Author | Coin Center
Translation | GaryMa Wu Says Blockchain
In the recent elections, cryptocurrency received significant attention, and many are speculating whether the new government and Congress will have a friendly attitude towards cryptocurrency. In short, we expect that policies may improve in certain areas, while others will still face challenges. We believe that there is potential for clearer rules in the areas of securities and banking regulation, such as rules for centralized secondary markets and centralized stablecoin issuers.
The prospects in terms of anti-money laundering, tax reporting, and sanctions are rather unclear. Below are our thoughts on these issues and a preliminary analysis of future opportunities and challenges.
How to view cryptocurrency-related issues during government transitions
Cryptocurrency policy issues can generally be divided into two main categories: regulatory issues (tax reporting, BSA/AML, sanctions) and investor protection issues (SEC, CFTC, banking). Achieving good policy in one category does not mean the same results can be attained in the other. The motivations behind these two categories of policy differ (protecting investors vs. identifying and stopping illegal fund flows), and legislators' political motivations and opportunities for joint action in each area also vary.
Similarly, the cryptocurrency ecosystem can also be divided into two main categories: centralized businesses (custodial wallet service providers, centralized exchanges, trusted issuers) and developers and users of decentralized infrastructure (protocol developers, non-custodial wallet and application developers, and non-intermediated users of these protocols and applications).
Coin Center aims to promote good policy across all dimensions, but our core mission is to defend the rights of developers and users of decentralized and peer-to-peer tools. In the realms of investor protection or regulation, any overly aggressive regulatory framework could threaten developers and users. However, threats from the regulatory realm have appeared more far-reaching in recent years.
The following is a chart of past and potential future policy actions to help you understand this framework:
You may have noticed that the box in the lower right corner appears particularly heavy compared to other parts. This may reflect our focus. Coin Center's mission centers on the code publishing rights of decentralized infrastructure developers (involving the First Amendment) and opposing unreasonable regulatory demands (involving the Fourth Amendment). This box is indeed the battleground where these two major issues intersect. Even with some bias, this area has indeed been more controversial than any other over the past four years. There are various explanations for this, such as from the public perspective and news cycles, where some politicians mistakenly or opportunistically link global and foreign policy tragedies to cryptocurrency (such as Hamas fundraising, or Russian oligarchs trying to evade sanctions). Additionally, in building political coalitions, the left and right, while rarely in agreement, sometimes find common ground on national security and regulatory issues.
What is the biggest threat?
In recent years, the freedoms of individual cryptocurrency users and developers have faced serious threats. We have seen the SEC increasingly over-enforcing its rules, with revisions to rules defined by exchanges gradually involving individual developers and users, as well as its enforcement actions against wallet providers like ConsenSys' Metamask and Coinbase Wallet. Meanwhile, regulatory issues are becoming more prominent, including the 6050I reporting obligations, Tornado Cash sanctions, broker reporting obligations, and lawsuits against non-custodial developers for unauthorized funds transfers. At the same time, in Congress, we have been opposing legislation like CANSEE and DAMLA, which attempts to impose unreasonable regulatory obligations on non-custodial developers.
Still a tough nut to crack
There are three major threats that need special attention: (1) 6050I, (2) Tornado Cash sanctions, and (3) unauthorized funds transfer lawsuits. First, in the context of 6050I, we already have ongoing litigation, as we believe that the IRS's requirement to enforce reporting of personal information of payees receiving over $10,000 in cryptocurrency violates constitutional provisions regarding information disclosure without a warrant. Secondly, regarding Tornado Cash sanctions, we also have ongoing litigation, arguing that the sanctions law does not grant the Treasury the power to prohibit Americans from using immutable smart contracts (neither foreign individuals nor their property). Thirdly, we are shocked by the lawsuits brought by the Southern District Court of New York against developers of non-custodial software tools (like Tornado Cash and Samurai Wallet) for unauthorized funds transfers, and will support the defendants in these cases as much as possible. Although the Department of Justice may undergo changes under the Trump administration, due to its political independence, it may not abandon these prosecutions simply because of a government transition.
Reasons for optimism
While not delving deeply into the topic, the claim that the new government will be friendlier towards centralized businesses in the United States, particularly regarding investor protection issues, seems credible. This is good news, as intermediation services and efficient capital formation are crucial for expanding the appeal of cryptocurrency, especially for audiences that are less technologically savvy. However, what about the core focus of Coin Center, which is the impact on developers and users of truly decentralized tools and services?
From an institutional perspective, President Trump's generally supportive attitude towards cryptocurrency and his choices for SEC and Treasury appointments may mean that some controversial rule-making will be frozen or even abandoned. This is a consistent positive signal for us, as the SEC's redefinition of rules for exchanges and the IRS's broker rules targeting non-custodial developers have always been looming threats.
The new government's willingness to scale back overly aggressive sanctions and anti-money laundering policies remains uncertain. Nevertheless, we hope that as it becomes increasingly clear that even under a friendlier SEC, harsh regulatory policies will drive innovators out of the United States, hinder development, and deprive ordinary Americans of the benefits of these technologies, some progress can be made. The actual effectiveness of these policies in stopping criminals and terrorists is minimal.
We are also optimistic that Congress may play a larger role in advancing these regulatory issues. Substantial work has already begun, including members sending critical letters regarding the implementation of 6050I, Tornado Cash sanctions, and unauthorized funds transfer lawsuits. Legislation like the Blockchain Regulatory Certainty Act will provide legislative solutions to address unauthorized funds transfer lawsuits, and we are also prepared to find bipartisan avenues for its passage.
We look forward to collaborating with the new government on this issue, and are cautiously optimistic that if our arguments are persuasive enough, we will receive fair consideration. Throughout history, the constitutional rights of the United States, especially respect for freedom of speech and vigilance against unreasonable searches and seizures, should ensure that this remains the best place to build and use cryptocurrencies and open blockchain networks. It is important to clarify that 'supporting cryptocurrency' means not only choosing more friendly institutional leaders or implementing more favorable regulations for business, but also something deeply rooted in American culture: defending privacy and freedom of speech in the most challenging times, when national security issues loom and the shadows of crime and terrorism briefly obscure our enduring pursuit of freedom, privacy, and openness. Now is the time to act, to establish strong legal precedents to protect these technologies and enshrine the benefits they may bring into the future of the nation.
