Casey Wagner

Sens. Elizabeth Warren and Roger Marshall have recruited nine new Democratic co-sponsors for their Digital Asset Anti-Money Laundering Act of 2023, a bill some industry advocates say could effectively kill crypto in the US. 



Two committee heads joined the effort and signed onto the legislation: Homeland Security Chair Gary Peters, D-Mich., and Judiciary Chair Dick Durbin, D-Ill. The other new co-sponsors are Sens. Tina Smith, D-Minn.; Angus King, I-Maine; Jeanne Shaheen, D-N.H.; Bob Casey, D-Pa.; Richard Blumenthal, D-Conn.; Michael Bennet, D-Colo.; and Catherine Cortez Masto, D-Nev.



Warren and Marshall reintroduced the <a href="https://www.warren.senate.gov/imo/media/doc/Digital%20Asset%20Anti-Money%20Laundering%20Act%20of%202023.pdf">bill</a> last month after an <a href="https://blockworks.co/news/dueling-crypto-anti-money-laundering-bills">initial version of the text was unsuccessful last congressional session</a>.&nbsp;



The legislation aims to bring “crypto participants” — defined in the bill as wallet providers, miners and validators — under compliance requirements for financial institutions. If the bill passes, these entities will have to file reports for any transactions exceeding $10,000 and report any activity that could signify money laundering or tax evasion.&nbsp;



Warren called the legislation “a bill that would close loopholes in anti-money laundering rules, cutting off drug suppliers and cartels from using crypto to facilitate their illegal business,” she said in a July <a href="https://www.warren.senate.gov/newsroom/press-releases/warren-marshall-manchin-graham-renew-push-for-bipartisan-legislation-to-crack-down-on-cryptos-use-in-money-laundering-drug-trafficking-and-financing-of-terrorism-and-rogue-nations#:~:text=In%20May%202023%2C%20a%20hearing,anti%2Dmoney%20laundering%20rules%2C%20cutting">statement</a>.&nbsp;



The bill’s adversaries argue that these requirements are too strict and difficult to impose on these parties.&nbsp;



“The bill effectively removes validators and miners from the US to the detriment of consumer safety and security,” Cody Carbone, vice president of policy at the Chamber of Digital Commerce said.&nbsp;



Also in the Senate is the Crypto Asset National Security Enhancement Act of 2023, <a href="https://blockworks.co/news/bipartisan-bill-defi-project-controllers">introduced in July</a> and similar to Warren and Marshall’s text. The Crypto Asset National Security Enhancement Act of 2023, as of now, has more bipartisan support. It is sponsored by Sens. Jack Reed, D-R.I.; Mark Warner, D-Va.; Mike Rounds, R-S.D.; and Mitt Romney, R-Utah.&nbsp;



“Luckily, [the Digital Asset Anti-Money Laundering Act of 2023] still remains a largely partisan effort and does not have support to be enacted,” Carbone added.



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Senate money laundering bills continue to duel, Dems get 9 new sponsors

After months of delays due to an alleged lack of cosponsors, Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., have reintroduced their crypto anti-money laundering bill.



This time, the bill features an even greater emphasis on targeting individual industry members, such as miners and validators.&nbsp;



The Digital Asset Anti-Money Laundering Act of 2023 aims to bring “crypto participants” — defined in the bill as wallet providers, miners and validators — under compliance requirements for financial institutions. If the bill passes, these entities will have to file reports for any transactions exceeding $10,000 and report any activity that could signify money laundering or tax evasion.&nbsp;



Opponents of the <a href="https://www.warren.senate.gov/imo/media/doc/Digital%20Asset%20Anti-Money%20Laundering%20Act%20of%202023.pdf">bill</a> argue that these players are not equipped to follow such requirements and doing so would hinder their ability to conduct business.&nbsp;



“Treating these entities commensurate with the largest banks, hedge funds, and money transmitters would weigh them down with unnecessary compliance, stifle innovation, hinder industry growth, and force activity offshore to jurisdictions with less adequate security and oversight,” the Chamber of Digital Commerce wrote in a <a href="https://digitalchamber.org/statement-on-digital-asset-aml-act/">statement</a> opposing the legislation.&nbsp;



The bill also requires anyone in the US with more than $10,000 in crypto held in accounts outside of the US to report this to the Financial Crimes Enforcement Network (FinCEN).&nbsp;



Warren and Marshall first <a href="https://www.congress.gov/bill/117th-congress/senate-bill/5267/committees">introduced</a> a version of the bill late last Congressional session, but the text never made it to committee markup. The two <a href="https://blockworks.co/news/warren-crypto-bill-delayed">recruited Sens. Joe Manchin, D-W.V., and Lindsey Graham, R-S.C.</a>, as cosponsors on the revamped bill.&nbsp;



The Digital Asset Anti-Money Laundering Act of 2023 is similar to the Crypto Asset National Security Enhancement Act of 2023, <a href="https://blockworks.co/news/bipartisan-bill-defi-project-controllers">introduced in the Senate earlier in July</a>. The latter bill also enjoys bipartisan support, sponsored by Sens. Jack Reed, D-R.I., Mark Warner, D-Va., Mike Rounds, R-S.D., and Mitt Romney, R-Utah.&nbsp;



Reed’s bill puts a greater emphasis on DeFi and bringing the industry under existing Bank Secrecy Act and sanctions requirements. Warren and Marshall’s effort focuses on redefining “financial institutions” and bringing crypto under this umbrella.&nbsp;



Both bills have been referred to the Senate Committee on Banking, Housing and Urban Affairs, although neither has been scheduled for a markup.



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Dueling crypto anti-money laundering bills face off in the Senate

Macauley Peterson

A year and 7 months after it was filed, the case of Joseph Kent v. PoolTogether and its backers has been tossed by a Brooklyn federal court judge.



The central question at issue — whether the PoolTogether protocol constitutes an illegal lottery under New York law — was not addressed, because the judge ruled that the plaintiff, Kent, lacked standing to sue.



PoolTogether was started in 2019 by Leighton Cusack, Brendan Asselstine and Chuck Bergeron. Cusack was named as a defendant in the suit. He <a href="https://twitter.com/lay2000lbs/status/1666470640604311552?s=20">tweeted</a> that he was “extremely happy” with the hearing, though his legal challenges are likely not over.



