Shalini Nagarajan

A government agency in the most populous US state, California, is testing blockchain technology using a private fork of Tezos to execute some of its record keeping, including the issuance of car ownership and simplifying transfers of such ownership.



The CA Department of Motor Vehicles (DMV) is expected to develop consumer-facing applications such as digital wallets and car title NFTs later this year, according to Ajay Gupta, the agency’s chief digital transformation officer.



The state opted to team up with Tezos and crypto software provider Oxhead Alpha to embrace California’s <a href="https://www.govops.ca.gov/wp-content/uploads/sites/11/2020/07/BWG-Final-Report-2020-July1.pdf" target="_blank" rel="noreferrer noopener">roadmap</a> to explore crypto adoption, according to an Oxhead <a href="https://www.oxheadalpha.com/PR_20230125_DMV.html" target="_blank" rel="noreferrer noopener">statement</a>.



Oxhead Alpha has built a set of smart contracts on a version Tezos — but not the public permissionless chain — to test e-titles, enabling the electronic exchange of title information, in a move that could lessen processing time for documentation. California had over 30 million <a href="https://www.valuepenguin.com/auto-insurance/car-ownership-statistics#state-total" target="_blank" rel="noreferrer noopener">registered</a> vehicles as of 2020.



Gupta told <a href="https://fortune.com/crypto/2023/01/26/california-announces-dmv-run-blockchain-through-partnership-with-tezos/" target="_blank" rel="noreferrer noopener">Fortune</a> that he hopes the plans to materialize the title database on blockchain come to fruition in the next three months.



This collaboration comes after California Governor Gavin Newsom last year <a href="https://blockworks.co/news/california-unveils-crypto-executive-order-as-competition-for-us-crypto-capital-builds">signed an executive order</a> directing state agencies to discern ways in which they can employ blockchain technology and digital assets. 



The use of blockchain-based projects has evolved in use cases, pushing developers to build out more decentralized applications. Several governments and business entities have been pursuing its adoption in sectors including capital markets, healthcare, insurance and digital identities.



The pilot is the latest example of attempts to find technology solutions that benefit enterprises looking for smoother compliance and efficiency in their business operations. In another instance, a Cleveland-based startup called ChampTitles looking to overhaul the car title and registration systems using blockchain raised nearly <a href="https://www.crainscleveland.com/technology/cleveland-startup-champ-titles-raises-129-million-series-b-investment-round" target="_blank" rel="noreferrer noopener">$13 million</a> in a Series B round in September.



California has also listed its Department of Food and Agriculture for pioneering a similar project to track food-borne contamination through the collection and organization of data from parties involved like growers and transporters, and proposed moving state archives on a similar ledger.



The DMV-specific project itself is up and running with validator nodes, but is yet to cover broader services like title transfers between states.



This story was updated on Jan. 27, at 9:12 a.m. ET, to clarify that the pilot is not running on public Tezos.



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California

California Pilots Blockchain Car Title Management System on Tezos Fork

Ben Strack

Casey Wagner

<div id="highlights-block_61fc1852f1781" class="highlights">
 <ul>
 <li>After the IRS offered to refund a Nashville couple for taxes paid on unredeemed rewards from staking on the Tezos blockchain, industry experts weigh in about a potential new tax precedent</li>
 <li>The couple has refused the refund, hoping that moving forward with the case will help to establish a precedent for taxing staked tokens</li>
 </ul>
 
</div>



A Nashville couple declined a reimbursement from the US Internal Revenue Service (IRS) on taxes paid on rewards gained — but not redeemed — from staking on the Tezos blockchain.



The plaintiffs, Josh and Jessica Jarrett, were offered the refund in December 2021, stemming from their 2019 staking activities, according to a Thursday morning <a href="https://storage.courtlistener.com/recap/gov.uscourts.tnmd.86378/gov.uscourts.tnmd.86378.35.0.pdf" target="_blank" rel="noreferrer noopener">court filing</a>. Blockworks <a href="https://cms.blockworks.co/in-win-for-crypto-stakers-irs-offers-refund-on-untraded-token-rewards/" target="_blank" rel="noreferrer noopener">originally reported</a> on the litigation’s outcome Wednesday.



