Kristin Smith, executive director of the Blockchain Association, first heard of bitcoin in business school.
"I did not get it," she readily admits. "It really personally took me a very long time to understand this."
A steep learning curve didn't stop her, though, and for years now, Smith has been working to make people in Washington — regulators, legislators, policy wonks — understand the world of crypto and blockchain.
Smith leads a trade association which includes major crypto companies like Anchorage Digital, Genesis, Ledger, Ripple and Solana. Founded in 2018, the Blockchain Association faced its most serious test in August when a proposed infrastructure bill included language that some said would require crypto miners, node operators and developers to report transactions to the IRS.
Smith called the tax-reporting language's appearance "a wake-up call" for the crypto industry about the importance of having a strong presence in Washington.
It came too late. The bill, which was passed by the House last week and is expected to be signed by President Biden in the coming days, contains the language opposed by the crypto industry.
But the August uproar underlined the crypto industry's growing influence, largely based on a highly engaged online community with a robust presence on social media, Smith said.
"The crypto community's use of Twitter is its superpower," she said. "It's what allowed us to mobilize and get 40,000 phone calls into the Senate over the course of five days. This is a highly communicative industry. They're used to collaborating. … It's something that makes lobbying and advocacy in the crypto space very different than any other industry."
Smith said the Blockchain Association is gearing up for more regulatory and legislative battles. On Tuesday, the group named two new executive vice presidents: Jake Chervinsky will serve as head of policy, and Dave Grimaldi will head government relations.
In an interview with Protocol, Smith, a Washington veteran who has worked in both the House and the Senate, discussed the Blockchain Association's D.C. game plan, the risks posed by crypto-related provisions in the infrastructure bill, and how she navigates the often-heated debates and commentary on Twitter — sometimes involving prominent crypto industry leaders.
This interview was edited for brevity and clarity.
Can you talk about the past week leading up to the House approving the infrastructure bill? What did you hope to accomplish?
The bill was out of our hands. A couple months ago, when the Rules Committee put out the rule for the infrastructure bill, they crafted it in a way that there would be no amendments on the legislation. From our perspective, the opportunity to change the bill, we lost that when the bill left the Senate.
There's been such interest among a broader group of members of the House and Senate in understanding the issue, understanding more about cryptocurrencies and crypto networks. We've been using this as an opportunity to educate and we've been in dialogue with offices in both the House and the Senate, both sides of the aisle who really do want to see a pathway forward to make some changes.
In the weeks ahead, we're going to see potentially some legislation introduced to fix this. The question that we're working through right now is: Is there an opportunity in the short term to fix this legislatively? If there is, we're going to pursue that. But we're also preparing to engage with the IRS and provide substantive feedback as they go through their rulemaking process. We're preparing kind of to move forward with a two-pronged strategy of legislative fix or working with the IRS.
Can you revisit what the big concern was about the definition of a broker?
The worry about the broker definition is that it was written in a way to be so broad that it could potentially capture software developers, other network operators, like stakers, miners, validators. To do the type of 1099 recording, you have to have someone's name and address and Social Security number. If you're just an operator of a network or contributing to that, you don't have access to that information, nor do you want to have to have the collection of that information as part of the process.
It's sort of like saying, "Hey, that armored delivery truck that's moving the cash from one bank to another needs to collect the information and report it to the IRS." No, the bank is the one with the customer. They're the ones that can report it.
We think that having the tax-information-reporting provision for centralized exchanges, like Kraken or Coinbase, is a very welcome development. It's one that those types of companies are well suited to deliver to their customers and to the IRS, and quite frankly, it's something that their customers are asking for. Today if you're a Fidelity customer, at the end of the year, you get a 1099 that shows what your tax obligations are. And that's very useful as a taxpayer.
Right now, there are no rules around centralized exchanges that are taking custody of their customers' assets and providing a service. There's no guidance for how they're supposed to do that. So it's something that crypto exchanges have been working on for a couple years now in dialogue with the IRS trying to figure out the right way to do that type of reporting. We welcome that development, but we just need to make sure that those reporting obligations aren't also placed on the network operators that just simply cannot comply because they do not have the information, nor would they really be able to accurately get the information.