“There is still a good chance they are going to try and refile this case (or an amended complaint) in state court,” Cusack told Blockworks.



Just over a year ago, PoolTogether’s Cusack <a href="https://twitter.com/PoolyNFT/status/1533515933179953152?s=20">raised $1.5 million for a legal defense fund using NFTs</a> purchased by over 4,200 unique wallets.&nbsp;



Kent, who led a technology team for Sen. Elizabeth Warren’s 2020 presidential bid, filed the complaint in October 2021, with clear political overtones. The original suit noted that he was “gravely concerned that the cryptocurrency ecosystem — which requires the use of enormous amounts of electricity — is accelerating climate change and allowing people to evade financial regulations and scam consumers.”



District Judge Frederic Block noted in his 16-page decision that Kent’s lawsuit was based “on an entirely different premise,” but one which could not be adjudicated on the merits, in the absence of any harm in fact.



“By his own admission, he can withdraw his contributions at any time and the fees that those transactions would incur are not imposed by the defendants,” the judge ruled.



Quoting established precedent, Judge Block wrote that federal courts have “the power to redress harms that defendants cause plaintiffs, not a freewheeling power to hold defendants accountable for legal infractions.”



Kent deliberately used the protocol in an irrational manner by depositing a total of just $12 in GUSD and USDC stablecoins to PoolTogether’s pool on Ethereum mainnet. It’s well known that Ethereum has sometimes required high transaction fees, and these were readily apparent to Kent — in fact, they formed part of the basis of his claim for harm.



But PoolTogether also operates on Polygon and Avalanche — and more recently Optimism —&nbsp;where deposit fees are much lower. In all cases, transaction fees are the result of using the third-party networks where PoolTogether’s decentralized app (dapp) is deployed and not paid to the protocol.&nbsp;



As a no-loss lottery — effectively a prize-linked savings account — PoolTogether always offers participants a positive expected value. The protocol earns interest from other DeFi protocols such as <a href="https://blockworks.co/tag/compound">Compound</a> and conducts random prize drawings to pay out the pooled interest to lucky winners. Depositors can always withdraw 100% of their principal, however.



Blockworks has reached out to Kent’s attorneys.



Judge Block concluded that the defendants, which include venture capital funds Dragonfly, Nascent and Galaxy Digital, did not cause Kent any injury. He was not entitled to any interest from his deposits to PoolTogether, even though he could have received interest for deposits made to Compound directly.



“Crucially, the decision to deposit funds with PoolTogether or to send them directly to Compound (or, for that matter, to leave them in his digital wallet) belonged to Kent and Kent alone,” Judge Block wrote.



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PoolTogether class action case dismissed, for now

Nick Neuman

In the wake of the triple bank collapses and last year’s creeping crypto contagion (the bankruptcies of FTX, Celsius, Voyager, the list goes on), politicians on both ends of the spectrum are <a href="https://rollcall.com/2023/05/02/house-gop-tries-panel-collaboration-on-crypto-democrats-leery/">discussing</a> how crypto should now be governed — and not everyone agrees on what that looks like.&nbsp;



Some of the <a href="https://blockworks.co/news/warren-unveils-new-crypto-bill" target="_blank" rel="noreferrer noopener">calls for general oversight</a> seem to think that being able to privately store personal assets shouldn’t be allowed in this new risky financial reality.&nbsp;&nbsp;



And while these regulatory efforts are inevitable in the face of so many financial failures, this&nbsp; proposed solution will not eliminate all risks. Even with the soundest rules in place, institutions fail, and bad actors will always find ways to exploit loopholes.&nbsp;



Instead, a powerful case should now be made for personal responsibility through self-custody.&nbsp;



Self-custody is cited as risky, with <a href="https://blockworks.co/tag/elizabeth-warren" target="_blank" rel="noreferrer noopener">Senator Elizabeth Warren</a> emphasizing the danger in how users could obscure the use of their self-held funds to cover up criminality.



Read more: <a href="https://blockworks.co/news/elizabeth-warren-crypto-web3" target="_blank" rel="noreferrer noopener">Elizabeth Warren Has a Lot to Say About Crypto — Try Listening for Once</a>



This argument is not strong enough to justify eliminating the right to personal custody. In fact, self-custody will help investors regain control over their money and prevent future financial disasters from occurring.



<h2 class="wp-block-heading">Limitations of centralized exchanges, limitations of regulations</h2>



Storing funds in a centralized exchange or other third-party platforms exposes customers to considerable risk, including hacks, negligence and corruption. While not all centralized crypto businesses are mishandling funds, it can be difficult to know who is <a href="https://blockworks.co/tag/ftx" target="_blank" rel="noreferrer noopener">until it’s too late</a>.&nbsp;



People are beginning to wise up to the fact that trusting anyone else with their money undermines one of the core principles that cryptocurrency was actually founded on.



A current lack of any form of regulatory protection exacerbates the problem.&nbsp;



With most traditional financial firms, there is some form of state-backed “safety net” to protect customer funds in the face of insolvency —&nbsp;like how the FDIC and the <a href="https://blockworks.co/tag/federal-reserve" target="_blank" rel="noreferrer noopener">Federal Reserve</a> stepped in to backstop the banks’ depositors and stop the bank runs after the <a href="https://blockworks.co/news/signature-silicon-valley-bank-made-whole" target="_blank" rel="noreferrer noopener">failures of Silicon Valley Bank, Silvergate and Signature</a> earlier this year.



