The Biden administration’s infrastructure bill is laden with initiatives and policies that have little to do with building roads and bridges. One of the peculiar inclusions in the Biden bill concerns cryptocurrency brokers. The “infrastructure” bill contains language that looks to regulate crypto brokers in order to generate greater tax revenue. Unfortunately, it would also drastically increase the powers of the surveillance state in the process.
The trillion-dollar price tag attached to the bill is staggering. Currently, there is no good plan to pay for the bill. However, one way the administration is looking to generate revenue is by taxing digital assets. To do so, the government is looking to expand asset-reporting requirements for those dealing with cryptocurrencies. According to a fact sheet, this push is projected to add $30 billion to the government’s coffers.
However, the new legislation’s language is quite vague and opens the door for potential abuses. The text itself reads: “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” would be treated as a broker.
According to the Electronic Frontier Foundation, these newly-classified brokers would have significant reporting requirements:
These newly defined brokers would be required to comply with IRS reporting requirements for brokers, including filing form 1099s with the IRS. That means they would have to collect user data, including users’ names and addresses. . . . The mandate to collect names, addresses, and transactions of customers means almost every company even tangentially related to cryptocurrency may suddenly be forced to surveil their users.
Given that the requirements brokers have to fulfill are significant, the fact that the definition of a broker is so vague is frustrating. Yahoo reports that some are concerned that there may be no limit as to who can be investigated:
Kristin Smith, executive director of the Blockchain Association, told CoinDesk the draft language could mean a number of individuals interacting with crypto may have to start reporting their transactions.
“We interpret this to mean software wallet developers, hardware wallet manufacturers, multisig service providers, liquidity providers, DAO token holders and potentially even miners,” she said.
Because of the numerous uncertainties, it just isn’t clear how this kind of legislation would work, practically. Given that crypto miners verify individual transactions of Bitcoin, it’s entirely possible that individual miners could be held liable as a broker. The administration says it has “no intention” to prosecute ordinary citizens, but “trust me” promises aren’t very reassuring.
The current bill’s vague language about cryptocurrency will create more problems than it solves. The cryptocurrency sector is inherently unpredictable, and the government isn’t adroit enough to regulate the ever-evolving crypto market. Instead of worrying about whether small brokerage firms and ordinary crypto miners are getting away with petty tax evasion, politicians should worry about bigger issues — such as their own profligate spending.