Eighteen months in, Josh Jarrett said in a statement, it appeared the government “didn’t want to defend the position” that tokens the company created through staking were taxable income. The case has been closely watched by cryptocurrency executives as one of the first lawsuits in the sector.



“At first glance, this seemed like great news,” Josh Jarrett said. “But until the case receives an official ruling from a court, there will be nothing to prevent the IRS from challenging me again on this issue. I need a better answer.”



Industry group Proof of Stake Alliance (POSA), a partial funder of the lawsuit, said that in turning down the reimbursement, the Jarretts have set the stage for a wide-sweeping legal precedent.&nbsp;



“POSA, and the broad coalition it represents, applauds Jarrett&#8217;s decision to continue his lawsuit,” POSA said in a <a href="https://www.prnewswire.com/news-releases/irs-waves-white-flag-in-lawsuit-over-taxability-of-cryptocurrency-staking-rewards-301474899.html" target="_blank" rel="noreferrer noopener">statement</a>. “He has rejected the IRS&#8217;s offer of a refund, opening up the possibility of a court ruling that will give him, and millions of other taxpayers in the same position, the ability to confidently plan for the future.”



POSA has pushed for clearer regulation on the topic since 2019 and has briefed policymakers, the Treasury Department and the IRS about the tax implications of staking rewards, a spokesperson said.



US Reps. David Schweikert (R-Ariz.), Bill Foster (D-Ill.), Tom Emmer (R-Minn.) and Darren Soto (D-Fla.) <a href="https://emmer.house.gov/press-releases?ID=CA8205CC-32FA-4890-AE35-4B9A41EBB19B" target="_blank" rel="noreferrer noopener">wrote a letter</a> to the IRS in August 2020 requesting guidance on the taxation of “block rewards” in a proof-of-stake network.



“We hope to have additional productive conversations with the key federal stakeholders and policymakers on the issue in the future,” the POSA representative told Blockworks. “POSA’s position is that staking rewards are not taxable until sold.”



A bench trial is set for March 2023, unless the case is settled after discovery in mid-March. A settlement offer is not the same as a binding precedent, <a href="https://twitter.com/TokenTax/status/1489106538639675394" target="_blank" rel="noreferrer noopener">according to tax</a> and public <a href="https://twitter.com/jchervinsky/status/1489094575100735489" target="_blank" rel="noreferrer noopener">policy experts</a>.



A <a href="https://cms.blockworks.co/sources-in-win-for-crypto-stakers-irs-says-untraded-tokens-are-tax-free/" target="_blank" rel="noreferrer noopener">trial</a> may help establish a precedent for taxes involved with staking digital assets, advocates hope, but tax experts insist there is a long way to go.



“It&#8217;s a step in the right direction, but, until the court ruling is out, hard to rely upon,” said Shehan Chandrasekera, CPA and head of tax at Coin Tracker. “I can also see some people starting to amend their previous tax returns with staking income.”&nbsp;



Accounting firms are already adjusting their reporting options for clients. Ledgible, a cryptocurrency tax and accounting software that works with both retail and institutional clients, will now give clients the option to skip staking rewards on their taxable incomes tallies.



&#8220;The taxpayer&#8217;s decision not to accept the refund will force the IRS to take a more concrete position,” Ledgible CEO Kell Canty told Blockworks. “In the meantime, staking rewards reporting will need to be flexible as this evolves, which is why we&#8217;re adding options into the Ledgible Tax Platform to treat staking rewards in a manner according to this case, if the user chooses.”



<h3 class="wp-block-heading">Staking popularity grew in 2021</h3>



The stakes aren’t small — annualized staking rewards increased 939% to $14.7 billion in 2021, according to <a href="https://staking.staked.us/kraken-state-of-staking" target="_blank" rel="noreferrer noopener">data</a> from cryptocurrency exchange Kraken.&nbsp;



Proof-of-stake assets accounted for five of the top 10 crypto assets by market capitalization and 25 of the top 100 at the end of last year, the report says. Such assets totaled 31% of the total crypto market cap, a year-over-year increase of 127%.



