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The future of cryptocurrency in the US is nearly decided

by on09 August 2021

Senate infrastructure bill

The competing amendments to the Senate's infrastructure bill may shape the future of cryptocurrency in the United States as senators fight over who must be subject to new tax reporting requirements.

One proposal wants to exempt miners, hardware manufacturers, and developers, putting the focus on centralised cryptocurrency exchanges and trading apps. The Biden administration has thrown its weight behind another amendment that would grant exemption only to those behind so called proof of work cryptocurrencies such as Bitcoin, but not other networks said to be more environmentally friendly because they don't consume as much electricity to validate transactions.

The infrastructure bill, which promises public spending on major projects like new roads and bridge repairs, wouldn't appear to have anything to do with cryptocurrency, but laws in the US are usually piggy backed on something else to make sure they get passed.

Congress figured that "crypto brokers" could be squeezed for $28 billion in taxes over a decade to foot part of the bill. Which has angered those who have sunk piles of cash into the concept, particularly those who saw it as a way of avoiding taxes.

The definition of brokers in the original bill is anyone who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. It is so broad that it meant pretty much anyone that means that a cryptocurrency tick -- node operators, miners, validators, or services that stake digital assets would have to report to the I.R.S. the information on their "customers."

Cryptocurrencies such as Bitcoin are designed to be non-custodial and pseudonymous, so that requirement would be impossible to satisfy for much of the industry, Olya Veramchuk, director of tax solutions at blockchain firm Lukka, told Motherboard.

Three senators Ron Wyden, Pat Toomey, and Cynthia Lummis, put forward an amendment to narrow the definition of a crypto broker down to those who are custodial and hold information on their customers, such as cryptocurrency exchanges like Coinbase or trading apps like Robinhood, granting exemption to everyone else.

But an amendment proposed by Senators Rob Portman and Mark Warner backed by the Biden administration, grants an exemption from the tax reporting obligation to only a segment of the crypto industry, resting on a major technical difference in blockchain design between proof of network and proof of stake. Whatever that means.


Last modified on 09 August 2021
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