Applications and Use Cases

$1.2 Trillion U.S. Infrastructure Bill Contains Vague Language Regulating Crypto and Blockchain

August 11, 2021

The $1.2 trillion bipartisan infrastructure bill passed by the U.S. Senate this week includes strong cryptocurrency tax provisions that could effectively transform the crypto and blockchain industries. Several amendments that would limit tax reporting for cryptocurrency had been proposed, but none ultimately made it into the bill, which now faces a vote in the House of Representatives.

As currently written, the bill contains some confusing language surrounding the definition of a crypto "broker," which industry lobbyists and some Senators attempted to change. An amended definition ultimately didn't make it into the bill, but some analysts believe the bill still signals a bright and lucrative future for cryptocurrency in the U.S.

“The tax reporting language is one of the clearest indications that Washington is prepared to accept crypto as a permanent part of the financial ecosystem," said Jaret Seiberg, analyst and managing director of Cowen Washington Research Group. "[It] now sees crypto as a real product that is worthy of government attention, [which] tells us that Washington is done looking at ways to end crypto.”

In a nutshell, the language included in the existing bill requires crypto "brokers"  to report customer information and transactions to the IRS. But the vague definition of brokers means that miners, stakers and software developers, who don't have customers, would need to comply with the rule. Internet and telecom service providers could also technically be included under the definition, even though they don't actually broker crypto assets or transactions.

Members of the House, including the co-chairs of the Blockchain Caucus, are already working to change the language included in the bill. The group sent a letter to each House representative this week urging them to "fix the crypto pay-for."

“Cryptocurrency tax reporting is important, but it must be done correctly,” states the letter. “When the Infrastructure Investment and Jobs Act comes to the House, we must prioritize amending this language to clearly exempt noncustodial blockchain intermediaries and ensure that civil liberties are protected.”

If the House does decide to amend the language in the bill, it could have wide-reaching implications for the future of crypto and blockchain. For instance, an earlier amendment proposed by Senator Mark Warner (D-VA), would have effectively penalized certain blockchain technologies. That amendment defined "broker" to include proof-of-stake mining but not proof-of-work mining.

The proof-of-work blockchain, used by Bitcoin and most cryptocurrencies, is energy intensive and has come under fire by climate activists. The proof-of-stake blockchain is considerably less resource intensive, but adds more complexity to the mining process. Ethereum, the second-largest cryptocurrency behind Bitcoin, is in the process of transitioning to its Ethereum 2.0 staked blockchain, which could be completed by early next year.

“The language in the new amendment enshrines one of many competing technologies in law,” Neeraj Agrawal of Coin Center told The Verge. “It is the government picking a winner on an otherwise competitive field. And worst of all, tech policy of this magnitude is being done as last minute tax provision buried in a massive must-pass infrastructure bill. This is no way to make policy.”

Edited by Luke Bellos



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