dren mentioned startups and you mentioned Web2.5 financial companies. Let's say, hypothetically, I'm starting a company tomorrow. It's an iOS or mobile app for reading books, but it's fully on the blockchain, so it's technically decentralized, and I have my own token and enable transactions between people within the app. Does that fall under this tax framework, if you understand my situation?

Florian: Sure. If you get your app into the iOS App Store, you're already not decentralized.

Hodl Up: Okay.

Florian: And iOS would probably block anything with its own token. They only allow payments via the App Store. Getting an app listed on the App Store is super strict. So whatever you have in the App Store is some kind of centralized wrapper for using the decentralized protocol behind it. They can control that, and if you have users there, you'd theoretically be obliged to verify them and report the data.

Uniswap is a great example. They're not on the App Store, but they have a website and a team behind them, and a foundation, and CARF says Uniswap has to report. Uniswap doesn't have your personal data. They don't do KYC or AML checks and all that. But theoretically, they'd now be seen as a reportable entity. We'll see how that ends up. I don't think it'll get there. Uniswap will just leave. The foundation will leave the country that might be subject to CARF, move to another country that's not, and host everything there, because if I had to do KYC on Uniswap, I wouldn't use it anymore, honestly speaking. That's the whole point of it. So it's a bit of a gray zone how these DeFi interface providers fall under CARF. The regulator says yes, everybody else says no. We'll see once it's taken to court, and to the next instance of courts, and maybe in 10 years we'll have a final ruling on these things.

Hodl Up: I've seen some companies gamify KYC, so if you complete your KYC, you get points and so on. But now that I think about it, they're just making you liable to pay taxes by using them.

Florian: They don't make you liable to pay taxes. Your local government says you have to pay taxes. They just report your transaction data so the government can enforce the taxes. It's not the exchanges that make you liable. You'd still have to pay taxes either way; you just don't do it if the government doesn't have your data to check you.

Hodl Up: I stand corrected. Now, going a bit into the Global Crypto Tax Report, I first want to talk about the US. The US is one of the countries that has rolled out its own framework and pushed CARF back. Does this four-year gap create some sort of data-sharing lag that some investors might exploit, or is the IRS simply prioritizing domestic enforcement first? What's going on there?

Florian: Do you want to take that one, or should I give my take?

Sergiu: Well, obviously the US tends to do whatever the US wants. They don't easily fall in line with what everybody else does. But I think the second part of your question is correct. They focus a lot on American businesses. From the outside, not knowing much about the inside of the industry, as we see it from Europe, it seems they still see America as the most important part of crypto, and they're not far off. They probably also want to structure their own internal reporting and get their heads around it before expanding and having to deal with all the other countries. Right now, most countries are basically doing their laundry in public: trying to label transactions in different ways, trying to trace transfers from DEXs to centralized exchanges. And we're all just sitting and waiting to see which government will start filling up the news with false positives. There's a lot of room for error with CARF. So the Americans are playing it a bit closer to the chest, saying, "We'll implement this internally, on our own infrastructure, not through a massive international organization where we'd need to adapt to everybody else." They're just pushing it down the line.

But it doesn't really change anything for the example from earlier. Should you start thinking of each of your transactions, from now on and from the past, as being chased by a very tough regulator or tax enforcer? Yes, you should, no matter where you are. You should think, "I need to be extremely transparent, and I need to be able to justify myself, regardless of where I am." Whether it's 2026, 2027, or 2029, this is very much a change of mindset that even companies struggle with. High-net-worth individuals need to adapt at scale, and individuals need to learn this very fast, or they'll learn it the hard way. So yes, the US is doing US things, but that timeline is a bit confusing. Most people think this is a "future me" problem, when in fact most of the world is moving very closely together on this right now.