The Treasury Department suggested it wouldn't include miners and validators as brokers. Have you gotten any clarity about that?
I've heard that they've said that about miners and stakers and other validators. But they have not yet extended that to software developers. That's a big issue for DeFi. These DeFi software developers create these very powerful tools that anybody can take the code and do something with them. Who do you hold accountable in that situation? That's kind of an open question. There's got to be a way to make sure that just because you wrote some code that you're not on the hook for what somebody else across the world does with it.
The software developers are a big piece of it. That's a piece that we're going to be watching very closely. It's our hope that hopefully we'll get some signal out of the IRS that they intend this to be minimal. But, as we've experienced, regulatory agencies often tend to overstep in their interpretation, not exclusively, but we've seen it in other areas. That's why having a more narrowly tailored definition of broker in the law would be desirable.
The situation is like what happened with Dodd-Frank where a new law was passed and then the details are worked out afterward.
Right. There's a world where they interpret the definition of broker and, quite frankly, the definition of digital asset to be very narrow. Or there's a world where they interpret very broadly. Yes, the devil is in the details and so we will very much be engaging with the details because it is potentially very broad.
How big of a concern is the requirement that people who received cash transactions over $10,000 be required to verify the sender's identity?
It is a little bit problematic. Obviously, that exists today for cash. So if I go buy a Tesla with cash that's over $10,000, Tesla has to take my Social Security number and send something to the IRS. If I go buy my Tesla with bitcoin, it's the same thing.
Where it gets complicated with crypto is transactions in crypto aren't always happening from one person to another person. Often what you're doing is you're sending your cryptocurrency to a smart contract which is just software. If you're lending, you don't know who your counterparty is, right? It's not peer-to-peer. It's peer-to-protocol. That makes reporting so much more difficult in that context, and would require collection of information that doesn't exist in the protocols today.
What is your biggest worry?
Our biggest worry is that it's going to be interpreted in such a broad way by the IRS that it captures a bunch of actors that are not going to be able to comply, and that Congress doesn't have the opportunity to intervene before that happens.
But listen, the crypto industry is in the best spot it's ever been right now. The attention to the infrastructure bill debate in August really was sort of a wake-up call to the crypto industry, that they need to constructively engage in Washington.
There are many companies that are working to build out Washington offices so that the money and the funding and the infrastructure and the people are coming into place. Going forward, I think we'll be able to do the amount of education that needs to be done in order to be effective and have the lobbying power to go out and get the changes that we need.
Binance has had some legal issues in the U.K. and other geographies. How do you deal with companies that are perceived to be pushing the envelope?
There's nothing wrong with going to the line. It's crossing the line where there's a problem. There is a large gray area here. The people are trying to figure out the best way for the policies to be cleared up so that people know what is and isn't allowed. There are some players around the globe that just have a blatant disrespect for the law. But I think one thing that distinguishes Blockchain Association members from others is that there is a genuine attempt to be compliant, to follow the law, to figure it out.
But there's nothing wrong with walking all the way up to the line. That is allowed. I pay my taxes down to the dollar. I don't pay more than that, right? Because that's what I owe and that's fair, and that's legal. And that's beneficial to my life and to the economy's life. I think the key for us is figuring out where that line is.
What do you think of Coinbase's proposal for a new regulator for crypto?
We are happy to see Coinbase engaging in the policy dialogue. In an ideal world, we would love to see a unified regulator and believe that it's good to discuss the option. However, we realize that such a proposal is not politically viable.
You've worked in the House and the Senate. Are there things that companies have done or are doing that you have flagged and have told them, "Don't go there," in terms of lobbying?
There is a range of experiences within our membership. Some have had experience working with the government. Some have not. There's a certain approach you take in talking to different policymakers and trying to think about what motivates the policymaker. What is within their mission? What is it that they're interested in? So yeah, framing it in a way that's meaningful to people has been a challenge, but over time, I've seen a lot of growth, even with the new ones that sort of come in and they're sort of green to government.
How do you square crypto's cultural embrace of decentralization and rejection of centralized authority with your work?
The sort of libertarian origins of bitcoin are really a little bit different than kind of the core of the crypto industry today. There is a realization that this is an incredibly powerful innovation, that crypto networks are going to change the way that we do financial services that we operate on the internet.