Read more: <a href="https://blockworks.co/news/who-will-bank-crypto" target="_blank" rel="noreferrer noopener">After Bank Failures, Where Will Crypto Firms Turn?</a>



In the crypto industry, there are no such guarantees. Centralized exchanges custody user funds without regulatory oversight. This means there is no one even attempting to check their custody practices and solvency —&nbsp;meaning consumers are largely unprotected when things go wrong.&nbsp;



In response to the many exchanges failing, Sen. Warren <a href="https://www.warren.senate.gov/imo/media/doc/Crypto%20National%20Security%20One-Pager%20draft_12.13.22.pdf">proposed</a> one of the more far-reaching attempts at regulation, which would require private wallets to adhere to strict anti-money laundering (AML) practices.&nbsp;



While AML policy can be implemented at centralized financial platforms, (which doesn’t speak for its actual effectiveness at preventing money laundering), it’s impossible to apply the same rules to self-custody and DeFi platforms, which primarily exist as code that anyone can use, without asking permission.&nbsp;



If this legislation passes, any service that will not or can not comply could become blacklisted in the US, severely limiting the ability of the industry to evolve in this region.&nbsp;



Read more: <a href="https://blockworks.co/news/warren-crypto-bill-delayed" target="_blank" rel="noreferrer noopener">Sens. Warren, Marshall Delay Reintroducing Crypto Bill Due to Lack of Sponsors</a>



<h2 class="wp-block-heading">An unnecessary overreaction</h2>



Misguided, overly strict policy proposals are a considerable overstep in personal rights and would be a crippling blow to the cryptocurrency industry in America. Services would be largely pushed overseas, which would have a ripple effect of offering legitimate users fewer and fewer points of access or means to personally store their assets.&nbsp;



Combined with honest exchanges <a href="https://blockworks.co/news/could-coinbase-leave-us" target="_blank" rel="noreferrer noopener">moving</a> to other jurisdictions, eliminating private storage solutions would not make users safer and would only encourage them to find unvetted or illicit ways to circumvent these restrictions. Consumers would be stuck between using government-sanctioned fiat, or engaging in high-risk financial behavior, neither of which is a step in the right direction.&nbsp;



This is especially problematic because of why regulators claim it’s necessary to start controlling self-custodied assets: The proposed legislation claims that this is necessary to deter financial crimes like money laundering.&nbsp;



There is some validity to the concerns, as cryptocurrency is used for money laundering (although not as much as fear mongers would have you think). However, introducing such restrictive legislation under the guise of protecting users makes little sense. Keeping people from securing their own money doesn’t protect them in instances where financial institutions themselves fail.



Perhaps most importantly, this legislative overreach into self-custody is an unnecessary step because there are already tools available that can keep control in the user’s hands while protecting against the risk of loss due to mistakes or theft. Several wallet applications and services are already available that easily walk a user through the process of generating, storing and accessing multiple keys — removing the risk that losing a single key results in losing funds. Most importantly, they allow users to control their own keys, eliminating issues with third party storage. Bills like the one being proposed by Sen. Warren, could potentially cut the public off from access to these platforms.



When events like FTX’s collapse happen, many users get wary and begin <a href="https://www.reuters.com/technology/cryptoverse-bitcoin-investors-take-control-2023-01-24/">moving their funds</a> off of centralized exchanges and into personal wallets, and they should have every right to continue to do so.



The absolute safest way to store the majority of funds will continue to be self-custody, and that simply isn’t going to change. Remember, sovereign control over a person’s own money was a major reason Bitcoin was created in the first place.&nbsp;



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<div class="wp-block-post-author-biography">Nick Neuman is CEO at Casa Inc., a leading provider of Bitcoin and soon Ethereum self-custody storage solutions. He previously worked in finance at the Sterling Group and Lazard.</div>


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Hands Off Our Self-custody

Nicole d'Avis

In 2021, Senator Warren characterized Web3 builders as “some shadowy, faceless group of super-coders.” I submitted comments on her site but never received a response.&nbsp;



Warren recently declared she was “building an anti-crypto army.” I once again submitted a comment, this time via <a href="https://twitter.com/mybellalogica/status/1641479961323139074">Twitter</a>. While it garnered more attention, I have yet to receive a response.&nbsp;



I am Warren’s constituent. I am a mom and primary earner for my working family. An educator. An organizer. Daughter of an immigrant. I’ve coached soccer, substitute taught during the teacher shortage, led a Girl Scout troop and chaired the family council of my children’s teacher-led public school.&nbsp;



As one of the millions laid off during the pandemic, I pivoted to work in Web3. I am an example that crypto is for women. My children assume this industry is dominated by people like me.



Despite misogynist characterizations of Senator Warren as an out-of-touch grandma, her campaign is strategic, if not miscalculated. I previously voted for her based on her thoughtful approach to policy. Her current willful ignorance for perceived political gain reveals an all-too-typical politician’s playbook.&nbsp;



Web3 is eager for regulation that discriminates between predatory scams and creative exploration. We feel the squeeze through targeted pressure on the few crypto-friendly banks, and we are nervous. I am nervous. I cannot tolerate the endless risk wrought by this purposeful destruction.



To blanket all crypto together is deliberately irresponsible.&nbsp;



We could never imagine an outright ban on the internet. It is a tool for cultural diplomacy, dissent, empowerment, education, and importantly, for human connection.&nbsp;



Similarly, it is foolish to build an anti-crypto army.&nbsp;



<h2 class="wp-block-heading">Regulation is getting it all wrong</h2>



Can Web3 technology be used for scams? Yes. So too has the internet. Has the speculative gain of crypto attracted those looking for a quick buck? Again, yes. So too has the internet.&nbsp;



Technology will only be as good as the people who are building it, and as good as the regulation that permits us to build it well.&nbsp;



Web3 allows us to connect. Tokens are unique, digital markers signaling that we belong, that we participated, that we are aligned. Blockchains, or distributed ledgers, mean that data is not owned by any one single person or corporation (interchangeable according to the US government). We cannot be deplatformed (as sex workers and activists often are) because no single person or corporation controls the platform and the data.&nbsp;



I am here to build a more expansive and collaborative internet for my children and their peers. Gen Z and Alpha are digital natives. My children are gamers and writers who intuitively build and explore digital worlds. They weave narratives between video games, books and the real world. They create Lego tableaus and videos that capture their ideas.&nbsp;



There is no question of whether they will live much of their futures online, but what will that internet be? Will their creative works enrich billionaires who spin out pennies for their art? Or will the internet be as composable and malleable as the Legos my child uses today?&nbsp;



Bandcamp, Patreon, Spotify, YouTube, Instagram, Amazon and TikTok all treat creativity and community as no/low-cost resources to be extracted for their profit. Users contribute to the development of something they can and will never own. There are few digital tools where individuals control the culture and community they foster online.&nbsp;



We cannot separate building sustainable, collective creativity from building the required digital systems and tools. I am galvanized by Web3 technologies that are being developed in collaboration with artists and community members. We are building the ownership economy.