Florian: I don't think it'll have much effect that the US comes later than the other reporting countries, because the US has always been special. If you wanted to register on an exchange as a US citizen, you couldn't register on the global one; you had to register on the US exchange. There was Binance and Binance.US, Coinbase and its US entity, Bybit and its US version, and so on. So everything is already concentrated. US investors are already registered with US entities, which have to report under the local framework anyway. There are few profiles of US taxpayers on global exchanges that aren't already registered in the US. So once the US also moves to CARF in a few years, I think only 5 to 10% of the US population won't already have some kind of connection to a reporting entity in the US. That's why I don't think waiting two years to report under CARF creates much of a data gap for the US.

Hodl Up: Since we're talking about the US being special: personally, I think the US is doing this specifically because they want to test the whole framework in other countries and see how it goes, while testing it domestically, as you mentioned, and then take the big step and implement it fully. But I don't know how much sense that makes to you guys, since you're much more informed about this area. So I want to ask both of you, Florian and Sergiu, and even Dren: what's your opinion? This is my conspiracy theory for today: the US is pushing it out so it can test it on other countries and see where it goes from there.

Florian: It's always easier to enforce in your own country. The US jurisdiction can enforce against US players. So the global framework will target US investors who aren't trading on US exchanges but only on external ones, which is probably the minority. So I think it makes sense, also given their internal resources, to focus on the domestic side first. Testing it in their own waters before rolling it out is the right thing, because it's more efficient for them in terms of what they get for the resources invested. That's what I think.

Hodl Up: I agree. Now let's move to the other side of the world. Take the UAE, for example, which has a 0% regime. A lot of people have asked what the implications are there, since you don't pay taxes there, but CARF is still being implemented. Does that mean their information will just be shared with other CARF countries, or is it enforced to prevent suspicious activity, since they don't gain any taxes from it?

Florian: They still gain data. For them, it's about data. And who says the UAE won't introduce crypto taxes three or five years down the road? Then it would be interesting for them as well. Even now, just the data is valuable, even if they can't enforce taxes on it. I think tax fraud is the main reason CARF was established, but ultimately it's data aggregation and information exchange between authorities. So why wouldn't they want the data if they have the chance to get it?

Hodl Up: And what if the UAE keeps its 0% rate, but I'm a crypto nomad who lives in Dubai and operates there legally, and I want to go back to my home country for a while? Does the UAE's 0% rate become a liability rather than a benefit if I try to move funds back to my home country, which has, say, a high tax rate?

Florian: If you change tax jurisdiction from a country like the UAE to another country, in most jurisdictions it's treated like an acquisition of the assets at the point you change jurisdiction, and at that point you don't have any gains or losses. Let's say you have one Bitcoin in Dubai and you move back to, say, Germany. That one Bitcoin is considered purchased at the current rate, and once you're back in Germany, if you then sell it at a profit or loss, you pay tax on the difference. So I'm not sure there's any jurisdiction that would actually want you to pay taxes on entry for anything you held in another jurisdiction before. It's mostly that you get taxed by the jurisdiction you're leaving, at the point you leave. So if you go from Germany to the UAE, leaving counts as a realization of gains. If you have unrealized profits, even if you don't sell, they count it as sold from a tax perspective, and then you start at zero again in the new jurisdiction. Since the UAE doesn't have taxes, leaving the UAE wouldn't incur any. So I think that wouldn't be a problem.

Hodl Up: Since we're talking about zero tax, I want both your opinion and Sergiu's. You said nobody knows whether the UAE will introduce taxes in the next few years. Which countries that currently have 0% tax do you think will be the first to implement taxes in the coming years? The landscape is changing a lot, in my opinion. There's a lot happening in crypto as an industry right now, and taxes should logically follow.

Florian: There aren't that many jurisdictions left that actually have zero. It's mostly the Gulf states or something like that. But there are a lot of jurisdictions where it's possible to get to zero through long-term holding. Germany, for example, has super-high tax rates, up to 45%, if you sell within a year, but if you hold for more than a year, it's zero. Portugal is a great example. They had zero for a long time, and a few years ago they introduced 27%, but with the same rule as Germany: if you hold for more than a year, you're still at zero. If you're trading speculatively, it's 27%. I think we're going to see something like that, because crypto is an investment asset in most cases, let's not talk about memecoins and all that, and that should be rewarded. You want your population to invest in the future, save money, and so on. But you also want people who speculate to pay taxes on it. I think that system could be what we see in most jurisdictions, which apply their existing tax laws to crypto. In most jurisdictions, no specific crypto tax law is being passed, so existing law will probably be applied to crypto. That's what I see. There are still a lot of jurisdictions without clear tax rules on crypto. It could be treated like precious metals, stocks, property, and so on. We'll see clearer definitions of where crypto falls, but I don't think we'll see many changes in law specifically for crypto. That might come later, but first we need some kind of definition, which I think we'll see in many countries in the years to come. But Sergiu, I think you have more of an overview of all the different countries from your part of the study, right?