We empower and compensate creators. These are very powerful things and if we're going to see sort of a mass adoption of this innovation, there's going to be interaction with government. There's going to be regulation. There are rules that apply.
This is so new. This whole concept of decentralization is new. How can we evolve our laws and regulations to meet the public policy goals that are out there without sort of stifling innovation in this space? There is a consensus among the people that are doing this — at least the ones that are involved in Washington — that this is part of the deal.
Many of the debates and discussions about crypto now typically get articulated in social media, particularly Twitter. Regulators like SEC Chair Gary Gensler and CFPB Director Rohit Chopra tweet their positions, and so do high profile executives like Brian Armstrong, Jack Dorsey and Brad Garlinghouse. How do you react to that dynamic?
There's certainly pros and cons, but overall, the crypto community's use of Twitter is its superpower. It's what allowed us to mobilize and get 40,000 phone calls into the Senate over the course of five days. This is a highly communicative industry. They're used to collaborating. They're used to having debates.
It's a little bit surprising for outsiders coming into this space to see the spirited tone that often comes through. There's certainly some individuals out there that may be expressing opinions that might not help our cause, but overall, it's an incredibly quick way to share information.
It's allowed us to have a very informed community that cares about crypto. It's allowed them to get to know the champions that are working to improve policy in this space. It also allows them to know who our opponents are. I think overall it's a huge positive. It's something that makes lobbying and advocacy in the crypto space very different than any other industry.
In what way?
I once worked for the catalog mailers' association. They're not all debating the evolution of this space on Twitter all day. It's just different with crypto. You've got people who are looking and being informed multiple times an hour sometimes. It just allows us to do a really strong and effective grassroots advocacy movement when the time is right to do that.
But I wonder how it impacts your work, when people attack Chopra or Gensler directly or poke fun at them, or when executives or legislators put out strongly worded opinions?
This is just speculation on my part, but for policymakers who support the industry, I think they have enjoyed having a voice on Twitter. Certainly those that receive a lot of criticism, they clearly don't appreciate that.
I do think it is an unusual tactic for executives to communicate with regulators via Twitter. I think it's much preferred and what we try to do with the Blockchain Association is bring our CEOs, bring our founders to have direct, one-on-one conversations with key regulators. That's not how everyone operates.
Having Twitter is great. It can be a superpower when it's used effectively. But there's no replacement for shoe-leather lobbying, for in-person coffees and meetings and taking the steps to build relationships that allow for a level of trust.
Has it ever happened where something said on Twitter becomes an issue in a meeting?
Yeah, I've been in meetings where other participants in the meeting have pulled up specific tweets. But listen, everyone's allowed to express their thoughts. I think the First Amendment is still around. You can't control everyone. We know how to use Twitter to our advantage. We're certainly not going to get everyone in line, but we're working our hardest to keep the ones that matter in line.
Have you had much interaction with people like Gensler, Chopra and other regulators? How do you think they would approach these issues?
I know Rohit. We've met with Gensler. I think there is interest, particularly with Gary Gensler, to find a way to do more on the consumer protection side and the market integrity side. I think there's potentially a pathway that could be done in a way that would be constructive. We've brought ideas to him. I think the devil is going to be in the details, as it always is.
We're going to continue to engage. Congress is going to have a role to play in this. We might need some fresh thinking. The beauty is Congress can look at the big picture. They can look across agencies and try to figure out who is the right regulator. Do we need a new regulator? What authorities are needed? What are the international competitiveness concerns? There's a series of things that they can look at that regulators don't have the luxury of doing. So we hope to keep Congress a part of the conversation.
Tell me about the first time you heard about bitcoin. What was your reaction?
The first time I remember learning about it was actually in business school, in my derivatives class, of all things. I did not get it the first time. I wish I did, because I would have gone out and bought a bunch of bitcoin back then when it was a lot cheaper than it is today.
It really personally took me a very long time to understand this. I've probably spent six months, you know, researching, reading articles, Googling. There is no easy way to really kind of absorb this information.
That is a challenge as we're dealing with policymakers. It's complex, but if you don't get it the first time, don't give up, right? That's why we have to keep going back and build out a large enough team that has the bandwidth to have these one-on-one opportunities to educate different people.
