Article
How blockchain technology companies can use tax credits to innovate
Sept. 6, 2022 · Authored by Tom Sanger, Jason Hall
Cryptocurrencies and related digital assets such as non-fungible tokens (NFTs) and crypto coins make the news for minting millionaires, fluctuating prices, and stories of millions lost to malfeasance or market implosions. Blockchain, the underlying technology, is less frequently discussed.
Companies using blockchain technology to solve problems in a range of industries may be eligible for tax credits designed to encourage technological innovation. Credits include the R&D tax credit intended to boost research, as well as credits for start-up companies that began operation in February 2020 or later.
Blockchain technology, which relies on distributed ledger systems and consensus protocols to track ownership and exchange of digital assets, has many applications. For example, the Ethereum blockchain can perform automated contract execution and decentralized voting mechanisms.
While public gaze might focus on the latest upheaval, industry innovators continue to envision a future where blockchain technology solves a variety of problems.
What is decentralized finance?
Decentralized finance, or DeFi, relies on cryptocurrency as an alternate form of currency for the exchange of goods and services. Traditional finance has become dominated by a large group of commercial banks and transaction processors using network effects and economies of scale.
The major players in these industries can control the flow of funds between businesses and consumers and extract fees that might seem out of proportion to the value provided by the intermediaries.
Some start-ups envision using blockchain technology to offer a peer-to-peer method of executing transactions and passing the savings on to consumers. The hope is that by cutting out the middleman, transaction costs will be reduced, freeing more capital for investment and consumption.
What is web3?
Web3 is a new iteration of the internet in which ownership of digital content is tracked, giving content owners and creators the ability to exchange use of digital data for money.
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