Tim Ogilvie, product director and head of Kraken’s staking division, said he expects the continued growth of smart contract activity on Ethereum, alternate platforms and rising layer-2 solutions to keep staking’s momentum going.&nbsp;



“There’s a narrative that Solana, Avalanche [and others] are ‘Ethereum killers,’” he said. “But the real story is that the overall pie is getting much larger, and you’ll have lots of winners.”



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Bitcoin

Fate of ‘Millions of Taxpayers’ Hangs in Balance of IRS Crypto Staking Case

Morgan Chittum

<div id="highlights-block_61e08ae24b898" class="highlights">
 <ul>
 <li>One Gap NFT currently goes for 2 XTZ or roughly $8.41 worth of Tezos, as of press time</li>
 <li>The new collection features artwork by Brandon Sines</li>
 </ul>
 
</div>



Gap Inc. (GPS.N) released a line of non-fungible tokens (NFTs) on Thursday, joining a laundry list of major retailers to step into the world of digital collectibles. The collection, dubbed “Gap Threads,” will be powered by Tezos, which touts itself as a more energy-efficient blockchain.&nbsp;



One NFT currently goes for roughly $8.41 worth of Tezos and can be purchased on the San Francisco-based company’s <a href="http://gap.com/nft" target="_blank" rel="noreferrer noopener">website</a>.&nbsp;



The NFTs were designed by artist Brandon Sines and will be <a href="https://www.gap.com/nft/" target="_blank" rel="noreferrer noopener">released</a> periodically throughout the month, according to a statement from the firm. Additionally, certain holders of the asset will receive a real-life Gap hoodie, along with their NFT.



<div class="wp-block-image"><figure class="alignleft size-medium"><img loading="lazy" decoding="async" width="300" height="230" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg" alt="" class="wp-image-14116" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=335 335w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=340 340w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=286 286w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-13-at-2.39.40-PM-300x230-1.jpg?w=849 849w" sizes="auto, (max-width: 300px) 100vw, 300px" /><figcaption>Source: The Gap</figcaption></figure></div>



Brian David-Marshall, president of InterPop which collaborated with Gap to create the collection, described NFTs as a way for companies to bridge the gap between physical and digital ownership.



“These NFTs will unlock an opportunity for fans to get their hands on an exclusive real world apparel drop from this collection. This is a great example of how NFTs are empowering creators and brands globally to connect with their fan bases on new levels,” David-Marshall said in a statement to Blockworks.&nbsp;



Other major brands such as <a href="https://cms.blockworks.co/adidas-bumpy-and-historic-step-into-the-metaverse/" target="_blank" rel="noreferrer noopener">Adidas</a>, <a href="https://www.macys.com/social/macys-parade-nft/" target="_blank" rel="noreferrer noopener">Macy’s</a> and <a href="https://us.dolcegabbana.com/en/redeem/" target="_blank" rel="noreferrer noopener">Dolce &amp; Gabbana</a> released NFT plans in the past few months.



Adidas dropped 30,000 NFTs, recording $23.5 million worth of ether in sales last year. The collection went down in history as the most widely-distributed NFT drops, despite reports of <a href="https://cms.blockworks.co/adidas-bumpy-and-historic-step-into-the-metaverse/" target="_blank" rel="noreferrer noopener">failed transactions</a>, according to the company.&nbsp;



Garrette David, co-founder of Atomic Form, said it’s no surprise that large brands are venturing into NFTs, describing the partnerships as “a total no brainer.”



“Streetwear culture and clothing lines [have] historically leveraged their branding, [intellectual property] and their community to guide their sales and distribution,” David, who runs a Web3 startup, told Blockworks. “NFTs are a logical continuum. Aforementioned historical strategies translate well into the NFT space because it is a new medium for their IP and drives merchandising costs to be very low because the goods are code rather than physical goods.”




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Adidas

Gap Releases First Line of NFTs on Tezos Blockchain

Sam Reynolds

<div id="highlights-block_61c30d4e26df3" class="highlights">
 <ul>
 <li>On-chain data shows that Ubisoft has had less than $500 in volume on its gaming NFTs</li>
 <li>Ubisoft has faced immense backlash from its developers as it tries to push NFTs as a new companion for games — along with many of the world’s other larges studios</li>
 </ul>
 
</div>



Ubisoft’s much hyped in-game NFT system, which <a href="https://twitter.com/Blockworks_/status/1468286074220945410?ref_src=twsrc%5Etfw" target="_blank" rel="noreferrer noopener">launched earlier this month</a> on the Tezos blockchain alongside Ghost Recon: Breakpoint, hasn’t caught the interest of gamers, according to on-chain data from trackers Objkt and Rarible.



