The US Senate passed a $1 trillion infrastructure bill on Tuesday with a glaring problem for the cryptocurrency industry. The bill includes vague new tax reporting requirements that digital rights activists say threaten individual privacy and crypto advocates say could hamstring industry innovation in the US.
The bill’s authors focused on closing the crypto “tax gap” to pay for some of the massive spending plan, but critics say it falls short of appropriately regulating the budding industry. The bill requires any crypto “broker,” defined as anyone “responsible for and regularly providing any service effectuating transfers of digital assets on behalf of another person,” to report users’ names and addresses. That leaves all sorts of players in the crypto space including miners and software developers on the hook—even though many of them do not currently gather or access personal information about users, many of whom are anonymous.
The Electronic Frontier Foundation (EFF), a digital rights group, called the bill a disaster for digital privacy. “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,” wrote Rainey Reitman, EFF’s chief program officer.
The provisions complicate business for crypto companies in the US and could stifle innovation, said Anne Fauvre, COO of blockchain-based cloud company Oasis Labs, in an interview with Yahoo Finance. “It would require taxation in a way that isn’t even possible,” she said. “It would require people to send people 1099s to people who are anonymous or who you don’t have a direct relationship with.”
The crypto industry and its lobbyists supported a bipartisan amendment to the infrastructure bill that would have clarified the definition of broker to specifically exclude “validators, hardware and software wallet makers, and protocol devs,” but that failed a vote Monday that required unanimous consent after Sen. Richard Shelby, a Republican from Alabama, voted “no” in order to advance additional military spending, a measure that also failed to pass.
The original language of the bill passed through the Senate, though it could be altered when it gets to the House of Representatives. The entire infrastructure bill faces a formidable fight in the House where progressives have vowed to “tank” the deal unless an even more expansive version is passed. The potentially drawn-out nature of the fight ahead should give crypto advocates time to make the case for more fitting tax requirements, and there is already interest in the House in fixing what the Senate delivered.