With continued dialogue between the blockchain industry and the U.S. Congress, there is still hope that regulatory legislation will arrive at a mutually beneficial resolution.
In recent weeks, the blockchain industry made headlines as it engaged in intense discussions with lawmakers after a $28 billion crypto tax reporting proposal unexpectedly became part of the Bipartisan Infrastructure Deal (BID). Ultimately, the BID language was unchanged, leaving uncertainty for the companies that build on blockchain, especially those dedicated to its value beyond cryptocurrency trading. Though unsuccessful in their bid to amend the language, many are claiming victory over the industry finding its voice in the negotiations. Now, it needs to use that voice to refocus the conversation on what really matters — the fact that blockchain technology is infrastructure, not just a revenue source to fund it.
Infrastructure in the form of roads, railways, broadband and the energy grid is about building foundations and connectivity for American businesses to grow and prosper. Look no further than businesses that fuel e-commerce and deliver goods to the doorsteps of Americans in every corner of the country. Their success is dependent on our infrastructure, from electricity and the internet to airports and highways. Their profits are taxed and used, at least in part, to support that underlying infrastructure.
In the blockchain context, the trading of cryptocurrency is just one of many uses for the technology — and, as highlighted by its inclusion in the BID, one that may generate significant taxable revenue. But, the technology itself, much like our systems of roads and railways, is infrastructure that creates opportunities for greater efficiency and connectivity to solve pressing real-world problems. Already, blockchain is creating better access to financial services, faster and cheaper cross-border payments, and greater interoperability of international banking systems — driving economic opportunity and financial inclusion in the U.S. and around the world.
Remittances to low- and middle-income countries reached $540 billion in 2020, according to the latest report from the Global Knowledge Partnership on Migration and Development. However, individual senders incur outsized fees when transferring money across borders using traditional payment infrastructure. In the fourth quarter of 2020, the global average cost of sending $200 was 6.5%. Blockchain improves the remittance landscape by significantly reducing fees, transaction times and friction associated with an abundance of intermediaries. Payments powered by blockchain can take seconds instead of days, and transaction fees can be negligible — as low as fractions of a cent.
Blockchain has attracted innovators with tremendous talent who are using this technology to build products and solutions at warp speed, much like in the early days of the internet. The possibilities are limitless, but only if technologists are allowed to continue to build, improve and innovate. They are the software and protocol developers, validators and miners, who make the technology function. The vague language of the BID could sweep these technologists into the definition of “broker” and the attendant reporting requirements. By not distinguishing between the builders of blockchain — the infrastructure — and just one specific use of that technology — brokering trades — the BID risks undermining progress in this burgeoning industry.
Blockchain infrastructure providers, faced with the possibility of reporting requirements for data they simply don’t have, will be forced to operate in an ever more uncertain regulatory environment that will, at best, slow their endeavors (and the practical use cases they enable) and, at worst, drive them offshore. Without blockchain infrastructure, the country would miss out on not only the tax revenue from cryptocurrency trading, but the benefit of many more solutions currently being built.
Understanding the ramifications of this language, the industry came together and reacted in force — not to stand in the way of legitimate taxation of cryptocurrency trading or reporting requirements, but to educate lawmakers. Experts must continue to speak out and explain blockchain, its use cases and the roles of different participants. Only then will lawmakers be able to craft legislation that balances the need for regulation with the need to encourage innovation to continue flourishing in the United States.
The industry is optimistic after hearing the well-informed senators who championed amendments that distinguished between technology builders and financial service providers. With continued dialogue between the industry and U.S. Congress, there is still hope that this legislation will reach a place that drives tax compliance from the appropriate users of blockchain while allowing for innovation within the broader space. As the BID passes to the U.S. House of Representatives, the work is far from over. The industry stands ready to continue to help lawmakers craft informed legislation, and looks to policymakers to foster, not hamper, technological advancements and infrastructure like blockchain that form the backbone of America’s success and economic growth.
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