Web3’s technological tools can be combined the way children do with Legos, to compose evolving creative systems that work for us. The same way my children build worlds that reflect their imagination, they will have tools to build digital worlds where value can be created, owned and shared.&nbsp;



I am surrounded by brilliant, diverse builders working to make that internet a reality.&nbsp;



If we are regulated out, only Big Tech with big lobbying engines and individuals with deep pockets will remain. I am neither.&nbsp;



Senator Warren, my DMs are open.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">As co-creator of Seed Club, an Internet Native Accelerator, Nicole worked closely with over 100 top builders, including Water &amp; Music, Cabin, Krause House, Poolsuite, Boys Club, Refraction, Metalabel and Pussy Riot. Previously, as the Managing Director of Berklee&#8217;s Institute for Creative Entrepreneurship, she led the Open Music Initiative, a music tech industry consortium, and co-founded RAIDAR, a blockchain based music licensing platform built by and for Berklee students. Nicole’s speaking engagements include Consensus, Mainnet, MIT-Forbes Imagination in Action at the 2020 World Economic Forum in Davos and the Unclaimed Royalties Symposium at the U.S. Library of Congress.</div>


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Elizabeth Warren Has a Lot to Say About Crypto — Try Listening for Once

Senators Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., have pushed back reintroducing their crypto anti-money laundering bill in an effort to recruit more cosponsors, according to two people familiar with the matter.&nbsp;



The bill, which was <a href="https://blockworks.co/news/warren-unveils-new-crypto-bill">first introduced in the Senate last session in December</a>, looks to require the crypto industry, including individual miners and validators, to abide by know-your-customer (KYC) rules.&nbsp;



Industry members were expecting a revamped version of the bill to debut on the floor this week, but two insiders shared with Blockworks that the senators have delayed its reintroduction because they want to find more cosponsors.



Read more: <a href="https://blockworks.co/news/crypto-bills-didnt-die-last-session">Crypto Bills Didn’t Die Last Session: Lawmakers Plot Reintroductions</a>



The latest version of the bill text, which has not been publicly released, includes the same language opponents originally found troubling, according to documents obtained by Blockworks.



The following groups will be responsible for adhering to <a href="https://blockworks.co/tag/know-your-customer" target="_blank" rel="noreferrer noopener">KYC policies</a>: “unhosted wallet providers, digital asset miners, validators, or other nodes that may act to validate or secure third-party transactions, independent network participants, including maximal extractable value searchers, miner extractable value searchers, and other validators or network participants with control over network protocols,” per the documents. 



<a href="https://blockworks.co/tag/elizabeth-warren">Warren</a> announced in early 2023 that the bill would be making the rounds again, highlighting heightened concerns about increased hacks and illicit actors overseas.  



“Roger Marshall and I are reintroducing our anti-money laundering bill to clamp down on crypto crime and give regulators the tools they need to stop the flow of crypto to drug traffickers and places like North Korea,” Warren said <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">during a Senate Banking Committee hearing in February</a>.&nbsp;



Bill opponents argue the legislation goes too far; the expectations being put on the industry are unattainable, crypto advocacy group the Chamber of Digital Commerce <a href="https://digitalchamber.org/statement-on-digital-asset-aml-act/">said</a> earlier this week in response to the bill. 



The proposed law “​​aims to eradicate digital asset innovation from the United States at the expense of market security by imposing impractical and unworkable compliance burdens on industry participants,” the Chamber of Digital Commerce said in their statement.&nbsp;



Representatives from Warren and Marshall did not respond to Blockworks’ request for comment.



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Sens. Warren, Marshall Delay Reintroducing Crypto Bill Due to Lack of Sponsors

More than 50 legislative items relating to crypto and digital asset policy made their debut on Capitol Hill last Congressional session. Industry members can expect to see some make a second appearance this session, lawmakers say.



Here’s a breakdown of some of the bills already giving the legislative process another try, and what we can expect to see on the docket soon.&nbsp;



<h2 class="wp-block-heading">Warren’s planned take two</h2>



Sen. <a href="https://blockworks.co/news/silvergate-collapse-not-crypto-problem">Elizabeth Warren, D-Mass.</a>, said in a hearing earlier this year that she would be giving her <a href="https://www.congress.gov/bill/117th-congress/senate-bill/5267">Digital Asset Anti-Money Laundering Act</a> another go on the Senate floor this session. The law, introduced in December 2022, was intended to bring crypto and digital asset companies into the current anti-money laundering and anti-terrorism framework.&nbsp;



The bill proposes any entities that maintain public blockchains, including validators and software developers, be required to register as a financial institution and submit know your consumer and compliance materials. Critics said the bill, introduced in the shadow of FTX’s collapse, enhances surveillance but would not have prevented the exchange’s failure as FTX was operating illegally under existing law.&nbsp;



<h2 class="wp-block-heading">Retirement plan legislation&nbsp;</h2>



The Financial Freedom Act, first introduced in May 2022, already made its second debut in the Senate when sponsor Tommy Tuberville, R-Ala., brought an amended version to the floor in February. The new and improved version seeks to expand crypto investment opportunities for retirement funds by prohibiting the Department of Labor from limiting options that may be available to 401(k) plan participants through self-directed brokerage windows.



&#8220;Meddling in 401(k) investments through overregulation restrains financial growth and restricts personal liberty,” Tuberville said in a February <a href="https://www.tuberville.senate.gov/newsroom/press-releases/tuberville-reintroduces-bill-to-keep-the-government-out-of-americans-investment-decisions/">statement</a>. “The federal government shouldn&#8217;t choose winners and losers in the investment game.”



