Against the extreme crypto disposition of the US Senate | CoinDesk

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CoinDesk almost never takes a formal editorial stance on the issues. We feature a wide variety of external and internal opinion pieces, including those we both write in their personal capacity. We usually leave it to the task of presenting the common perspective of organizations to the breadth and balance of newsroom reporting, rather than explicitly taking an official point of view on a given topic.

We now feel compelled to make what will be an extremely rare break from that tradition, in response to deliberations in the United States on competing amendments to a controversial cryptocurrency provision in the Infrastructure Bill.

Michael J. Casey is the Content Manager at CoinDesks. Marc Hochstein is the editor of CoinDesks. The opinions expressed are not necessarily shared by all members of the editorial staff.

We are writing to state that CoinDesk approves the changes proposed in an amendment to the bill proposed by Senators Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) And Pat Toomey (R-Pa.). Unfortunately, this amendment was not put to a vote. Under these circumstances, we urge lawmakers to vote against the entire bill, unless the crypto provision is removed or sufficiently amended before the final vote. (As we wrap up this editorial, a compromise between Republicans, Democrats, and the Treasury Department has been announced but its passage is far from certain.) We favor debate on the very complex crypto issues regulated in this package. in a separate and properly considered bill.

There are arguments for and against getting Congress an estimated $ 1,000 billion to improve the country’s obsolete and creaky infrastructure. Our intention is not to support either party in this debate, but simply to assert that the passage of this bill must not come at the cost of restricting innovation in the field. ‘one of the most promising technologies of the digital age and, more alarmingly, to hamper the civil liberties dear to Americans. The bill has the potential to push every transaction of US crypto users into an invasive net. By adopting it without amendment, Congress would be cutting its nose to save face.

The U.S. government should treat cryptocurrency the way it has treated the internet at the same stage of its development: protect it from premature, overzealous, and onerous regulations that, in the absence of such protections, would likely drive innovation and, ultimately, the country’s tax revenues to distant shores. If Congress wants to change or clarify the way cryptocurrency is managed, it should do so in a bill specifically designed for this purpose rather than trying to cover up major regulatory changes in a 2,500-page omnibus vehicle. .

In principle, cryptocurrency and blockchain technologies are based on open source software managed by transparent and unauthorized networks. In short: anyone can use these networks and anyone can see what is happening there. They are open platforms and, as such, constitute a public good with the added importance of providing what is arguably the most essential form of social infrastructure: a monetary system.

Protecting this public good is how we define our responsibility as a news agency covering the transformation of money in the 21st century. Think of it as an update to the concept of the fourth estate, applying a similar role of public accountability in the governance systems of open source code and borderless information networks to that which the mainstream media has traditionally applied to governments and to large companies. We cover this industry with the understanding that crypto technology must remain secure from capture by narrow private interests, open to innovation, and developed in such a way that users can access it freely without compromising their rights.

The cryptocurrency provision in this bill, along with the requirement it places on cryptocurrency brokers to report user transactions to the Internal Revenue Service, undermines all three of these principles. Its general formulation gives the state the potential to exert excessive influence on the use of technology, which would limit the prospects for innovation. And, as the Electronic Frontier Foundation warns, it would be a digital privacy disaster.

The problem lies in the catch-all definition of the original brokerage provisions, which, as drafted, could include miners, hardware wallet makers, protocol developers and others who do not support. charges client assets and should therefore remain exempt from anti-money laundering and other reporting requirements. . Much of the provision is unenforceable because free and open source software developers have no way of knowing who is using their products. Where operators have a known customer base, the definition could expand a limited surveillance system into something much more comprehensive and insidious. In the end, this would be counterproductive as it would cause developers and users to flee the United States for more user-friendly jurisdictions.

Of course, crypto investors who owe capital gains tax should be subject to the same reporting requirements as everyone else in the financial system. The sector could benefit from the legitimation provided by taxation. But this bill, as drafted, goes far too far.

Its loopholes were said to have been sufficiently addressed by the bipartisan Wyden-Lummis-Toomey Amendment, which was brought together last week as part of a mass lobbying effort by the crypto industry led by interest groups from cryptography based at DC Coin Center, the Digital Chamber of Commerce, the Blockchain Alliance and the Association for the Management of Digital Assets. The revised language sufficiently establishes the right exemptions for developers, minors and others and appropriately leaves developers free to exercise their right to code, arguably protected by the First Amendment.

The Wyden-Lummis-Toomey amendment received significant bipartisan support. Unfortunately, the White House and the Treasury Department were not in the game. Fearing the operation would amass the $ 28 billion in new targeted tax revenue, they backed the competing Warner-Portman-Sinema amendment that would offer some exemptions to providers of mining and hardware wallets, but not much more.

In many ways, this adjustment makes matters worse by distinguishing between protocols. It breaks a cardinal rule of regulation: it seeks to regulate the technology itself instead of its uses, inserting bureaucrats into the business to decide which technology should or should not succeed.

Ethan Buchman, co-founder of the Cosmos blockchain project, acutely demonstrated the counterproductive nature of this type of formulation analyzed. When the original wording of the Warner Amendment exempted proof of work mining but not proof of stake, he pointed out in a tweet that cryptographers can trivially add proof of work functionality to their proof consensus mechanisms. stake to meet the requirements of the changes.

While it is important that CoinDesk does not pick winners and losers between competing technologies, it is doubly important that the government avoids doing so as well.

This is not to say that the government does not have a responsibility to ensure that people using this technology or any other technology obey the law. And the industry would benefit from the legitimacy that sensible regulation can provide.

But if lawmakers want the United States to be a fertile environment for innovation, they need to ensure that any new regulations don’t nullify the ability to innovate here. The future gains in tax revenue will be so much greater in this dynamic new economy than under this shortsighted approach by traffic cops.

Lawmakers may be understandably eager to push this bill through given the dilapidated state of the country’s infrastructure, and unwilling to hold it back on awkward language about what, to them, seems an esoteric niche. It’s penny-wise and a stupid pound. Not only could the bill, as drafted, hamper the development of a modern financial infrastructure and the economic benefits that flow from it, it would undermine America’s values ​​of free speech and privacy.

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