Sergiu: For me, it's a bit like game theory. Once this data becomes available, and we've discussed this in the past, there will be a moment of realization. "How much tax should I be able to extract from the profits of crypto transactions in my country, as a government?" becomes a very good question once that number gets big enough. And this is the fundamental difference between countries that offer long-term advantages, that have thought through what types of behavior they want to stimulate and reward and what they want to penalize. They want to penalize things that are very risky and actually not good for you. It's like your government putting a tax stamp on alcohol and cigarettes and increasing it each year, because they believe those things are fundamentally not good for you.

But what you're raising there, Florian, is true. Once governments start thinking about this, and most countries haven't provided a clear classification yet, because this field is still very much evolving, a big chunk of the world hasn't put enough energy into this, because crypto was a very small asset class and Bitcoin was a tiny piece of the pie. Once it becomes interesting, there will be a lot of imitation. One country will do something, another will do something else, and there might be changes, but they'll come once the data becomes available. They're probably all waiting on each other to see who moves first and who does what. Every time one country makes a move, it raises a lot of eyebrows. There's a lot of potential risk for any country in making a move, especially on taxation. So they'll wait a bit, see what others are doing and what the best practices are, and then start making changes. But we're talking about a five-year horizon here. I don't see it happening sooner.

Florian: What you said is a good point, because governments don't know how many people in their population hold crypto at the moment. There are no reliable numbers. Some exchanges publish their registered and KYC'd user numbers, but not per country, and even that doesn't really tell you much. It's super hard to know how many people in a country hold crypto. With the CARF data, there will be a first really good indication, so jurisdictions will know how big the pie is. They can take the average income, how much people invest, and how many people in the population hold crypto, and estimate the potential tax revenue. Currently, nobody has that at all. Maybe Austria is the first country that has it, because the larger crypto exchanges there have to withhold taxes. Everywhere else they're blind, so it hasn't been a priority, as you said. But once they know how many people in their country have crypto, they'll definitely look at how the law handles it and where they can potentially generate some tax revenue.

Hodl Up: Again, I always go back to the example of pump.fun, which is one of the main reasons millions of people were onboarded in the previous cycles, because they came in with the idea of making life-changing gains overnight. The reality is, I saw in a report that only about 0.07% of people who used pump.fun managed to make more than $10,000. So even if we get numbers on how many people used crypto in a specific year in a specific country, I think only a very small percentage of them would really be liable for tax. Myself, for example: I've lost money on 95% of my trades. It would just be adding salt to the wound if the tax authority came to me and said, "Hey, you need to pay your taxes because you use crypto." But I agree with both of you, and I agree with what Sergiu said about countries raising eyebrows with what they're doing, especially France. I don't like France. They recently made a proposal to tax crypto the same way they tax yachts and NFTs, which would mean every single transaction you make could potentially be taxed the same way a $2 million painting would be. So I agree with...

Florian: It's the same in Germany. In Germany, it's actually like that. Every transaction potentially triggers a tax.

Hodl Up: I like that Germany gives the long-term relief, and if I remember correctly, Blockpit's German crypto tax report showed that it did change user behavior: how people reported, how they transacted, and everything in between. So I do like these reliefs, because, to be honest, everything is becoming more traditional. We said at the beginning of the episode that even the framing of crypto now is "internet capital markets." It's no longer just crypto and Web3. It's becoming much more traditional and institutionalized. So if that's the direction they want to go, providing these reliefs would lead people to treat their investments in a more traditional way. I'm fine with that.

