Author: Coin Center
Compiled by: GaryMa Wu Says Blockchain
In the recent elections, cryptocurrency received significant attention, with many speculating whether the new government and Congress would have a friendly attitude towards it. In short, we expect that policies may improve in certain areas, while other areas still face challenges. We believe that clearer rules may be achievable in the fields of securities and banking regulation, such as rules for centralized secondary markets and centralized stablecoin issuers.
The outlook is less clear regarding anti-money laundering, tax reporting, and sanctions. Below are our thoughts on these issues and a preliminary analysis of future opportunities and challenges.
How to view cryptocurrency-related issues during a government transition
Cryptocurrency policy issues can roughly be divided into two categories: regulatory issues (tax reporting, BSA/AML, sanctions) and investor protection issues (SEC, CFTC, banking). Achieving good policy in one category does not mean that the same results can be achieved in the other category. The motivations behind these two categories of policy are different (protecting investors vs. identifying and stopping illegal flows of funds), and the political motivations and opportunities for coalition building among legislators differ in each area.
Similarly, the cryptocurrency ecosystem can also be divided into two 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 who use these protocols and applications).
Coin Center hopes to promote good policies 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 realm of investor protection or regulation, any overly aggressive regulatory framework could threaten developers and users. However, threats from the regulatory field have appeared to be more profound in recent years.
The following is a chart of past and potential future policy actions to help you understand this framework:
You may notice that the box in the lower right corner appears particularly heavy compared to other parts. This may reflect our focus of concern. Coin Center's mission focuses on the right of decentralized infrastructure developers to publish code (involving the First Amendment) and opposing unreasonable regulatory requirements (involving the Fourth Amendment). This box is indeed the battleground of these two major issues. Even with some bias, this area has indeed been more contentious than any other in the past four years. This can be explained in various ways, such as from the perspective of public perception and news cycles, where some politicians mistakenly or opportunistically connect tragedies in global and foreign policy with cryptocurrency (such as Hamas fundraising, Russian oligarchs trying to evade sanctions). Additionally, in coalition building, while the left and right rarely agree, they 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 rules defined by exchanges that are gradually directly affecting individual developers and users, as well as their enforcement actions against wallet providers (such as ConsenSys's Metamask and Coinbase Wallet). At the same time, regulatory issues are becoming more prominent, including 6050I reporting obligations, Tornado Cash sanctions, broker reporting obligations, and unlicensed money transmission prosecutions against non-custodial developers. Meanwhile, 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) prosecutions for unlicensed money transmission. First, in the context of 6050I, we already have ongoing litigation where we believe the IRS's requirement to enforce reporting of personal information for cryptocurrency recipients over $10,000 violates constitutional provisions against warrantless information disclosure. Second, regarding the Tornado Cash sanctions, we also have ongoing litigation arguing that the sanctions law did not grant the Treasury the power to prohibit Americans from using immutable smart contracts (neither foreign nationals nor their properties). Third, we are shocked by the unlicensed money transmission prosecution filed against developers of non-custodial software tools (such as Tornado Cash and Samurai Wallet) in the Southern District of New York, and we will support the defendants in these cases as much as possible. Although the Department of Justice may change under the Trump administration, it may not abandon these prosecutions due to its political independence.
Reasons for optimism
Although not delving deeply, the new government is expected to be friendlier towards centralized businesses in the U.S., especially regarding issues related to investor protection. This assertion seems credible. This is good news, as intermediated services and efficient capital formation are crucial for expanding the appeal of cryptocurrency, especially for audiences that are not tech-savvy. However, what about the core concerns of Coin Center regarding the impact on developers and users of truly decentralized tools and services?
From an institutional level, President Trump's general support for cryptocurrency and his choices for appointments to the SEC and Treasury may mean that some controversial rule-making will be frozen or even discarded. This is a consistent positive signal for us, as the SEC's redefinition of exchange rules and the IRS's broker rules targeting non-custodial developers have always hung like swords over our heads.
The new government's willingness to scale back overly aggressive sanctions and anti-money laundering policies remains uncertain. Nevertheless, we hope that if it gradually becomes clear that even under a more friendly SEC, harsh regulatory policies will still drive innovators out of the U.S., hinder development, and deprive ordinary Americans of the benefits of these technologies, some progress might 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. A lot of work has already been done, including members sending critical letters regarding the implementation of 6050I, Tornado Cash sanctions, and unlicensed money transmission prosecutions. Legislation like the Blockchain Regulatory Certainty Act will provide a legislative solution for addressing unlicensed money transmission prosecutions, and we are also prepared to find bipartisan pathways for its passage.
We look forward to collaborating with the new government on this issue and cautiously optimistic that if our arguments are persuasive enough, they will receive fair consideration. Through the course of history, the constitutional rights of the United States, especially the respect for freedom of speech and vigilance against warrantless searches and seizures, should ensure that this remains the best place to build and use cryptocurrency and open blockchain networks. It is important to clarify that "supporting cryptocurrency" does not only mean choosing more friendly institutional leaders or implementing more business-friendly regulations, but also something deeply rooted in American culture: defending privacy and freedom of speech in the most difficult times, when threats to national security, crime, and terrorism momentarily overshadow our enduring pursuit of liberty, privacy, and openness. Now is the time to act, to strive for strong legal precedents to protect these technologies and engrave the benefits they may bring into the country's future.
