By Kristin Smith
August 4, 2021 at 5:00 am ET
The Senate reached a deal to make long-overdue investments in our nation’s infrastructure, and many provisions, such as increasing broadband, will help drive America’s economic leadership. However, to help pay for the bill’s trillion-dollar price tag, senators included a provision in the bill that would target America’s budding crypto industry with hastily conceived and misguided mandates that have never been publicly debated. If it passes as written, this provision would stifle a key driver of 21st-century growth, send jobs overseas and could violate constitutional privacy rights, impacting everyday Americans across the country.
Essentially, the provision would expand the definition of a financial “broker” in the Internal Revenue Service Code to “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” and it would require those brokers to report granular details about everyone making a transaction, such as names, addresses, and personal details.
However, this definition is so broad that nearly everyone involved in digital transactions would be forced to report this information – even those who have no access to it. For example, a company that simply builds hard drives to house digital currency could be required to report on the transactions used on that hardware long after they sold it. That would be nearly impossible for most crypto innovators – from data miners to software wallet developers – to comply with. Indeed, it could mean that everyday Americans would unknowingly be in noncompliance if this passes.
This would have a dual impact on the economy.
First, it would strike at the root of what makes cryptocurrency a powerful tool for economic growth, driving crypto innovators overseas. If crypto innovators are put in the crosshairs of the IRS over requirements that they have no capability to fulfill, then they would have no choice but to move elsewhere. This would essentially cede American leadership in this critical technology to our international competitors. Taken together, these negative economic impacts would all but ensure this provision will fail to raise the roughly $28 billion that senators hope it will.
However, perhaps the most troubling impact of this provision is that it could violate digital privacy rights. Because of the strict reporting requirements in this provision, the government would have its eyes trained on private, person-to-person transactions, and would have expanded powers to penalize people who can’t fulfil the requirements.
Think of it this way: A crypto transaction is basically like a cash transaction. If you buy lemonade with cash from a child’s lemonade stand, you wouldn’t be expected to report anything. But under the provision in the infrastructure bill, it would be like the government forcing the lemonade stand to report your name, address and personal information for buying lemonade.
Additionally, the government would have eyes on your private savings. Many people use cryptocurrency hard drives to store their money, just like you might keep a safe of cash in your closet. This provision would require reporting of crypto transactions to your drive – basically like giving the government a report on what’s in your safe.
Nearly 80 percent of Americans report being worried about their online data security, according to Pew Research. At a time of spiraling geopolitical hacking wars and the increasing digitization of American lives, we should be taking steps to allay these fears, not working to make private information even less private.
It is a welcome step that bipartisan members of Congress are working together to finally fix our nation’s crumbling infrastructure, but it shouldn’t be paid for on the backs of American innovators. Cryptocurrency is a powerful bridge to the 21st-century economy, but if Congress tries to regulate it to death in the infrastructure bill, then that bridge will inevitably crumble.
Kristin Smith is the executive director of the Blockchain Association, the Washington, D.C.-based trade association representing the most prominent and reputable organizations in the crypto industry.
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