Hodl Up: Since Dren was talking about institutionalization, I remember a call I had with Sergiu last year. He was telling me how crypto is literally going to become the next... he didn't say dystopian, but that's how I understood it: institutions and everything. And I said there's no way that's going to happen, because we won't allow it, not in crypto, where degens control the markets or whatever. But it's happening. It's happening.

Sergiu: Well, no. I just said we should wear suits and ties from now on.

Hodl Up: It was the 1st of January. We don't do that here yet.

Sergiu: At least the people I know still wear them.

Hodl Up: Every time I hear "suits and ties," I think of shirts tucked in.

Sergiu: Still, just in case. No, you're raising a good point. It's not going to be a very quick transition, though. Because it's small, crypto also has a lot of experimentation built into it. The way I feel it's going is that we have something new, and we don't know what to do with it. We're going to try to over-absorb it, and we're going to over-control it through the systems we put in place, to an extent we rarely see anywhere else. Florian rightly mentioned that we have similar systems in financial services, but not to the extent we see with CARF. So at some point there will need to be a very big pushback from the population, if that overreach is felt as present and ongoing. It's true that we need to push back individually so governments hear the message. If there are concerns about safety, about your own private data, or any of the other concerns this raises, you need to make them public, and we'll probably all need to do our duty and reflect on this. In the end, governments will have to stabilize at a middle position where they don't push too hard. They get their technology together, assess the risks of their overreach, and arrive at a stable equilibrium. So will it change the industry? Yes, it does. It forces us to adapt and think in a new way.

Florian: I think the market will rather regulate itself. If a country overreaches, people leave. It's easier than ever to become a digital nomad and go somewhere else. A lot of people are leaving Germany right now, for example, because of the current administration's economic decisions, and ultimately that's going to hurt the country a lot. So they need to be careful about how they structure things. I think taxes are a great tool for shaping user behavior. You mentioned the long-term incentives, and they did affect how people trade and invest, and their risk management. So it can be a good thing. Obviously, taxes are needed to uphold society, but you can overdo it. And I think there's a lot to improve, not just on the tax revenue side but also on the spending side of administrations. I hope we'll learn and do better there. Overall, I'm actually quite optimistic that it'll sort itself out, based on how people react.

Hodl Up: Sergiu mentioned data. Not last year, I think two years ago, in our country, there's an international bank that operates throughout Europe, and I don't want to name names, but its branch here got hacked, and all the data from every user account leaked. For me that was shocking, because we're taught from the beginning of our lives to trust that at least the money is safe, and at least the data is safe. Now look at crypto and this whole reporting framework. In my opinion, it's even easier to get at that data and find breaches in tax authorities, since banks focus on security, but tax authorities could be lacking in an aspect or two. That's why I'm scared of transparency. I loved blockchain because of it, but now I'm really scared of transparency.

Sergiu: I'd like to add one thing. If you see crypto as money, then there's an important comparison to make. If you start thinking about what money is and how intimate money is to a person, I see these transactions as being just as intimate as your healthcare records. Governments, rightfully, didn't centralize that information, because it's a very sensitive thing to have out in public. If you have a disability or certain diseases, you could be shut out of a school or the job market. And all of a sudden we're putting into one very big pile, and categorizing very well, or trying to, information that's just as intimate: our shopping, our interactions, the way we save money. So I would love to see how well countries have put guardrails in place to secure and safeguard this. Just the idea that we suddenly have all of this together, we're all taking a bit of a risk on what could happen. But again, let's stay positive and hope they'll treat it as a simple lever for encouraging everybody to become more compliant. Florian's been doing very good work helping users become more compliant and educating them for many years, so I think there's hope there, and reason to keep the faith.

Hodl Up: That's the thing. People raise a lot of questions and concerns about privacy this and privacy that, but I don't see many people talking about quantum computing, and the fact that all the bank accounts, private keys, and even blockchains could be vulnerable to being hacked in some way. So that's a concern.

