Blockchain Innovation is Moving Faster than Policy-Making

Media reports say Treasury Secretary Janet Yellen is one of the loudest voices against an amendment to the infrastructure bill which would remove problematic language requiring cryptocurrency tax reporting.

article-image

Janet Yellen, US Secretary of the Treasury; Blockworks Exclusive Art by Axel Rangel

share

key takeaways

  • A fundamental misunderstanding of the technology behind blockchain is at the core of the issue with cryptocurrency tax language in the infrastructure bill, Sarson Funds’ Jahon Jamali told Blockworks
  • Digital assets investors and stakeholders say the bill as it stands is simply unrealistic from a compliance perspective and will lead to an offshoring of infrastructure

The fight to keep key elements of blockchain infrastructure such as nodes and wallets from being considered “brokers,” and be required to engage in tax reporting, now involves Treasury Secretary Janet Yellen as the Washington Post reported Friday. 

But as Sarson Funds co-founder and fund manager Jahon Jamali explained to Blockworks, the fight is based on fundamental misunderstandings about the underlying technology that powers digital assets.

The amendment put forward by Senators Ron Wyden (D-Ore.), Pat Toomey (R-Pa.) and Cynthia Lummis, (R-Wyo.) keeps the definition of crypto “broker” — and with that the subsequent tax implications — quite strict. Yellen is lobbying against this amendment, according to the Washington Post.

However, a rival bi-partisan camp of Senators Rob Portman (R-Ohio), Mark Warner (D-Va.) and Kyrsten Sinema, (D-Ariz.) proposed another amendment that would add a broad scope of reporting requirements to blockchain infrastructure providers, which FTX founder and CEO, Sam Bankman-Fried explained on Twitter earlier today.

Loading Tweet..

What has left many scratching their head is the explicit call out of proof-of-stake versus proof-of-work. While Bitcoin and Ethereum currently use proof-of-work, Ethereum is scheduled to move to proof-of-stake as part of its shift to ETH2.

What’s more curious to many is that proof-of-work has long been criticized for its reliance on mining and miners due to the perceived carbon footprint. Now, the sudden support for proof-of-stake is a neck-snapping flip-flop.

“I think the pace of innovation is clearly moving faster than policymaking,” Jamali told Blockworks. “While in some ways it solidifies bitcoin as a mainstay of the US financial system, the tax-reporting requirements for proof-of-stake protocols demonstrate a clear lack of understanding on how the technology works.”

Yellen and bankers feeling the DeFi heat

Jamal also pointed out that part of this is a product of incumbent financial institutions facing “clear competition” from decentralized finance (DeFi).

Indeed, according to lobbying disclosures, the American Bankers Association (ABA) spent nearly $3 million lobbying lawmakers during the fourth quarter of the year about a range of issues, including CBDCs and cryptocurrency. 

“It seems that they’ve corralled support amongst some in DC,” Jamali said.

Other industry stakeholders have also pointed out that the impossible compliance requirements this bill proposes would put pressure on blockchain infrastructure providers to move offshore and shop around for favorable regulation.

“There’s a reason England doesn’t have any social media companies. There’s a reason France doesn’t have much of a financial services industry,” Preston Byrne, a Partner at Anderson Kill, and well-known voice in the crypto industry tweeted, referring to the former’s restrictive laws around free speech and the latter’s high taxes. “If the White House gets its way, there will be a reason that America doesn’t have a crypto industry.”

“This crypto bill happened because some staffer in a back room who has no idea how the tech works thinks that some Solidity code is going to send people 1099s,” he concluded.

Want more investor-focused content on digital assets? Join us September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. Buy it now.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages

article-image

After Bitwise’s XRP ETF filing this week, one industry watcher notes: “Politics will determine whether this happens soon or in a few years”

article-image

Plus, a look back at some of the SEC’s biggest enforcement moves under Gurbir Grewal

article-image

The forward-looking financial system is being championed by several contributors to India’s UPI digital money system

article-image

Multiple teams are pursuing integration cross-chain and off-chain

article-image

An SEC spokesperson told Blockworks the Ripple judgment clashes with Supreme Court precedent and securities laws