Big Crypto has arrived. After days of debate and angry tweeting, crypto enthusiasts, advocates and entrepreneurs saw in horror the US Senate approve a $1 trillion infrastructure bill. It included an article many believe could threaten the entire American cryptocurrency sector. The controversial rule would require that “brokers” of transactions in digital assets–i.e., cryptocurrencies–report their customers to the Internal Revenue Service so they can be taxed.
Crypto enthusiasts complained that the definition of broker in the bill was too broad. It could include miners, validateators and developers decentralized apps. All of these people, although they play a pivotal role in the operation of the blockchain ecosystem, are not able to identify their anonymous users.
Initially, the language of the bill seemed to be modified in order to exclude these categories. However, a group of senators introduced an amendment that clarified the term “broker”. Then a White House-backed amendment appeared, pushing for a less lenient clarification, exempting proof-of-work miners–which use an energy-intensive process to secure blockchains such as Bitcoin or Ethereum–but not many other categories, such as proof-of-stake validators, which carry out the same function without the energy burning. The Senate passed the bill as it was in the midst of negotiating a compromise. A change to the bill will need to be made at a later stage. This is likely due the bill’s patent inapplicability.
It seems like a defeat for American cryptocurrency. However, the story that is being told is very different. The bill’s infrastructure is an important moment in cryptocurrency history. The technology–at its core a crypto-anarchist, anti-bank, borderline anti-government manifesto disguised as code–has finally acquired that great marker of prestige: a lobby. It seems that crypto is not just a small group of venture capitalists and Twitter users. It has influence, regardless of the reasons. And, after the scandalous infrastructure bill, it will likely be able to use it more skillfully.
Alex Brammer is vice president, business development, Luxor Tech. “We are seeing the formalization and maturing of the crypto lobby. This was the first coordinated effort to bring that to bear,” Brammer said. Luxor Tech is a Bitcoin mining company. The Chamber of Digital Commerce, Texas Blockchain Council and Blockchain Association are sure to keep up their good work.
Although cryptocurrency is often referred to as the Wild West by lazily-minded people, the fact is that established companies in this sector, from large mining firms to Wall Street-listed giants like Coinbase, want regulation to set the limits of acceptable behavior and avoid getting into serious trouble. Intelligent regulation is welcomed by the highly-skilled players of this sector. Brammer states that it provides predictability and clarity for large operations. It provides guidelines that enable large publicly traded corporations to ensure that their operations are as sustainable and profitable as possible.
What does this mean for the less well-known, smaller and more corporate companies? Bitcoin, a valuable asset that billionaires like Elon Musk and Mark Cuban have made a fortune off of, has grown into an industry with hefty brand recognition and market power since 2009. (Even Ted Cruz is waxing lyrical about it).
Much of cryptocurrency would be under threat if the White House approved the controversial amendment. The White House approved the controversial amendment. However, it was opposed by crypto lobby (or at least crypto-Twitter) when this plan became public. Jerry Brito (executive director of Coin Center cryptocurrency trade group) slammed the Senate’s effort to choose “winners” while Balaji Srinivasan, a venture capitalist and crypto-idealist said that the amendment could eventually lead to imposing a complete ban on bitcoin. It is possible that a split could develop between Big Crypto, which seeks clear regulation in order to have peace of mind, and smaller players of the crypto community who may be less able to comply with the regulations.
Patrick Murck is a Harvard University legal expert who also affiliates with the Berkman Klein Center. He believes that the bill on infrastructure could be remembered as the time when a divide was created between these two groups. He believes that there could be a conflict between crypto enthusiasts and institutionalized crypto. Although I don’t believe there is such a desire in either of the camps, you can see that regulation and increased scrutiny could result. Is that putting the community at risk from the institutionalized players?
One segment of the cryptocurrency industry that seems to be in for a walloping is the so-called decentralized finance, or DeFi, sector. This is an emerging ecosystem where blockchain-based financial services, such as trading, saving, and loans, are offered instead of companies. According to Lex Sokolin (global fintech head at Consensys), the requirements arising from infrastructure bill’s definition of “broker”, which is too difficult for exchanges and bitcoin miners, would be equally daunting when applied in DeFi.
He said that people who are involved in decentralized financing–like traders and lenders–about 2 million are worldwide and are largely regular people –,”. “Those people would be considered to be the Nasdaq equivalent,” stifled by a heavy compliance burden. The Securities and Exchange Commission already stated that they are ready to take action against DeFi. This is despite the fact that the language was not amended later.
According to Joe Carlasare (a Bitcoin advocate and partner at SmithAmundsen), some DeFi developers might just leave America. Because it is easier to meet these requirements, some people on the DeFi Market will seek refuge elsewhere than the United States.
Will the Big Crypto Lobby spend its time trying to defend the DeFi industry? It doesn’t have to. “Bitcoin has been established as a US commodity under US law, and I do not believe anything should change, Carlasare states. Murck suggests that it may be beneficial for the ecosystem to continue its protection. He says, “You need to make sure it’s a collective effort and not just an industry effort to institutionalize.” Because regulation shouldn’t drive that wedge between these groups.
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Publiated at Tue 17 August 2021 22.32:10 +0000