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Monday, August 9, 2021 Leer en Español

#DontKillCrypto: The Infrastructure Bill Contains a Poison Pill for Crypto: Senators Wyden, Lummis, and Toomey Try to Stop It

The infrastructure bill could kill financial innovation if lawmakers fail to adopt the Wyden-Lummis-Toomey amendment.

Image Credit: Flickr- USDAGov | Public Domain

The infrastructure bill currently being debated in the Senate has come under fire by those in the cryptocurrency community. In fact, the hashtag, #Dontkillcrypto started trending on Saturday due to fears current legislation wording will kill the industry. Part of the bill is a provision for funding the multi-trillion dollar price tag by increased reporting requirements on cryptocurrency transactions. In doing so, politicians hope tax evasion with crypto will be less frequent, leading to increased tax revenue.

However, things are not so simple. Part of the increased reporting involves imposing requirements on crypto “brokers.” However, as several members of the crypto industry have pointed out, the definition of broker in the original language of the bill was so broad that it would lump in several groups that do not broker crypto at all.

The vague language would include, for example, cryptocurrency “miners” and developers of software like “wallets,” which are used to store crypto. However, neither of these groups are brokers paid to execute transactions.

It’s difficult to tell if this obvious mistake in the wording of the bill was due to ignorance or an attempt to sabotage the nascent industry, but, regardless, the effects will be the same. Subjecting miners and software developers to cumbersome regulations they may be unable to fulfill will force individuals and businesses to either close down their crypto operations or move to a country less hostile to the industry.

Fortunately, an amendment was proposed by Senators Ron Wyden (D-OR) (chair of the Senate Finance committee), Cynthia Lummis (R-WY) (member of the Banking Committee), and Pat Toomey (R-PA) (member of both the Finance and Banking Committee). The Wyden-Lummis-Toomey amendment is careful to exclude miners and software developers. The language of the amendment reads as follows:

“Nothing in this section or the amendments made by this section shall be construed to create any inference that a person described in section 6045(c)(1)(D) of the Internal Revenue Code of 1986, as added by this section, includes any person solely engaged in the business of….validating distributed ledger transactions…selling hardware or software for which the sole function is to permit a person to control private keys which are used for accessing digital assets on a distributed ledger, or…developing digital assets or their corresponding protocols for use by other persons, provided that such other persons are not customers of the person developing such assets or protocols.”

The Wyden-Lummis-Toomey amendment, then, is a modest one. It does not exclude actual crypto brokerages, like Coinbase. Despite this lack of protection for Coinbase, the company, recognizing the magnitude of the current language, has organized a web page where you can write a letter to your senator to vote yes on the Wyden-Lummis-Toomey amendment.

The page correctly notes the current language and a competing amendment by Senators Mark Warner (D-VA) and Rob Portman (R-OH) would both kill certain crypto projects like Ethereum. The problem with the Warner-Portman amendment is it still unfairly targets non-broker proof-of-stake projects for increased regulation.

As of now, the path for any amendment is narrow. The two groups who proposed an amendment will need to reach a deal, and the rest of the Senate will need to agree.

The Importance of Crypto Freedom

Many uninvolved with cryptocurrency may wonder why they should be concerned with a policy that affects an industry they know very little about. It may seem like a relatively small piece of this multi-trillion dollar proposal. However, the importance of liberty in the crypto sphere comes down to one word: competition.

Government money is the most common medium of exchange in the US. When people in the US buy things, save, or invest, they’re doing so with dollars. Having a common medium of exchange is important for a healthy economy, but having it administered by the government comes with danger.

The government, via delegation to the Federal Reserve Bank, has increased the supply of money 32 percent since the beginning of 2020. When new money is printed, whoever receives the new money is granted additional wealth. But this wealth doesn’t come from nowhere. When the supply of dollars increases, the purchasing power of existing dollars falls. In other words, the purchasing power of the new dollars is coming at the expense of people currently saving dollars. Economists call this hidden tax revenue seigniorage.

Crypto freedom is important because it binds the hands of those who control the money printers. When hyperinflation began to pick up in Venezuela just a few years ago, many Venezuelans used crypto as a bulwark against inflation. This option is extremely important. By substituting into cryptocurrency, citizens can keep their savings safe from reckless monetary policy.

If citizens begin to feel the Federal Reserve is behaving in a way that will hurt their savings, they can increase their demand for crypto. As they do this, the value of domestic currency falls, and this will restrict how much seigniorage the government can collect.

In other words, the mere existence of crypto as a viable alternative to dollars forces monetary policymakers to be more careful in their policy making. Crypto is especially unique, because its decentralized nature means the government can’t hijack it technologically to reverse transactions or prevent its use.

So if the government can’t attack crypto technologically, the remaining option is to do it politically. With that in mind, even if you don’t use crypto, it should be clear why this fight is important.

The existence of crypto and its continued development forces government to act in a way more respectful of savers. #DontKillCrypto

  • Peter Jacobsen is a Writing Fellow at the Foundation for Economic Education.