The proposed law’s sister bill in the House, also dubbed the Financial Freedom Act, made its second rounds in February when Rep. Byron Donalds, R-Flo., reintroduced an amended version.&nbsp;



<h2 class="wp-block-heading">Bipartisan effort&nbsp;</h2>



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., introduced their bipartisan <a href="https://www.gillibrand.senate.gov/news/press/release/-lummis-gillibrand-introduce-landmark-legislation-to-create-regulatory-framework-for-digital-assets/">Responsible Financial Innovation Act</a> late last session. After facing criticism over how the bill defined tokens and how it divided responsibilities between regulatory agencies, the senators went back to the drawing board.&nbsp;



A revised version of the legislation is scheduled to be introduced this month, Sens. Gillibrand and Lummis <a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill">said</a> during a joint appearance in March.



<h2 class="wp-block-heading">New tax proposals&nbsp;</h2>



Reps. Patrick McHenry, R-N.C., and Ritchie Torres, D-N.Y., <a href="https://blockworks.co/news/crypto-broker-validators-miners-developers-bill">brought their Keep Innovation in America Act back</a> to the Hill this session. The proposed law would push new broker tax reporting requirements for transactions greater than $10,000, set to launch in 2024 to 2026.



The bill’s goal is to narrow the definition of broker, which became a hot topic when lawmakers were pushing President Biden’s infrastructure plan through. Brokers should not include miners and software developers for the purpose of reporting requirements, Torres and McHenry argue.&nbsp;



<h2 class="wp-block-heading">What’s next&nbsp;</h2>



Simply bringing revamped legislation back to the table is not enough to guarantee policy changes, though, lawmakers admit. Appealing to top committees at the right time is crucial when trying to push bills through.&nbsp;



The Senate Banking Committee did not mark up Lummis and Gillibrand’s bill, the senators admitted, a key step in advancing the policy. Historic crypto-skeptic Sen. Sherrod Brown, D-Ohio, heads the committee, which <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">held a hearing in February to discuss the fallout from FTX</a>.&nbsp;



Crypto investment vehicles are “speculative products run by reckless companies, we know that’s true,” Brown said during the hearing.&nbsp;&nbsp;



“It would require, certainly, a change in approach for the Banking Committee to move forward with markup,” Lummis said in March, referring to the Committee’s decision to consider the Responsible Financial Innovation Act.



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Crypto Bills Didn’t Die Last Session: Lawmakers Plot Reintroductions

As the second day of FTX-related testimony kicked off on Capitol Hill Wednesday, a group of bipartisan senators released their latest legislative plans for cracking down on money laundering in crypto.



Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., introduced the “<a href="https://www.warren.senate.gov/imo/media/doc/DAAML%20Act%20of%202022.pdf" target="_blank" rel="noreferrer noopener">Digital Asset Anti-Money Laundering Act Of 2022</a>,” a bill that would reclassify crypto companies, including wallet providers and miners, as money services businesses.&nbsp;



The bill also prohibits financial institutions from engaging with cryptocurrency mixing services, privacy coins or “other anonymity-enhancing technologies,” according to the draft legislation.&nbsp;



The legislation comes as members of Congress attempt to get to the bottom of how FTX imploded last month through a series of hearings. The House Financial Services Committee heard from newly-appointed FTX CEO <a href="https://blockworks.co/news/ftx-managed-critical-accounting-via-slack-new-ceo-testifies" target="_blank" rel="noreferrer noopener">John Ray</a> Tuesday.&nbsp;



Ray testified that the restructuring team discovered mismanagement and duplicity that makes the exchange’s fraud “worse than Enron.” He added that there is evidence FTX was commingling funds, and the exchange <a href="https://blockworks.co/news/ftx-managed-critical-accounting-via-slack-new-ceo-testifies" target="_blank" rel="noreferrer noopener">handled accounting</a> and invoices through messaging app Slack and accounting service QuickBooks.&nbsp;



The <a href="https://www.banking.senate.gov/hearings/crypto-crash-why-the-ftx-bubble-burst-and-the-harm-to-consumers" target="_blank" rel="noreferrer noopener">Senate Banking Committee</a> gathered four witnesses Wednesday, including actor-turned-author Ben McKenzie and FTX spokesperson Kevin O’Leary. O’Leary testified he received $15 million from Bankman-Fried, in addition to $3 million “to cover taxes.”&nbsp;



“The collapse of FTX is nothing new,” O’Leary said. “While this situation is painful for shareholders, employees, account holders…In the long run, it does not change this industry’s promise.”



Others were less optimistic. McKenzie, whose book deriding all of crypto as a fraud is expected to be released in 2023, likened investing in cryptoassets to gambling on poker. Fellow witness Hilary Allen, a professor at American University’s Washington College of Law, questioned whether any entity in the industry is truly decentralized.&nbsp;



“To be clear, decentralization won&#8217;t protect us from future crypto fraud, because even if DeFi is technologically decentralized, it is not economically decentralized,” Allen said. “If one person owns 90% of the governance tokens that control the software, which is quite common in DeFi, then they could cause it to perpetuate shady behavior.”



The draft of the bill, released Wednesday, comes days after the Bahamian government indicted and arrested FTX founder Sam Bankman-Fried. The former CEO <a href="https://blockworks.co/news/us-attorney-sbf-perpetrated-largest-financial-fraud-in-american-history" target="_blank" rel="noreferrer noopener">faces a number of charges</a>, including wire fraud and money laundering.&nbsp;



US Attorney Damian Williams referred to Bankman-Fried’s crimes as “one of the biggest financial frauds in American history” during a <a href="https://blockworks.co/news/us-attorney-sbf-perpetrated-largest-financial-fraud-in-american-history" target="_blank" rel="noreferrer noopener">press conference</a> detailing the indictment Tuesday.&nbsp;



Bankman-Fried’s extradition to the US is underway, Williams added.&nbsp;



With Congress set to adjourn in the coming weeks, Sens. Warren and Marshall will have to reintroduce the bill during the next session to advance the measure.



<h3 class="wp-block-heading">News analysis by Macauley Peterson</h3>



It looks like we’re finally going to see an ideological fight over some of crypto’s first principles. The battle lines are drawn. The industry now has to make its case to politicians and regulators for why features such as self-custody, decentralization, disintermediation, and privacy are valuable traits that empower individuals and improve the efficiency of our financial system.



