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09/08/2021

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Infrastructure Bill and Crypto: What you need to know

A massive infrastructure bill has found rare bi-partisan support in the United States Senate, and there are provisions in the bill that have broad implications for the digital currency space. In fact, they’ve called a rare Saturday session today...

Infrastructure Bill and Crypto: What you need to know

A massive infrastructure bill has found rare bi-partisan support in the United States Senate, and there are provisions in the bill that have broad implications for the digital currency space. In fact, they’ve called a rare Saturday session today to try and ram the bill through to Joe Biden’s desk to sign into law. The $1 trillion dollar spending bill has already made it through two hurdles and Senate Majority leader Chuck Schumer believes the bill will be finalized and passed as early as next week.

Because it is a spending bill, there must be revenue mechanisms to help “offset” the trillions of dollars coming hot off the Fed’s printer. So lawmakers included a last minute provision that included a “large-scale increase in the requirements for crypto brokers and investors to report their transactions to the Internal Revenue Service.” These ideas were floated by Steve Mnuchin, Trump’s former Secretary of the Treasury, shortly before he left office in 2020. The provision was included late Wednesday night, with Senator Rob Portman spearheading the idea in tandem with the White House.

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So, what would this mean for the crypto space? If the bill passed as is, it would expand the Tax Code’s definition of “broker” to capture “nearly everyone in crypto, including non-custodial actors like miners, forcing them all to KYC users.” The bill would expand the definition of broker to include “any person who (for consideration) is responsible for and regularly provides any service effectuating transfers of digital assets.” Earlier drafts of the bill mentioned non-custodians and explicitly mentioned P2P and Dexes. There are implications it could affect miners and validators as well, if read literally, as they “provide a service to effectuate transfers of digital assets for consideration” which is the language the bill uses, and would seem to apply to miners.

As is, the tax code requires brokers to comply with to comply with IRS reporting requirements, which includes requiring users to fill out 1099 forms, which are filed with the IRS. These 1099’s include legal name, address, and phone number. This is basically a dragnet surveillance mechanism that would be cast over the entire crypto space. Requiring “non-custodial” actors like miners to collect information for 1099 seems asinine, and would basically mean mining would be banned in the US, for all intents and purposes. Congress thinks crypto is full of tax evasion, so they want to amend the tax regulations in order to try and suck up some revenue from the space. With the bill coming to fruition this week, and being that is has soaring popularity in a very divided country, politicians are keen to pass it to show the world our Democracy can still function, it seems.

Congress estimates they will generate $28 billion in added revenue with changing the definition of “broker” to sweep up the crypto space. While politicians may want to show they can work together, massive changes tossed in the bill last second such as this one is highly irresponsible and should follow protracted debate, rather than a quick fix to pump the bill up with more cash, not even considering the implications it may have for the constituents they are elected by. Why strangle a new techno-industrial revolution in the cradle? The crypto industry is bringing jobs, revenue and innovation to this country. Sacrificing that and running roughshod over the fledging crypto space is illogical and irrational.

While green candles have been a nice respite for the crypto space this week, people are starting to wake up and smell the coffee. Charles Hoskinson tweeted out last night referencing the bill: “Bad laws destroy the economy. Please people take this one seriously. It will be terrible for Crypto”. This draconian legislation would completely centralize the crypto space, potentially forcing Dexes to collect customer information. There is a simple solution already in place for AML concerns; KYC at the fiat off-ramps. We can find revenues elsewhere, maybe taxing corporations like Amazon would be a start. However, it is not all bad. Even if the bill were to pass, it wouldn’t be implemented until 2023, allowing time to fix the changes through new legislation or through the courts.

Bad laws destroy the economy. Please people take this one seriously. It will be terrible for Crypto https://t.co/W9iURly4JS

— Charles Hoskinson (@IOHK_Charles) July 31, 2021

No one is saying crypto should be lawless–over time it will move closer to the regulatory regime–but it shouldn’t be plagued by stupid laws like this, either. Somewhere in the middle would work just fine. Hopefully the bulls on Capitol Hill can make it clear that crypto and decentralization is our ally, not our enemy.

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