A look at on-chain data via a Tezos block explorer shows that there has only been $435 (100tz) worth of volume on the platform. While Ubisoft Quartz has minted 3,000 of these NFTs so far, it has <a href="https://rarible.com/ubisoft-quartz/activity" target="_blank" rel="noreferrer noopener">sold fewer than 20</a> according to data from Rarible.



Of the 86 transfers of Ghost Recon themed NFTs between users, 49 of them involve transfers to the same account, and a further 24 involve transfers from that same account suggesting wash trading.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">There aren&#39;t a lot of sales on Rarible, but there have been lots of &quot;transfers,&quot; which appear to not require an actual sale, best I can tell. 86 transfers total. Fun fact: 49 of them involve transfers to the same account; 24 of them involves transfers FROM that same account&mdash; Stephen Totilo (@stephentotilo) <a href="https://twitter.com/stephentotilo/status/1473104369574891531?ref_src=twsrc%5Etfw">December 21, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



These NFTs can only be sold between players of the specific Ghost Recon game and are only useable in said game. Thus, if the popularity of the game is effectively the market maker for the NFTs themselves. Breakpoint doesn’t appear to be the best reviewed entry of the Ghost Recon franchise, with <a href="https://www.ign.com/articles/2019/10/10/tom-clancys-ghost-recon-breakpoint-review" target="_blank" rel="noreferrer noopener">mediocre review scores</a> from the gaming press.



EA Games and Square Enix have also expressed interest in developing in-game NFTs, with EA CEO Andrew Wilson calling NFT and &#8220;play-to-earn&#8221; games the &#8220;the future of our industry,&#8221; on a recent earnings call. 



<h3 class="wp-block-heading">Do gamers want NFTs?</h3>



Ubisoft’s decision to push for in-game NFTs hasn’t been popular amongst its developers. The trade union representing the company’s Paris-based employees denounced the pivot to NFTs in a <a href="https://twitter.com/SolInfoJeuVideo/status/1470765908851310596?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1470765914106826761%7Ctwgr%5E%7Ctwcon%5Es2_&amp;ref_url=https%3A%2F%2Fwww.eurogamer.net%2Farticles%2F2021-12-16-french-trade-union-calls-ubisoft-nft-scheme-a-useless-costly-ecologically-mortifying-technology" target="_blank" rel="noreferrer noopener">statement published</a> earlier this week.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;Ubisoft has recently entered the blockchain and Non-Fungible Tokens (NFT) market. A decision that has been widely criticised by our players, bringing no improvements or benefits to our games,&#8221; the statement reads. </blockquote>



While Ubisoft continues to push ahead with its NFT integration plans, the company behind the game S.T.A.L.K.E.R. 2: Heart of Chernobyl has decided to cancel its NFT plans based on negative feedback it received from fans. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://t.co/mffnmpiQiw">pic.twitter.com/mffnmpiQiw</a>&mdash; S.T.A.L.K.E.R. OFFICIAL (@stalker_thegame) <a href="https://twitter.com/stalker_thegame/status/1471620399997886472?ref_src=twsrc%5Etfw">December 16, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The company behind S.T.A.L.K.E.R. 2, a follow-up to the critically acclaimed 2006 sci-fi horror game S.T.A.L.K.E.R had said publicly that the rationale for minting NFTs was to have a new revenue source for funding the game, as it is an indie-studio without large pockets.



Still, it’s not quite clear if the market has made up its mind on NFTs or if anti-NFT voices are drowning out the rest on social media platforms.



A recent survey from insight agency Opinium showed that 58% of its surveyed 197 video game developers are now beginning to use blockchain technology, with 64% saying that blockchain technology will become prevalent in video gaming within the next two years, and 53% believing that NFTs would be more common by then too.



But this data is for developers and not gamers themselves, so until some comprehensive data from gamers comes along, on-chain data will be the best proxy on the actual interest for NFTs in games.



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