Inside the infrastructure bill’s controversial crypto amendment and how its communities are pushing back
Joe Biden’s landmark 1.2 trillion-dollar infrastructure deal has polarized American politics, sparking contentious debate surrounding fiscal responsibility, quality of life, and employment. In recent weeks, an update to the bill regarding cryptocurrency taxation has ignited the cryptocurrency community, slowing down the U.S. Senate’s finalization of the bill. The alteration has potential to change the decentralized aspect of the crypto community and DeFi.
Within the Biden Administration’s infrastructure bill, a novel cryptocurrency tax provision has been at the center of controversy. In order to fund the trillions of dollars of spending outlined in the bill, a new amendment seeks to raise 28 billion dollars from cryptocurrency taxation with tighter compliance regulation. The new regulation alters the definition of a cryptocurrency broker and requires such brokers to provide tax reporting. According to the bill, a cryptocurrency broker is “Any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person”. The ambiguous broker definition could include miners, developers, decentralized exchanges, decentralized applications, and other non-custodial crypto service providers. Unlike banks and other custodians, cryptocurrencies operate in a decentralized manner, making it nearly impossible to obtain required tax information. At the moment, there are billions of dollars flowing through such services on a daily basis, with exchanges like Uniswap handling volumes of over a billion dollars a day. Such tax requirements will complicate the exponentially growing crypto space.
Much of the crypto community has rallied against the provision with several well-known figureheads expressing their displeasure. Coinbase, Square, Jack Dorsey, and Elon Musk have all expressed their opposition, mainly through twitter. In response, Senators Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) and Pat Toomey (R-Penn.) introduced an update to the bill that would exclude miners, developers, and other non-custodial crypto services:
“Nothing in this section … shall be construed to create any inference that a person described in [the bill] includes any person solely engaged in the business of (A) validating distributed ledger transactions, (B) selling hardware or software for which the sole function is to permit a person to control private keys … or © developing digital assets or their corresponding protocols for use by other persons, such that such other persons are not customers of the person developing such assets or protocols.”
In a tweet, Coinbase expressed their approval of this particular update: “We stand with @Square , @RibbitCapital , @coincenter , and @BlockchainAssn about the digital asset provision in the infrastructure bill. And we applaud @ronWyden @senLummis @senToomey in proposing a thoughtful amendment to get the tech right.”
In addition to the Coinbase endorsed update, another rival update has been suggested by Sen. Rob Portman (R-Oh) and Mark Warner. This update excludes proof of work miners from reporting requirements but does not exclude proof of stake participants. Warner and Portman’s bill has received a flood of criticism from the crypto community, claiming the ill written legislature picks winners and losers instead of providing freedom for innovation.
Senators eventually reached a deal to limit crypto regulation and as of today, the Treasury Department does not plan to oppose the bipartisan agreement over the two competing amendments that limit federal regulation of cryptocurrencies.
“I am grateful to Senators Warner, Portman, Sinema, Toomey and Lummis for working together on this amendment to provide clarity on important provisions in the bipartisan infrastructure deal that will make meaningful progress on tax evasion in the cryptocurrency market. “I am also thankful to Chair Wyden for his leadership and engagement on these important issues.”
— Treasury Secretary Janet Yellen
Which definition of broker will be accepted remains to be seen. The provision, along with the rest of the infrastructure bill, continues to be the topic of hot debate, with many eleventh hour negotiations still on the table. Hopefully, the American legislative bodies will make the right decision, preserving the growing cryptocurrency revolution. The legislation still has to clear the House, which can make changes in whatever ultimately passes the Senate this week. That could give lawmakers another chance to modify the provision if the Senate doesn’t act on the amendment.