As early as August, there were some terrible warnings that the infrastructure bill proposed by the Biden administration might affect the cryptocurrency and blockchain industries by driving crypto miners out of the United States and weakening the leadership of the United States.In response, the crypto industry mobilized Full court lobbying of legislatorsHowever, it was too late to eliminate the disturbing language of digital assets. In November, the Infrastructure Act was signed into law.
The good news is that the infrastructure law will not take effect until January 2024, which gives us a lot of time to make up for its shortcomings. The downside is that its worrying aspects—especially the expanded definition of “broker” and some new digital asset reporting requirements—have not disappeared. As Charles Hoskinson, the founder of Cardano, said, famous In mid-November shortly after the bill was signed, the “bad [crypto] “Language” is now enshrined in the law.
Recently, Christine Smith, executive director of the Washington-based Blockchain Association, told Cointelegraph: “We are still concerned about the lack of clarity in the brokerage clause in the signed infrastructure bill. […] If the clause remains unchanged, it may have an adverse effect on the growth of the US mining industry. “
In the past three months, due to the upcoming legislation in the United States, it sometimes sounded like the sky had fallen. “This will be an amazing loss for the United States and our ability to maintain the world’s innovation center,” Forewarning Venture capital firm Anderson Horowitz. However, things seem to be less exciting now.
There are signs in both supervision and legislation that the potential negative impact of the bill may soon be alleviated. Congress has proposed several amendments, and the U.S. Treasury Department seems to be listening carefully to the opposition from the industry. In retrospect, are these ominous warnings a bit too much?
“In the beginning, many people worried about which entities related to encryption-miners, exchanges, open source software developers, self-hosted wallet developers, etc.-would be included in the’broker’ language,” Will Evans, Managing Director The US CEX.IO cryptocurrency exchange told Cointelegraph. “However [U.S.] Treasury [Department] It was subsequently stated that the language only applies to those who “can comply,” which excludes miners, hardware developers, etc.”-although it still includes cryptocurrency exchanges and some investors. Evans added:
“Although all entities in the cryptosphere have not escaped the predicament, the number of people initially believed to be affected appears to have decreased.”
Elliptic Financial Institution Supervision and Compliance Senior Advisor Chris DePow told Cointelegraph that “it is too early to judge what the overall knock-on effect may be”, although as with any new regulatory initiative, people must consider their impact on continued technological innovation. “We remain cautiously optimistic that over time, some of the more challenging parts of the encryption-related infrastructure bill will be resolved through guidance letters and regulatory comments.”
Olya Veramchuk, head of tax solutions for encrypted data and software provider Lukka, told Cointelegraph: “The concerns about the feasibility of the proposed reporting rules are absolutely valid, although the provisions of the law will not take effect until 2024.” “The crypto community’s Time is limited and it is impossible to continue the dialogue with the Ministry of Finance’s regulatory agency to formulate feasible and practical rules and guidance.”
Veramchuk was asked about the most disturbing aspect of the law, which is that the definition of “broker” is too broad? The company’s USD 10,000 crypto transaction reporting requirement? For her: “Without proper guidance from the Ministry of Finance, both of these reporting requirements may exceed the expected use cases.” She further added, “This broad definition may mean that individuals must meet reporting requirements for brokers. Not an effective solution to the reported problem.”
Abraham Sutherland, an adjunct professor at the University of Virginia School of Law, told Cointelegraph that the law’s amendment to Section 60501 of the Tax Code is “a major threat to digital assets.” According to Sutherland, the law will require “anyone” who has received more than $10,000 in digital assets to verify the sender’s personal information, including the social security number, and sign and submit a report to the government within 15 days. Failure to comply may be a felony.
“Miners, stakeholders, lenders, decentralized applications and market users, traders, businesses, and individuals are at risk of being subject to this reporting requirement, even though in most cases, the individual or entity in the receipt cannot report the need Information,” wrote Sutherland in a report in September.
Refer to Washington’s recent legislative efforts to mitigate the impact of the law-such as Rep. Patrick McHenry’s “Maintain American Innovation Act” Launched on November 17th-Sutherland told Cointelegraph that the bipartisan effort “should be a matter of uniting the industry because it forces this issue to be debated.”
