The government can't crack crypto regulation

The Big Story

Regulating crypto is hard work

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 proposals would've 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 Sens. Ron Wyden, Cynthia Lummis, and Pat Toomey pushed to have the bill's language amended to clarify that miners and node operators would not be classified as brokers.

But Congress "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. So this was just a "fire drill" in what looks set to be a protracted process for the industry, they added.

• A last-minute amendment from Sens. Rob Portman, Mark Warner and Kyrsten Sinema would have broadened the definition of "broker" in a way that drew sharp rebukes.
• That drew battle lines between the Wyden-Lummis-Toomey and Portman-Warner-Sinema versions — and the internet loves a fight.

This all kicked off a ton of 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.
• Elon Musk and Jack Dorsey, who have sometimes sparred over crypto issues, agreed that the new amendment was bad for crypto.
• Andreessen Horowitz, which has substantial crypto investments, opposed the new language.
• Even Gene Simmons weighed in. The Kiss bassist, who revealed his crypto holdings to fans in January, said he supported Wyden-Lummis-Toomey.

And the pressure got results. After a weekend of wrangling that saw multiple revisions of the Portman-Warner-Sinema version, Sen. Pat Toomey, in a joint press conference yesterday with Sen. Cynthia Lummis, announced that the six senators had reached an agreement on new language.

• 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," he said.
• Toomey 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."
• Treasury Secretary Janet Yellen said yesterday that her department would support the compromise language; the White House had earlier supported the Portman-Warner-Sinema version.

But then it all got torpedoed thanks to opposition by Sen. Richard Shelby over an unrelated issue. The amendment required unanimous consent of the Senate to get added. 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."

— Ben Pimentel (email | twitter) and Tomio Geron (email | twitter)

A version of this story appears in the Protocol | Fintech newsletter. Subscribe now if you're not already getting it.

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People Are Talking

Jake Sullivan told Brazil he doesn't have a lot of faith in Huawei's 5G telecoms equipment:

• "We continue to have concerns about Huawei's potential role in Brazil's telecom infrastructure."

The latest trend on Instagram is to make it feel more like a blog, says one meme account owner:

• "You just post your thoughts. It's like Twitter, but for Instagram. It's like a blog where you're airing personal thoughts and feelings."

Twitter's bias-bounty winner found that its algorithms prefer young, light-skinned faces, and Rumman Chowdhury said she's not surprised:

• "I use the phrase 'life imitating art imitating life.' We create these filters because we think that's what beautiful is, and that ends up training our models and driving these unrealistic notions of what it means to be attractive."

We've got to address the climate crisis, says Rep. Eddie Bernice Johnson, who chairs a committee on tech and space:

• "This is really a double wake-up call. I think finally we're beginning to accept we've got to do something."

Making Moves

Cloud Village tossed its Hong Kong IPO. The second-largest music streaming company in China said it may list again if the market improves.

Charlie Bell is leaving Amazon after 23 years, most recently as an AWS SVP. He's only the latest longtime exec to leave the company in recent months.

Circle is planning to become a national crypto bank, which its CEO says will help create a "safer" financial system. The company recently announced plans to go public.

David Borecky is Impossible Foods' next CFO. Before joining the company, he worked on payments at Stripe and led finance at Square.

Pam Sergeeff is Freshworks' next chief legal officer. She previously worked as a chief compliance officer at TiVo.

Ebony Beckwith joined Poshmark's board of directors. She's currently the chief philanthropy officer at Salesforce and the Salesforce Foundation CEO.

Brett Redfearn left Coinbase after four months as the company's VP of capital markets.

In Other News

• Jay Y. Lee is getting out of prison. The Samsung leader, who's been serving a sentence for over two years after being charged with bribing South Korea's ex-president, will be released on parole at the end of the week.
• Amazon and GoPro are suing a handful of Chinese sellers marketing knockoffs of their gadgets. The lawsuit was initially filed in April, but it was just now disclosed because the same sellers being sued are also under criminal investigation in China.
• The Alibaba manager accused of raping his employee was fired. The boss' name wasn't made public, and two other leaders close to the situation resigned over accusations that they didn't do enough to address the issue.
• Jeff Bezos and Narayana Murthy called off their venture in India. The tie-up was controversial from the start, with small retailers considering the venture unfair to their companies, and India launching an investigation into the business.
• The Justice Department isn't feeling good about T-Mobile shutting down a wireless network widely used by Boost Mobile customers. DOJ officials are worried too many people will be left without a wireless connection.
• Elon Musk is adding a Starlink satellite base on a small island in the Irish Sea. The station will expand Starlink's coverage to the entirety of Britain.

One More Thing

Lightening up the workplace

At the start of Protocol's morning meeting, at least one person cracks a joke. Well, they try to, but whether it's funny or not doesn't really matter. It makes someone smile, even awkwardly, and it gets more people engaged in the conversation. Jennifer Aaker and Naomi Bagdonas' "Humor, Seriously" will tell you that this kind of interaction is exactly what should happen at work. The book explains how you can use humor in the office to better your work, relationships — really your whole company performance — if it's done right.

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