It’s easy to bring in expert witnesses that begin their inquiry into the technology with the rhetorical question, “Am I crazy, or is this all a total scam?” and then get the testimony that all of crypto is a scam. But it’s not terribly informative to the public.&nbsp;



Nor is trying to learn about DeFi from someone who seriously asserts it’s “quite common” for one person to own 90% of the governance tokens — that’s a wild exaggeration.



While it’s fine to question certain assumptions about decentralization, and in fact we should challenge crypto projects to demonstrate the veracity of their claims to the decentralized label, we also can examine public blockchains and see how those claims stack up to reality.



The Digital Asset Anti-Money Laundering Act Of 2022, would compel the Financial Crimes Enforcement Network (FinCEN) to classify “custodial and unhosted wallet providers, cryptocurrency miners, validators, or other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV searchers, and other validators with control over network protocols as money service businesses.”



Current guidelines stipulate that <a href="https://www.fincen.gov/fact-sheet-msb-registration-rule" target="_blank" rel="noreferrer noopener">money services businesses</a> have to be businesses —&nbsp;it’s right in the name — individuals who are frequently among the “network participants” mentioned are generally exempt from being considered money transmitters, and for good reasons.



A “wallet provider” is a software developer publishing code. “Unhosted” is a political term for self-custody — the whole purpose of wallets. It would be like asking Louis Vuitton to register as a money transmitter for giving individuals a piece of folded leather that they can use to transport dollars.



Sen. Warren just wants Congress to declare it otherwise, presumably because she doesn’t see the value in taking a more nuanced approach.



The bill sees privacy tools — or “anonymity-enhancing technologies” as it calls them — as <a href="https://blockworks.co/news/the-purpose-and-perils-of-crypto-privacy-tools" target="_blank" rel="noreferrer noopener">serving no purpose other than</a> to facilitate money laundering.



That perspective is only valid if you uncritically assume that all crypto is a fraud and a scam.



Which is both intellectually dishonest and fundamentally incorrect.



As written now, it would go a long way towards enshrining a dystopian surveillance state when it comes to individuals transacting on blockchains.



Even crypto-skeptic law professor and political adviser <a href="https://blockworks.co/news/legal-scholar-rohan-grey-gives-mixed-opinions-on-recent-occ-developments" target="_blank" rel="noreferrer noopener">Rohan Grey</a> is <a href="https://twitter.com/rohangrey/status/1603083714648772608" target="_blank" rel="noreferrer noopener">concerned</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Making payments anonymously is not inherently criminal. Too many progressives, in their zealousness against truly bad actors, are letting the surveillance state into their minds and their politics. It&#39;s really bad. Private greed and bureaucratic surveillance are twin enemies.&mdash; Rohan Grey (@rohangrey) <a href="https://twitter.com/rohangrey/status/1603083714648772608?ref_src=twsrc%5Etfw">December 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The bill, which would direct the Treasury Department to “promulgate a rule that prohibits financial institutions from…handling, using, or transacting business with digital assets that have been anonymized by the technologies described…,” would strongly curtail the ability of law-abiding citizens to protect their privacy on public blockchain networks — a form of <a href="https://blockworks.co/news/crypto-mixers-and-privacy-coins-can-they-resist-censorship" target="_blank" rel="noreferrer noopener">censorship</a>.



It’s ultimately a question of fundamental rights in a liberal democratic society. As CoinCenter’s Peter van Valkenburgh <a href="https://twitter.com/valkenburgh/status/1603062350520664064" target="_blank" rel="noreferrer noopener">put it</a>, crypto transactions provide a counterweight to electronic transactions which “force citizens to rely on a class of centralized gatekeepers who can freely censor every transaction and amass and abuse a comprehensive dossier of every citizen’s intimate activities.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">2/ Physical cash is a technological bulwark of those rights and privileges in open societies because it preserves and enables the capability of transacting directly, citizen to citizen, without the need for approval from some corporation or state bureaucracy.&mdash; Peter Van Valkenburgh 🫡🦬🚲🌐🥐 | 🚫💳🕵️🌽🛢️🚗 (@valkenburgh) <a href="https://twitter.com/valkenburgh/status/1603062349409447937?ref_src=twsrc%5Etfw">December 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Physical cash is important in open societies to maintain citizens’ rights and privileges. And as all assets become digitized, only cryptoasset networks provide a digital cash analog.



Sens. Warren and Marshall overlook the rights of ordinary citizens, instead treating all actors in the crypto space as dangerous and in need of constraint. That’s largely a function of misunderstanding and poor guidance, but it’s also a challenge to the basic argument for why crypto matters. And it’s that argument that opponents of the measure will have to make, forcefully.



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Actors and TV Personalities Testify as Warren Introduces Anti-privacy Crypto Bill

Sebastian Sinclair

Three US Senators have urged Fidelity to stop its 401(k) sponsor partners from offering bitcoin exposure — likening crypto investing to “catching lightning in a bottle.”



In a Monday <a href="https://www.durbin.senate.gov/imo/media/doc/letter_to_fidelity_investments_ceo.pdf" target="_blank" rel="noreferrer noopener">letter penned</a> to Fidelity CEO Abigail Johnson, Democrat Senators Elizabeth Warren, Dick Durbin and Tina Smith argue that crypto markets have become riskier following <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events" target="_blank" rel="noreferrer noopener">FTX’s sudden collapse</a>, making bitcoin unsuitable for retirement plans.



The Senators described the crypto industry as “full of charismatic wunderkinds, opportunistic fraudsters and self-proclaimed investment advisors promoting financial products with little to no transparency.”



“As a result, the ill-advised, deceptive, and potentially illegal actions of a few have a direct impact on the valuation of bitcoin and other digital assets,” they said.&nbsp;Durbin <a href="https://blockworks.co/news/us-politicians-donate-bankman-fried-cash-to-charity" target="_blank" rel="noreferrer noopener">received</a> $2,900 in campaign contributions from disgraced FTX CEO Sam Bankman-Fried, money he reportedly says will be donated to charity.



