Aims to help policymakers protect and support U.S. developers and cryptocurrency users, ensuring the healthy development of open blockchain technology.
Article Author: Coin Center
Article Translated by: 0x9999in1, MetaEra
Coin Center recently released an analysis of changes in the post-election cryptocurrency policy environment. Coin Center stated: We hope to provide a list of policy issues we care about most and potential solutions to help policymakers protect and support open blockchain networks and their U.S. developers and users. In addition to these legislative and administrative fixes, Coin Center is also seeking appropriate solutions in court.
Related Term Definitions
6050I (Note: The 6050I bill requires all digital asset transactions worth over $10,000 to be reported to tax authorities, effective January 1, 2024)
Tornado Cash Sanctions (Note: On August 8, 2022, the U.S. Treasury's OFAC listed Tornado Cash on its sanctions list, accusing the open application of facilitating billions of dollars in money laundering activities)
1. Stop unjust prosecutions against non-custodial software developers
The U.S. Department of Justice (DoJ) is suing software developers for unlicensed money transmission, even though the federal regulatory agency Financial Crimes Enforcement Network (FinCEN) has long made it clear that non-custodial developers do not need a license. Our in-depth analysis shows the situation regarding these lawsuits and explains why the district court went down the wrong path in one of the cases.
Solution: (Blockchain Regulatory Certainty Act) establishes FinCEN's long-term guidelines through legislation, clearly stating that non-custodial developers are not required to register or obtain licenses under federal or state law. Additionally, the Department of Justice should reassess the current charges against those being prosecuted.
2. Prevent the abuse of sanctions laws to stop Americans from trading domestically.
The Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, including smart contract addresses that are not controlled by any sanctioned foreign individuals. This made it illegal for Americans to use software from these contracts to protect personal privacy and privately donate to legitimate non-profit organizations. This action not only violates the constitution but also exceeds OFAC's statutory authority, setting a precedent for OFAC to ban the use of any autonomous protocol at any time. The Fifth Circuit Court of Appeals found that the sanctions against these smart contracts exceeded OFAC's statutory authority; however, the Treasury has lobbied Congress to grant it that power. We have published a detailed analysis regarding these sanctions.
Solution: OFAC should lift sanctions on uncontrolled smart contracts, and Congress should reject requests to expand sanctioning authority to cover software or smart contracts.
Impact Litigation: Our lawsuits in the Eleventh Circuit Court of Appeals and Van Loon's in the Fifth Circuit Court of Appeals are addressing these issues and requesting a nationwide injunction against the sanctions on immutable smart contracts.
3. 'Keep Your Coins Act' bill
Many Americans hold cryptocurrency directly without intermediaries, which benefits personal autonomy and privacy protection. Certain existing regulations may allow regulators to prohibit non-intermediated transactions or impose monitoring obligations on individuals trading on their own.
Solution: The 'Keep Your Coins Act' bill will prohibit the federal government from banning or regulating self-custody.
4. Reasonable tax reform for U.S. crypto users
Americans using cryptocurrency to purchase small items like coffee must calculate and pay capital gains tax. There is no such requirement for small purchases made with foreign currency. According to IRS guidelines, every taxpayer must record and report gains or losses from each cryptocurrency transaction, no matter how small the amount. This policy has not generated meaningful revenue and instead hinders innovation.
Solution: (Virtual Currency Tax Fairness Act) expands the current tax exemption for small daily foreign exchange transactions to cryptocurrency.
5. Equal treatment of taxes on block rewards
Americans conducting blockchain transactions through mining will be taxed when producing block rewards, but other newly created properties, such as crops grown by farmers, are not taxed in this way. We have detailed reports explaining why the current IRS policy is unreasonable.
Solution: (Digital Asset Tax Clarification Act) clarifies that taxes on block rewards are only due when newly created tokens are disposed of, not when received.
Impact Litigation: We support Joshua Jarrett's lawsuit in the Sixth Circuit Court of Appeals. Jarrett is seeking a refund of his block reward tax from the IRS, arguing that new properties should only be taxed upon sale, not at the time of their creation.
6. Repeal and fix harmful cryptocurrency tax requirements
(Infrastructure Investment and Jobs Act) created unconstitutional and anti-innovation tax requirements for crypto entities and individuals, attempting to use them to pay for legislative costs. These new requirements will not increase revenue and are difficult to comply with for many. Congress should repeal the amendments to Section 6050I of the tax code, which require receivers of cryptocurrency transactions worth $10,000 or more to collect, verify, and report the sender's personal information to the IRS without a warrant. Congress should also confirm that 'brokers' in the tax code do not include non-custodial entities like software developers or autonomous software.
Solution: (Innovation Act in the USA) will abolish and fix these harmful provisions.
Impact Litigation: Our lawsuit in the Sixth Circuit Court of Appeals argues that the 6050I reporting obligation is unconstitutional and asks the court to eliminate these requirements.
7. Clarify securities and commodities law
Token issuance and secondary sales are influenced by the chaotic and overlapping regulatory powers of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Tokens driven by open-source software and open consensus mechanisms are not securities and should not be regulated as such. Legislative clarification is needed to delineate the distinction between securities and commodities regulation and their application in the cryptocurrency space, to prevent this distinction from being altered by regulatory directives.
Solution: Congress should address these issues through comprehensive reform. Options include (Securities Clarity Act) and (21st Century Financial Innovation and Technology Act).