Evans said: “The biggest fear is forcing fiat currencies-and cryptocurrencies-to become an outdated regulatory model that does not take into account the nuances of the ecosystem,” he added: “The biggest concern for investors and exchanges is Related to reporting losses, gains and cost basis. As an exchange, if customers use self-hosted wallets and DeFi applications, it is difficult to accurately define the customer’s cost basis; it is difficult for investors to accurately figure out their losses under the same circumstances And the value of the proceeds.” He added that reporting these types of things incorrectly, even if it is an accident, can have huge consequences for all parties.
Is there a remedy?
During the implementation period, that is, as the regulations are formulated, published and commented, can key encryption clauses still be modified? Or, are there other legislative options that seem promising?
Evans replied that there is still enough time to adjust to the way the law is made before the first report expires. As mentioned earlier, the Treasury Department is studying the provisions of the bill, and industry lobbyists are still participating.
“Coinbase spent nearly $800,000 on lobbying last quarter, and other groups also increased their spending by 50% to 100% during the same period,” Evans continued. “The final result of all this will definitely be revised to a certain extent during implementation.”
“It is important that legislators work hard to amend the law so that only those entities or individuals who are actually responsible for performing cryptographic activities on behalf of third parties are covered,” DePow said. At the same time, U.S. Senators Lumis and Wyden, “both staunch supporters of this,” are working on an amendment to modify the wording of the law.
Smith added that her team is “encouraged by the recent developments of the IRS and the Treasury Department, showing that they may adopt a compliant attitude towards this issue during the rule-making process,” while Viramchuk pointed out that tax laws and regulations “Always in progress, as the rules are established, Congress will undoubtedly look for opportunities to provide clarity.”
There are concerns that the law may hinder U.S. cryptocurrency and blockchain innovation, especially at a critical moment when China, its biggest global competitor, appears to be making some progress in the cryptocurrency competition.
Rep. McHenry mentioned something similar in his bill, implying that if the United States manages its cryptocurrency regulation wisely, it has the opportunity to act on the Chinese:
“The Chinese government’s recent ban on cryptocurrency transactions provides the United States with an opportunity to further strengthen its role as a leading country in the development of innovative blockchain technology. Providing clear rules for consumers and developers of digital assets is essential for taking advantage of this opportunity. Important.”
At the same time, Smith warned, “Punishing this industry that is still in its infancy with short-sighted rules will only threaten the potential growth of the crypto economy, thereby threatening our country’s global leadership in innovation.”
“It is important to note that encryption is a global phenomenon,” Evans declared. “Passing a law that prohibits active development taking place outside the United States may harm the industry and the country,” added:
“This is the first time that cryptocurrency has implemented influential regulation, and it is done through the backdoor of a barely relevant bill.”
Long-term victory for encryption?
Putting aside the troublesome language and awkward encryption reporting requirements, does the law have any positive significance for the encryption and blockchain community?
“The introduction of this bill is forcing regulators to study cryptocurrencies more deeply,” Evans said, adding further: “Objectively speaking, the major U.S. regulators are truly understanding the industry for the first time.” He believes that it is taxation. Regulations on matters such as obligations and the purchase and reporting of cryptocurrencies may also encourage new market participants.
Veramchuck added: “Many industry participants see regulatory requirements as a sign that cryptocurrencies and other digital assets will continue to exist. This is a good prospect for maintenance.” “Although it is not without the pain of growth, it is a good regulatory structure. The benefits will far outweigh the burden.”
“The transparency and consumer protection goals of the bill may help build confidence in cryptocurrencies,” DePow said. It can even help expand the industry by “assuring retail and institutional investors that they are not doing business in the’Wild West’, but are in contact with well-regulated and safe parts of the wider fintech industry.” he.
All in all, the encryption industry does not want to let go of this landmark US legislation. By default-if nothing more happens-it is regulatory chaos that will cause chaos in the US blockchain industry and requires more regulatory clarity.
However, a longer-term perspective is also useful. When looking at digital assets, no matter how fleeting they are, American lawmakers tacitly acknowledged that this emerging technology has a long-term status in the field of infrastructure, which is a major concession.