The letter follows similar pleas in <a href="https://www.warren.senate.gov/newsroom/press-releases/warren-questions-fidelity-on-plans-to-allow-bitcoin-investments-for-401k-plans" target="_blank" rel="noreferrer noopener">May</a> and <a href="https://www.durbin.senate.gov/imo/media/doc/durbin_bitcoin_72622.pdf" target="_blank" rel="noreferrer noopener">July</a>. Senators Warren and Smith have previously cited the cryptocurrency sector’s murky valuations as reason for caution, labeling investing in digital assets a “speculative gamble.”



Boston-based Fidelity began allowing employees to put as much as 20% of their retirement savings into bitcoin exposure this fall.



The crypto industry considered the move a strong sign of shifting institutional sentiment toward the 12 year old asset class, although bitcoin has shed some 60% of its value since Fidelity flagged the 401(k) move in late April.



Fidelity, which overall <a href="https://fidelityinvestments2020news.q4web.com/press-releases/news-details/2022/Fidelity-Q3-2022-Retirement-Analysis-Despite-Continued-Volatility-Retirement-Fundamentals-Remain-Sound/default.aspx" target="_blank" rel="noreferrer noopener">boasts</a> some $9.6 trillion in assets under administration, is the largest individual retirement plan (IRA) provider in the US — supporting more than 35 million IRA, 401(k) and 403(b) retirement accounts. As of 2020, FIdelity <a href="https://www.nytimes.com/2022/04/26/business/crypto-401k-fidelity.html" target="_blank" rel="noreferrer noopener">controlled</a> more than a third of the retirement fund market in the US, maintaining $2.4 trillion in 401(k) assets.



“Any investment strategy based on catching lightning in a bottle, or motivated by the fear of missing out, is doomed to fail,” the Senators said. 



“By many measures, we are already in a retirement security crisis, and it should not be made worse by exposing retirement savings to unnecessary risk.”



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Senators Once Again Ask Fidelity to Stop Offering Bitcoin in 401(k)s

Bessie Liu

<div id="highlights-block_6358476ad8bcb" class="highlights">
 <ul>
 <li>Over 200 government officials have left their public service posts to move into senior positions at crypto startups, the lawmakers say</li>
 <li>Many of these individuals later serve as “advisers, board members, investors, lobbyists, legal counsel, or in-house executives,” in the the crypto industry</li>
 </ul>
 
</div>



A number of prominent US lawmakers say they’re increasingly concerned about the growing number of financial regulators taking crypto jobs.&nbsp;



Sen. Elizabeth Warren, D-Mass., and Rep. Alexandria Ocasio-Cortez, D-N.Y., were among those who penned a slew of <a href="https://punchbowl.news/wp-content/uploads/10.24-Letters-to-Regulators-re-Crypto-Revolving-Door.pdf?utm_source=Sailthru&amp;utm_medium=email&amp;utm_campaign=10/25/22%20%20Punchbowl%20News%20AM&amp;utm_term=Punchbowl%20AM%20and%20Active%20Subscribers%20from%20Memberful%20Combined" target="_blank" rel="noreferrer noopener">letters</a> Oct. 24 to a number of US financial watchdogs.



“We write seeking information about the steps your agency is taking to stop the revolving door between our financial regulatory agencies and the cryptocurrency (crypto) industry,” they wrote.&nbsp;



More than 200 government officials, per the lawmakers, have left public service jobs in favor of digital asset firms, where they’ve taken up senior positions including “advisers, board members, investors, lobbyists, legal counsel, or in-house executives.”



<blockquote class="wp-block-quote">Added the letter: “Just as powerful Wall Street interests have long exercised their influence over financial regulation by hiring former officials with knowledge of government’s inner workings, crypto firms appear to be pursuing the same strategy in order to secure ‘a regulatory system to the industry’s exact specifications.’”</blockquote>



Other politicians who signed on include Sheldon Whitehouse, Jesús García and Rashida Tlaib.&nbsp;



The lawmakers asked for information related to ethics and transparency on revolving door hires under a Nov. 7 deadline.&nbsp;



“Our financial regulators are tasked with ensuring the safety and fairness of our financial markets,” the letter said. “The rapid rise of the crypto market has presented regulators with new questions about how these assets will be regulated.”



Warren has long been a critic of the cryptocurrency industry. Earlier in September, the senator, alongside other lawmakers, wrote <a href="https://cms.blockworks.co/scammers-use-of-meta-platforms-draws-us-political-ire/" target="_blank" rel="noreferrer noopener">a letter</a> expressing their concern that Facebook was becoming a “<a href="https://www.menendez.senate.gov/imo/media/doc/letter_to_meta_on_cryptocurrency_scams.pdf" target="_blank" rel="noreferrer noopener">breeding ground</a>” for crypto fraud.



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Crypto’s ‘Revolving Door’ Hires Are Raising Eyebrows Among US Lawmakers

Shalini Nagarajan

<div id="highlights-block_62d5a0cee917b" class="highlights">
 <ul>
 <li>“The overall US crypto mining industry is likely to be problematic for energy and emissions,” lawmakers wrote</li>
 <li>They flagged that crypto miners have caused increased electricity costs for small businesses and residents</li>
 </ul>
 
</div>



Sen. Elizabeth Warren and other lawmakers have called on federal regulators to instruct cryptocurrency miners to disclose their emissions and energy use.



The Democratic lawmakers laid out “disturbing” findings from an investigation into the environmental impact of crypto mining in a <a href="https://www.warren.senate.gov/imo/media/doc/2022.07.15%20Letter%20to%20EPA%20and%20DOE%20Re%20Cryptomining%20Environmental%20Impacts.pdf" target="_blank" rel="noreferrer noopener">letter</a> to the US Environmental Protection Agency and the Department of Energy on Friday.



Seven companies including Riot, Bitdeer, Bit Digital and Stronghold have the collective capacity to use nearly the same amount of electricity required to power all residences in Houston, Texas — the fourth most populous city in the US — their data found.



“Our investigation suggests that the overall US crypto mining industry is likely to be problematic for energy and emissions,” the lawmakers wrote. They believe disclosing this information would support public policy decisions such as monitoring energy use and providing data on national and regional grid loads.



The letter highlighted lawmakers’ concerns that cryptocurrency mining in the US has <a href="https://www.nbcnews.com/tech/tech-news/us-becomes-largest-bitcoin-mining-center-china-ban-rcna2956" target="_blank" rel="noreferrer noopener">exploded since the crackdown in China</a> — once the world’s biggest mining hub — with the nation’s global mining share rising nearly ten-fold in the past four years.



