Colorado accepts tax payments in crypto: Was it just a matter of time?

The governor of Colorado, Jared Polis, announced in February that the state government plans to allow residents to pay taxes in cryptocurrencies as early as the summer of 2022. To some experts, the move is both legitimizing for the crypto asset class and was expected to come in due time. 

In an interview, Polis said crypto holders in Colorado could have the option of sending tax payments in digital currency, with the state converting the funds back into fiat as soon as the payments were received through an unnamed intermediary.

Colorado is already a leader in Crypto with our first in the nation Chief Blockchain Architect, hosting ETHDenver and other blockchain hackathons. It was great to sit down with CNBC to discuss the initiatives Colorado is taking on cryptocurrencies. pic.twitter.com/p5WtlF2E0r

— Governor Jared Polis (@GovofCO) February 17, 2022

Polis added that after the rollout this summer, the state could accept cryptocurrency payments for things “as simple as driver’s license or hunting license” within a few months. The governor said at the time he was “not at all” concerned about the potential volatility of cryptocurrencies like Bitcoin (BTC), given the state does not plan on holding the coins for long.

Shortly after taking office in 2019, Polis signed the Colorado Digital Token Act into law, aiming to exempt tokens with a “primarily consumptive purpose” from some securities regulations. The governor also said that State Senator Chris Hansen was working on a bill that would “allow state-created digital tokens to be utilized for state reserve purposes.”

Speaking to Cointelegraph, Senator Hansen said the bill “introduces extra security, saves on costs, diversifies the pool of investors, and the potential to lower interest rates paid by the state.” Hansen said:

“We need to ensure that every Coloradan can equitably participate in and benefit from investment in our state. By expanding beyond institutional investors and commercial banks, we invite millions of Coloradans to share in the financing of new capital assets.”

The senator stated that he is looking forward to seeing how the state will help “communities rebound from the pandemic, improve their quality of life, and address inequities that have kept everyday folks from fully prospering from our economy.”

Money as a representation of debt

Money was initially concocted as a physical representation of debt, according to anthropologists such as the late David Graeber. Governments, Graeber pointed out, utilized money to standardize the payment of tributary obligations and facilitate the maintenance of their workers.

Speaking to Cointelegraph, Brian Pasfield, chief technology officer at Fringe Finance — a decentralized lending platform — cited Graeber’s work to suggest cryptocurrency is being legitimized by moves like Colorado’s. Pasfield said:

“Seeing governments recognizing cryptocurrencies as a viable medium of payment for taxes speaks lengths about a mindset change in the way we view these currencies.”

Pasfield added that accepting crypto for tax payments will “inevitably lead to governments having to manage and hold these currencies within their Treasuries,” which can help reduce the volatility crypto assets are known for.

He added that if a large federal government like that in the United States were to finalize the regulation of cryptocurrencies, it would be a logical step for it to “accept [cryptocurrencies] as a legitimate form of one of the oldest social technologies: money.”

Russel Starr, CEO at DeFi Technologies — a technology company with products for investing in decentralized finance — told Cointelegraph he believes a government’s treasury should be denominated in the currency it uses to pay for services, meaning that if it’s going to pay employees in dollars, its crypto income should be converted to dollars.

However, Starr said that any entity should “have diversified investment holdings,” which should…