U.S. Senator Voted, And the controversial HR 3684 Infrastructure Bill passed in the upper house of Congress. Now, this huge document of more than 2,700 pages and a total of nearly 1 trillion US dollars is being submitted to the House of Representatives, which includes provisions to expand the definition of cryptocurrency brokers, aimed at strengthening cryptocurrency and decentralized finance (DeFi) tax compliance . A trillion dollars can’t come out of thin air, right?
Although the bill actually only follows the guidelines of the Financial Action Task Force (FATF), doomsdayists have announced that the end is coming, and the terrible Internal Revenue Service (IRS) is haunted by the vision of their coins. As usual, they were wrong.
related: Cryptocurrency mining based on proposed U.S. policy changes
No, not everyone is a “broker”
For critics, one of the key points of contention is that section 80603 of the Act defines a “broker” as anyone who “regularly provides any service for transferring digital assets on behalf of others.”even This incredibly unclear language From the revised version of the bill, the earlier version has a broader definition. Yes, it can still be clearer. The bill requires brokers to report customer information to the IRS, but critics worry that if the definition is so broad, it will cover everyone from miners to node operators and liquidity pool providers.
A compromise amendment should explicitly exclude blockchain verifiers from the definition, But it did not pass the vote, Was sunk by a provocative senator. Even if the House of Representatives does not modify this, it is still difficult to see how the original language can be applied to the broader crypto ecosystem, because the “realization of transfer” on behalf of others is not done by miners or holders at all. In the crypto world, the entities that transfer value between users are centralized exchanges (CEX) and decentralized exchanges (DEX). They are market makers. Both brokers are able to introduce compliance tools through software updates to their platforms.
related: U.S. blockchain developer’s broker license threatens employment and diversity
In the August 2007 legal debate on content piracy, BitTorrent was not Established Responsible for a large number of copyrighted songs and videos shared for free through its peer-to-peer (P2P) agreement. Those who use the P2P protocol are not so lucky-Lime Group, with its LimeWire network service, Regarded as Responsible for “joint infringement” in 2010. The difference lies in the way they handle searches. With BitTorrent, you can create a tracker for any specific file and share it on a third-party website to move it bit by bit in the user’s network. LimeWire’s network supports internal search queries for audio and video files, thereby facilitating file transfer. LimeWire also has a recommendation system: if it sees you are downloading, such as a Spider-Man movie, it will suggest that you also download Superman. Like BitTorrent, miners facilitate universal transactions, not necessarily value transfers. The party coordinating the transaction facilitates the transfer of value, which includes matching the buyer and seller with relevant pricing information for the proposed transaction.
Another point is that CEX is already submitting tax information to IRS, but most of DEX does not. Why don’t DEX and CEX and other services that promote value transfer (such as PayPal) follow the same standards? Putting them under this umbrella is not only morally fair and just, but also a sound and uniform implementation of the law. For those who say that these entities do not have a central authority to perform anything, consider the fact that DEX usually still has an owner’s wallet collecting profits, and most updates to open source projects usually come from the same entity. As long as there is a strong will, there must be a way for you.
related: More IRS encryption reports, more dangers
No, innovation is not packaging
Critics also warned that if the bill is approved, it may drive The crypto community outside the United States will weaken the country’s innovation potential. But don’t be afraid: there is nowhere to escape anyway. As mentioned earlier, the encryption provisions of the Infrastructure Act are based on the latest standards issued by FATF, the global anti-money laundering agency. These standards are usually implemented worldwide, albeit in different time frames.
FATF first set its sights on cryptocurrency in 2019. Urge Countries have strengthened the supervision of cryptocurrency exchanges. Since then, dozens of exchanges around the world have been shut down for failing to comply with local regulations inspired by FATF standards. Its latest guidelines are for DeFi and non-fungible tokens (NFT), so it’s no surprise that decentralized finance is one of the goals of US regulators.Process beyond the United States: Europe is also Take steps to tighten encryption regulations, Consistent with other laws that control the transfer of value.
Sooner or later, the script will be the same everywhere. Most people in the community understand this, and unless their business is completely banned, it will be difficult for them to take off.
No, there won’t be any private data honeypots
Another very obvious concern is that having to submit customer data to the IRS will force the broker to create a database containing the customer’s private information, thereby creating a honeypot—a lucrative target for hackers. This idea does not take into account the effectiveness of encryption and the DeFi community’s use of secure encryption algorithms.
consider Zero-knowledge proof: A cryptographic concept that focuses on how to prove to a third party that you know the value of a particular variable without saying anything else you know. Zero-knowledge authentication allows users with authentication data to log in without revealing sensitive data to the platform. For DeFi implementation, this algorithm can generate any necessary forms needed and automatically send them to the IRS without the DeFi service storing the data on its own server. Similarly, suspicious transaction reports can also be automatically generated and sent directly to the regulator without notifying other entities.
related: Draft FATF guidelines for DeFi compliance
Finally, the view of surveillance and privacy also requires parallelism with social contracts and other written rules for value transfer, especially when it comes to disclosing financial services. You can be anonymous at will and spend $100 in cash at the local store. To transfer $3,000 to a friend, you must share more information about yourself with the bank. If you want to send 100,000 US dollars abroad, the bank or customs entity will ask you more questions, and the money will leave more financial clues. So why should DeFi be different?
Win by adapting
As we have seen, most protests against these possible regulations do not stem from any real legal or logical reasoning. Yes, more compliance poses a challenge to the crypto ecosystem because it takes time and money to develop the algorithms and protocols that make it work. Yes, some people will have to separate a portion of their income from the illegal transactions of others-anyway, this is not an important part of the crypto ecosystem.
In fact, although it may seem offensive to crypto purists, more compliance means more mainstream adoption, and more mainstream adoption means more growth. Blockchain-based financial services and applications are indeed expected to bring about a financial revolution and bring real value to billions of users. Basically complying with the law will not pay too much for this.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Bob Reid Everest is a financial technology company that uses blockchain technology to create safer and more inclusive multi-currency accounts, digital/biometric identities, payment platforms and electronic currency platforms. As a licensed and registered financial institution, Everest provides end-to-end financial solutions that promote eKYC/AML, digital identity, and regulatory compliance related to the flow of funds. He was a consultant for Kai Labs, general manager of licensing for Bittorrent, and vice president of strategy and business development for Neulion and DivX.