Senators working on a roughly $1 trillion infrastructure bill thought it'd be a good idea to tap the fast-growing crypto industry to help pay for it. But then the crypto world said: Not so fast.
The first major battle between crypto and the Washington establishment offered glimpses of the major issues at play — and how crypto can actually fight back.
The crypto-related proposals would have raised roughly $28 billion to pay for the legislation, mainly through taxes. The most controversial proposal would have required miners and node operators, whose work undergirds the blockchains that cryptocurrencies rely on, to report crypto transactions like brokerages. That quickly ignited a host of technical, privacy and other concerns.
The Electronic Frontier Foundation warned that the proposal "could create new surveillance requirements for many within the blockchain ecosystem." And the crypto industry pushed back hard. It appeared to score a small victory after the bill's language was amended to clarify that miners and node operators would not be classified as brokers.
But that was a "fire drill" in a protracted process in which the industry must engage with a Congress that "did not fully appreciate the complexity and nuance of the technology they seek to regulate,'' crypto experts Joe Carlasare and Amanda Cavaleri wrote in Bitcoin Magazine.
Indeed, a last-minute amendment from Sens. Rob Portman, R-Ohio, Mark Warner, D-Va. and Kyrsten Sinema, D-Ariz. would have broadened the definition of "broker" in a way that drew sharp rebukes. Andreessen Horowitz, a top venture capital firm with substantial crypto investments, opposed the new language, but the White House has backed the three senators' version, according to CNBC.
After a weekend of wrangling that saw multiple revisions of the Portman-Warner-Sinema version, Sen. Pat Toomey, R-Pa., in a joint press conference Monday with Sen. Cynthia Lummis, R-Wyoming, announced that there was "a very broad maybe universal agreement that centralized digital asset exchanges behaving as brokers should be required to report transactions, just like other kinds of brokers already do."
But he said their proposal "makes clear that a broker means only those persons who conduct transactions on exchanges where consumers buy, sell and trade digital assets" and ensures that the bill does not sweep in software developers, personal transaction validators, node operators, or other non-brokers."
Lummis said it was important to "ensure that people aren't trying to avoid taxes by sheltering their money in digital assets, but we have to do it in a way that doesn't stifle innovation."
The agreement on more crypto-friendly language came after considerable lobbying and campaigning. Fight for the Future's "Red Alert" campaign issued a stern warning, seeking to rally crypto supporters to shape the final bill. The campaign urged supporters to endorse the first proposed amendment to replace a "provision that's so poorly written it could crush the cryptocurrency ecosystem" and ask their senators to oppose the Portman-Warner-Sinema version.
Coinbase CEO Brian Armstrong weighed in, tweeting out the EFF's warning and the Red Alert campaign, and railing against "a hastily conceived" proposal that "could have a profound negative impact on crypto in the U.S. and unintentionally push more innovation offshore." (Note: Yes, this is no-politics-at-work Brian Armstrong; in his controversial memo, he carved out an exception for issues that directly affect the company's work.)
Treasury Secretary Janet Yellen said Monday that her department would support the compromise language; the White House had earlier supported the Portman-Warner-Sinema version. The amendment, however, required, unanimous consent of the Senate to get added, and opposition by Sen. Richard Shelby, R-Ala., over an unrelated issue torpedoed it. Jerry Brito, executive director of Coin Center, a crypto industry trade group, said on Twitter that his members would seek to amend the infrastructure bill in the House.
The battle is just getting started. Democratic Rep. Don Beyer of Virginia has a crypto-regulation bill in the works in the House. And regulators remain eager to come up with new rules for how the industry should operate. But the infrastructure-bill conflict also demonstrated crypto's power.
"It's always tempting to make fun of crypto bros," Slate's Jordan Weissmann wrote. "It's clear, though, that they've learned to flex some lobbying muscle."
Update: This story was updated Aug. 9, 2021, to include new information about the amendment.
Note: A version of this story appeared in the Protocol | Fintech newsletter. Subscribe now if you're not already getting it.
