Uncategorized

U.S. Senators Deal on Contentious Crypto Amendment Has Failed (Updated)

United States senators have finally managed to reach an agreement on the contentious cryptocurrency amendment (updated: amendment had failed).

Key senators have reached an agreement on IRS reporting rules for cryptocurrencies, U.S. Senator Rob Portman (R-OH) announced in a tweet Monday. The industry and regulators await further details, but it looks like lawmakers have found clarification on who is and isn’t a broker in the blockchain business.

UPDATE: The Amendment Has Failed

As of August 9, 20:30 UTC, The proposed crypto amendment had failed, as Senator Richard Shelby (R-AL) has objected to the compromise amendment.

According to Lawyer Jack Chervinsky, “He didn’t get his own amendment for $50b in defense spending, so he’s against all others. Unless he changes his mind, that’s it. The compromise amendment is dead.”

Crypto Amendment Was Nearing Finalization in Senate

Sen. Portman said in a tweet early Monday afternoon Washington time:

“I’m pleased to announce that Senators Warner, Toomey, Sinema, Lummis & I have reached an agreement on an amendment to clarify IRS reporting rules for crypto transactions w/o curbing innovation or imposing information reporting requirements on stakers, miners, or other non-brokers”

Several cryptocurrency enthusiasts gave the Ohio senator a big thumbs up in the reply threads to his tweet, including one who wrote:

“Thank you for all your hard work on these issues.

Crypto and DeFi are the way forward and we don’t need to stifle innovation in technologies that can be positively transformative”

When news of Portman’s original crypto tax proposal broke, an alarmed crypto community reacted swiftly. The industry knew in July that Congress was planning on increasing reporting requirements for crypto investors. By requiring an IRS form to report any digital asset transactions in excess of $10,000, legislators estimated they’d raise some $28 billion in revenue for the U.S. Treasury from the cryptocurrency industry.

But last week crypto miners and stakers were dismayed to learn that Sens. Portman and Mark Warner (D-VA) had used a nebulous and expansive definition of “broker” in their crypto tax amendment, defining brokers as, “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

By that definition, cryptocurrency miners and stakers would be considered brokers by the U.S. federal government. The proposal was tucked last minute as an amendment into a $1 trillion infrastructure bill viewed as a “must-pass” by the two main U.S. political parties and their lawmakers on Capitol Hill.

To ease the burden on startup companies in the blockchain space, Sens. Ron Wyden (D-OR), Pat Toomey (R-PA), and Cynthia Lummis (R-WY) offered an alternative crypto amendment on Wednesday. Theirs excluded Bitcoin miners, crypto validators, wallet creators, and protocol developers from the tax provisions:

“Our amendment will ensure non-financial intermediaries like miners, network validators, and other service providers — many of whom don’t even have the personal-identifying information needed to file a 1099 with the IRS — are not subject to the reporting requirements specified in the bipartisan infrastructure package.”

That prompted Sens. Portman, Warner, and Kirsten Sinema (D-AZ) to try again with a revised amendment that also fell short of approval from many major crypto entrepreneurs. But now it seems the senate policymakers are on the verge of a better deal for crypto.

Why It Matters

Miners venture electricity and computer runtime to secure blockchain transactions, as part of the novel software architecture that made Bitcoin a household name.

Called “proof of work,” the spent resources qualify computers running the open-source Bitcoin app to help maintain the blockchain, by ensuring each miner has something to lose if they attempt to record transactions inaccurately.

To speed transaction flow and lower network costs, several altcoins have arisen in the years since Bitcoin arrived that use proof of stake (PoS) instead. Stakers venture cash to buy some of a PoS chain’s native tokens and lock them away in a one-way function that makes them irretrievable. The only way to recoup the expense is to gain the cryptocurrency’s block reward by helping to place blocks— and doing so accurately and according to the blockchain’s rules.

Given the technicalities of how these blockchain ventures operate, as well as U.S. regulatory and tax definitions, defining them as brokers is nonsensical in ways that would create enormous and undue burdens on these tech startups.