They also raised concerns about how mining has triggered a jump in electricity costs for small businesses and residents. For instance, residents in Plattsburgh, New York saw prices <a href="https://crsreports.congress.gov/product/pdf/R/R45863/3" target="_blank" rel="noreferrer noopener">jump by $300</a> in the winter of 2018 after bitcoin miners found electricity there “abundant and cheap.”&nbsp;&nbsp;&nbsp;



Some miners have been struggling with the crypto market downturn. Compass Mining recently faced accusations by hosting firm Dynamics Mining over an alleged <a href="https://cms.blockworks.co/compass-mining-searches-for-direction-after-top-execs-resign/" target="_blank" rel="noreferrer noopener">failure to pay an electricity bill</a>, but the firm denied these claims.



The lawmakers also wrote that the total annual global electricity consumption associated with Bitcoin and Ethereum is estimated to be around 300 TWh (terawatt-hours) in May 2022, similar to the annual electricity usage in the UK.&nbsp;



“And this electricity usage has major emissions consequences: the energy used to mine Bitcoin and Ethereum in 2021 resulted in almost 80 million tons of carbon dioxide emissions,” they said.



The environmental impact of bitcoin mining is the subject of debate, with some miners <a href="https://cms.blockworks.co/crypto-mining-company-welcomes-sec-environmental-reporting-proposal/" target="_blank" rel="noreferrer noopener">welcoming further scrutiny</a>.



Ethereum’s energy consumption is expected to drop by 99.95% <a href="https://cms.blockworks.co/ethereum-ropsten-testnet-successfully-merged-to-proof-of-stake/" target="_blank" rel="noreferrer noopener">following The Merge</a>, as soon as September.



Democrats have <a href="https://cms.blockworks.co/cryptocurrency-mining-is-poisoning-our-communities-us-rep-says/" target="_blank" rel="noreferrer noopener">previously written</a> to the US environmental regulator in May, describing among other concerns how the amount of emissions produced by bitcoin mining is equivalent to that of a small country like Greece. But the lobby group Bitcoin Mining Council <a href="https://cms.blockworks.co/bitcoiners-protest-democrats-misleading-letter-sent-to-epa/" target="_blank" rel="noreferrer noopener">poked holes</a> in that letter, saying it held several inaccuracies — such as a claim that “a single Bitcoin transaction could power the average US household for a month.”



In June, the New York legislature <a href="https://cms.blockworks.co/new-york-passes-bill-restricting-carbon-fueled-crypto-mining-operations/" target="_blank" rel="noreferrer noopener">passed a bill</a> that would temporarily ban new bitcoin mining operations that use proof-of-work authentication methods for blockchain transactions. That bill could have been signed into law or vetoed by Governor Kathy Hochul, but she declined to commit and said her team would look at the proposal closely in the coming months.



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Seven Crypto Miners Show ‘Disturbing’ Energy Use, Lawmakers Say

<div id="highlights-block_6233928d89526" class="highlights">
 <ul>
 <li>The bill was introduced during Thursday’s Senate Banking Committee hearing on digital assets and crime</li>
 <li>Russia’s invasion of Ukraine has highlighted the need for greater oversight, Warren said</li>
 </ul>
 
</div>



Sen. Elizabeth Warren, D-Mass., revealed a new bill Thursday aiming to prevent crypto companies from doing business with sanctioned entities. 



The Digital Assets Sanctions Compliance Enhancement Act, introduced during a Senate <a href="https://www.banking.senate.gov/hearings/understanding-the-role-of-digital-assets-in-illicit-finance" target="_blank" rel="noreferrer noopener">hearing</a> on the role of digital assets in illicit finance, would give President Biden the go-ahead to slap secondary sanctions on those that transact with sanctioned individuals, companies or governments. It would apply to any sanctions imposed by the US — most pressingly, Russian ones. 



“Crypto provides a new payment option for criminals and cheats, and it&#8217;s how those who attack our systems with ransomware collect their money with the least risk that they will be caught,” Warren said during the hearing. “In fact, according to one of our witnesses who&#8217;s here with us today about three-quarters of the money collected in ransomware attacks last year went to Russia-linked actors.”



Iran, North Korea and Venezuela all have turned to crypto in an effort to evade sanctions, Jonathan Levin, co-founder of blockchain tracker Chainalysis, said during the hearing.



The bill is co-sponsored by 10 other senators, including Sen. Mark Warner, D-Va. Warner was part of the bipartisan group that worked to include cryptocurrency tax provisions in the infrastructure bill last September.



Witnesses — Levin, Michael Mosier, former acting director and current deputy director and digital innovation officer of the Financial Crimes Enforcement Network (FinCEN) and Michael Chobanian, founder of KUNA Exchange and president of the Blockchain Association of Ukraine — said it <a href="https://cms.blockworks.co/impossible-for-russia-to-evade-sanctions-with-crypto-fincen-rep-says/" target="_blank" rel="noreferrer noopener">would be difficult</a> for Russians to circumvent all sanctions with crypto.



“I’m the person who is behind all the numbers, I know how this happens, and it’s impossible, physically impossible, to transfer large amounts of money from fiat into crypto,” Chobanian said.&nbsp;



The levels of requisite liquidity to run serious amounts of Russian government capital via digital assets is a pipe dream, according to Mosier.



&#8220;The crypto industry claims that Russians can’t use crypto to hide their wealth ​​because the $3 trillion crypto market is too small and too transparent for that to work,” Warren said, adding that blockchain-hopping and shuffling funds between tokens could be a workaround.



“You can always split the money up into wallets…but that doesn&#8217;t remove the record of where the money actually sits,” Levin said.&nbsp;



Nonetheless, the crisis in Ukraine has underscored the need for more transparency in the blockchain space, according to Warren.



“That&#8217;s why I&#8217;m introducing today my Digital Asset Sanctions Compliance Enhancement Act,” she said. “This is a bill that would authorize the president to sanction foreign cryptocurrency firms that are doing business with sanctioned Russian entities.”



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