The Blockchain-based cryptocurrency community, consisting of brokers and crypto-miners, has jointly opposed a few tax compliance amendments. Interestingly, the Biden Administration seems to have driven a wedge further between the “Proof of Work” and “Proof of Stake” cryptocurrencies.
The Republicans and Democrats seem to have reached a rare agreement on a new Infrastructure Plan. However, a bill that mostly discusses rebuilding America’s aging infrastructure, has upset the cryptocurrency mining and trading community.
There is an anti-#Crypto provision hidden in the massive infrastructure bill that would allow mass-surveillance of the crypto-economy. The Senate should adopt the Wyden/Toomey amendment to fix it.
Roads/bridges/trains = good
Destroying the digital token economy = not good
— Jared Polis (@jaredpolis) August 5, 2021
Multiple small and big cryptocurrency stakeholders jointly oppose the new ‘Digital Asset Provision’ within the new Infrastructure Plan:
The Biden Administration is seeking $28 Billion to spend on rebuilding and redeveloping America’s decades-old infrastructure. Interestingly, both sides in the Government seem to agree to the plan.
There’s however panic among the cryptocurrency community primarily because there are some sweeping changes to the cryptocurrency regulation.
1/ There are a few key moments that define our future. One is happening now in the Senate w/ the infrastructure bill. At the 11th hour @MarkWarner has proposed an amendment that would decide which foundational technologies are OK and which are not in crypto. This is disastrous.
— Brian Armstrong (@brian_armstrong) August 6, 2021
The discontent stems from a bit that would declare anyone “responsible for and regularly providing any service effectuating transfers of digital assets” to be a broker, subject to tax reporting requirements.
The wordings may seem fairly obvious in the world of traditional finance, cryptocurrency is a whole different ballgame. By its very nature cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, etc. are decentralized.
This crypto infrastructure bill could literally F**K up the crypto industry.
PLEASE CALL YOUR LOCAL REPRESENTATIVES!! https://t.co/PStmWFiMl5
— EllioTrades NFTs | (Hiring) (@elliotrades) August 6, 2021
Simply speaking, cryptocurrency developers, companies, and even anyone mining digital currencies may not be able to collect and report information on users.
Cryptocurrency broking platforms such as Square, Coinbase, Ribbit Capital, and other stakeholders have gone further and called the amendment “financial surveillance”.
The Wyden-Lummis-Toomey amendment is simple. It clarifies in law what most of us already believe—that validators of distributed ledger data like miners & stakers, hardware wallet providers & software developers should NOT be required to report transaction data to the IRS. pic.twitter.com/cMtoHMehiU
— Senator Cynthia Lummis (@SenLummis) August 5, 2021
Taking note of the complexities involved, Finance Committee Chairman Ron Wyden (D-OR) and Pat Toomey (R-PA) have asked the Biden Administration to change the language of the bill. Wyoming Senator Cynthia Lummis and Colorado Governor Jared Polis have supported the same.
While I appreciate that my colleagues and the White House have acknowledged their original crypto tax had flaws, the Warner-Portman amendment picks winners and losers based on the type of technology employed. That’s horrible for innovation.
— Senator Pat Toomey (@SenToomey) August 6, 2021
Strangely, there’s another proposed competing amendment that complicates matters further. In fact, the amendment seems to further divide the cryptocurrency community.
Proof of Stake must comply with new Tax regulations but Proof of Work need not?
Traditionally, cryptocurrency mining involved solving increasingly complex math problems. This involved deploying powerful and power-hungry computers. Such a type of cryptocurrency is called ‘Proof of Work’.
3/ This is the government trying to pick winners and losers in a nascent industry today, where some new technology is being developed every month. They are guaranteed to get it wrong, by writing in a few exceptions by hand today.
— Brian Armstrong (@brian_armstrong) August 6, 2021
There’s a new type of cryptocurrency that relies on storage capacity. Called ‘Proof of Stake’ systems, these rely on participants taking a financial stake in a given project, locking away some of the cryptocurrency to generate new coins.
Needless to mention, Proof of Stake is a far less energy-intensive and hence, climate-friendlier alternative. It does, however, severely impact the life of the storage medium.
Wow. Sen. Warner and Portman are proposing a last minute amendment competing with the Wyden-Lummis-Toomey amendment. It is a disastrous. It only excludes proof-of-work mining. And it does nothing for software devs. Ridiculous!
Here is all it excludes: pic.twitter.com/FA7K6NU2s0
— Jerry Brito (@jerrybrito) August 5, 2021
The baffling aspect of the amendment is that it seeks to exempt traditional cryptocurrency miners who participate in ‘Proof of Work’ systems from new financial reporting requirements. However, the newer and comparatively eco-friendly ‘Proof of Stake’ systems must comply with the near-impossible tax regulations.
My bipartisan amendment with @SenLummis and @SenToomey is a win-win: it will protect American innovation while ensuring those who buy and sell cryptocurrency pay the taxes they owe. https://t.co/BjiLsNs4WK
— Ron Wyden (@RonWyden) August 4, 2021
Needless to conclude, these are confusing and trying times for the cryptocurrency community. Interestingly, a few popular cryptocurrencies such as Ethereum, are migrating to the Proof of Stake system. Meanwhile, Bitcoin, the original cryptocurrency is still committed to Proof of Work.