Florian: Quantum computing, yes, but AI is even scarier, in my opinion, to be honest. We have no idea what's going to happen, especially on the scam side. Things are getting so realistic. So my biggest fear would be a government agent getting caught in an AI scam, say, one impersonating his daughter, and handing over data or some kind of access. Quantum computing is the complete black swan. I think the whole system breaks down if we don't manage to have quantum-resistant encryption in place by then, and crypto will probably be the last thing to be affected. We'll have other worries by then. But that's how it's always been with society. It's a race. There's some new technology, and on the other side you have regulation and counter-technology, and so far we've always managed to keep the gap from getting too big between what technology can do to hurt us and our ability to defend against it.

Hodl Up: So for now, I'm safe if I just tell my tax man that a quantum computer hacked my exchange account, so it wasn't me who made those transactions and I'm not supposed to pay?

Florian: As long as you don't use the money to buy a Lambo or something, where you'd have to answer the question of where the money came from. As long as you don't buy anything with the money, I think you won't be on the radar. But if you're a student and suddenly you have a yacht or something, you can be quite certain the tax man is going to demand some answers. So if data is missing, or somebody else traded in your account, that's all fine, but ultimately you'll have to answer where you got the money from. And if you didn't get any money, well, no taxes for you.

Hodl Up: I'm very far from getting a Lambo, so there's that.

Hodl Up: No Lambos for us. On quantum computing, I wanted to add that I believe even Ethereum is working on becoming quantum-resistant right now. I think that before we get an attack from the quantum world, we'll have the defenses ready. And when it comes to authorities, banks, and so on, I think they have more capital to put into building quantum-resistant systems than the people who want to exploit banks with quantum technology. That's my take on quantum computing. So, to wrap up, I want to hear one piece of advice for taxpaying citizens of the world, and what we should expect in the long term.

Florian: Get your documentation ready. Honestly, if you haven't started yet, you should. It gets harder and harder the longer you're in the space without tending to your documentation. But it's super easy if you take 15 minutes every quarter to look over your transactions and see if everything is in order. Then you're prepared. If you have that, 95% of the job is done. And you should start doing it even if you haven't realized any gains yet, even if you haven't sold yet, even if you're brand new to crypto. Get started with the documentation. It doesn't hurt. You can do it anonymously; you don't have to give anybody your data. There are tools out there like Blockpit, but you can also do it with an Excel file or whatever. Just start doing it. Most tools actually provide the documentation for free; they don't charge for that, only for the tax reporting later on. So get to it, and you won't have a lot of headaches later.

Hodl Up: Great, thanks for that. And Sergiu, is there anything you want to add?

Sergiu: Absolutely. I think that's spot on. A great New Year's resolution for users, since we're at the beginning of the year, is to build a new habit of thinking about each transaction and classifying it. Your future self will definitely thank you for that. It doesn't matter how you do it. As Florian says, just take each transaction you make and try to put a note on it. I was doing my finances for December, and three times I was looking at a transaction in my bank account that I couldn't remember. And that was just December. Each time I stumbled on one, I had to think back until I figured it out: "Okay, this needs to be classified." I'm going to classify all my financial transactions, and I also need to classify all my crypto transactions. Because crypto gives you more independence, you have to do a bit more work, since you want all those good things. Just assume your auditor might hate you and want more from you than you expect. So you'd better be prepared and build that resilience plan now, at the beginning of the year. Then you'll be in a much more comfortable position than the alternative, which is scrambling to figure out what happened in 2025 and 2024, "Who did I send this to, and what did I do there?" That's a very gray situation you want to stay out of.

Hodl Up: Perfect. Thank you so much, both Sergiu and Florian, for joining us today. It was a very insightful discussion. And as you said yourself, Sergiu, what better way to start the year than to talk about taxes? That's why we're here, to educate people on that front. I'm not saying we won't take advantage of every legal tax avoidance possibility there is. There's a lot you can do, but in a legal manner, and you still need to be educated on this, because the crypto world is changing. So once again, thank you both for finding the time to join us today.

Florian: It was a pleasure. Thank you, guys.

Hodl Up: Do your taxes, everybody. See you in the next episode.