The cryptocurrency industry flexed political muscles it didn’t even know it had in August, when it turned the fight about a comparatively small item in the trillion-dollar infrastructure bill into a battle that eventually led to a last-minute scramble by 99 senators to change the bill after it passed. Now, it appears that it’s gotten the Treasury Department to go along.
The issue in question was a provision that would help fund the bill by making the software developers who maintain blockchains — and the miners and stakers who make them work — register as digital asset brokers. That would require that they turn over client identification, as well as details of gains and losses — which is seemingly impossible to do, since they have no access.
On Friday, Treasury Assistant Secretary for Legislative Affairs Jonathan Davidson sent a letter to a bipartisan group of senators, assuring them that this would not happen. There are bills before both the House and Senate that would turn those assurances into law.
In the letter obtained by Bloomberg, Davidson said that “ancillary parties who cannot get access to information that is useful to the IRS are not intended to be captured by the reporting requirements for brokers.”
That refers to concerns about a line in the original bill that said “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” would be considered a broker.
However, this definition is so broad that it could sweep in the miners and stakers who collect and verify transactions made on a blockchain into a single block that they then add to the blockchain. Even software developers and hardware wallet makers could arguably qualify.
Although they don’t know the identity of those behind the transactions, both miners and stakers are compensated with newly minted cryptocurrency. In the case of the Bitcoin blockchain, miners get 6.25 bitcoin, currently worth more than $260,000, as well as transaction fees.
Read more: PYMNTS DeFi Series: What is Staking?
Davidson’s letter noted that “persons who are just validating transactions through a consensus mechanism are not likely to know whether a transaction is part of a sale. And persons who are only selling storage devices used to hold private keys or persons who merely write software code are not carrying out broker activities.”
Effectively, the provision would sweep up the people handling the technical side of the transaction, rather than substantive part of trading cryptocurrencies handled by exchanges. It was a provision that Coinbase CEO Brian Armstrong said could “unintentionally push more innovation offshore.”
What was most interesting about the fight was not the issue, but how big it became, with Politico saying it showed Washington was waking up to the “crypto influence.”
By the same token, Blockchain Association Executive Director Kristin Smith said the fight had also “been a wake-up call to crypto.”
The word “innovation” has become the rallying cry that the crypto industry and its allies in congress have been using to drum up support for clear — and favorable — regulation of the digital assets business, even during recent hearings about the controversial issue of stablecoin regulation.
The danger was always hypothetical, but it turned into a big win for crypto long before Davidson’s letter.