Cryptocurrency is its own creature. If it were an animal, it would be much like the platypus, which took taxonomists 80 years to decide what the platypus actually is. Crypto may not have a duckbill, fin-like appendages, and a tail, but in the computing and financial world, it’s the same kind of hybrid.
And this is where Congress and regulators are getting it wrong. Determining right now what cryptocurrencies are is like trying to predict the attributes of a fertilized egg before it gestates.
Everything about cryptocurrencies is still in development. In fact, the most-known cryptocurrencies, like Bitcoin, Ethereum, and Cardano, have yet to fully implement their solutions to scale their networks. And each of these networks is undergoing significant changes by way of protocol improvements. Smart contracts have only within the last year gained formidable traction with decentralized finance, as is the case with blockchain-enabled collectibles, aka NFTs.
For many, these use cases in crypto have hardly made their way into our language. And this is just the beginning—there are blockchain-enabled social media use cases, cyber security use cases, and the ability to secure and protect our identities or medical records on the blockchain. Thus, the word “currency” in cryptocurrency is misleading—the underlying characteristics of crypto opens worlds of opportunity and unimaginable innovation that we have yet to understand.
But in the latest series of congressional voting, cryptocurrency has been debased to a mere opportunity to collect tax revenue.
This is not like the congress of the Bill Clinton era, whom paved the way for American leadership in technology by passing a bill that set up a tax grace period for nascent internet companies.
And this is unfortunate, as the invention of blockchain and crypto may prove to be just as groundbreaking as the internet itself. Congress, by aiming to tax crypto in its infancy, is setting up for the possibility that the United States will not be the hub for the future, decentralized internet.
Because crypto has already been misunderstood by many as an environmentally unfriendly energy vacuum, a network for criminal activity, or even a means to avoid paying taxes, crypto thus became an easy target for congressional and regulatory scrutiny. So, when asked how the proposed budget or infrastructure bill will be paid for, crypto seemed a safe answer. The proposed infrastructure bill was sent included language that treated crypto exchanges, miners, and other participants as stockbrokers. They propose that crypto could generate 28 billion in tax revenue based on the new reporting rules.
The crypto community pushed back. And both senators Cynthia Lummis and Pat Toomey responded to the community’s call. They revised the language in the bill by clarifying the definition of brokers, thereby softening the regulatory requirements on exchanges and miners. However, the attempt at an amendment missed passage by only one vote. Senator Richard Shelby of Alabama was the only holdout who can now go down in history as one of the major debauchers of cryptocurrency.
This week, the house has voted to proceed with the bill as it was passed by the Senate. Therefore, the industry is faced with a narrowing window of opportunity to amend the bill before it is signed into law.
Crypto lobbyists may not have had much clout with Congress this time around (as the current language should not have been haphazardly pushed into the bill), but that’s about to change. With the crypto industry worth more than two trillion dollars at this time, you can bet that this latest debacle will lead to wealthy crypto whales and crypto enthusiasts alike seeking a more favorable regulatory environment in Congress.
Entire college courses have been designed around blockchain technology. It’s unfortunate that Congress rushed to crypto judgment with this latest turn of events, as I am sure that those voting on the bill do not understand crypto as much as needed. Think of the platypus…and the many decades it took for scientists categorize it. Granted, we don’t need decades to categorize cryptocurrency, but this was a mad dash toward premature crypto regulation. The tax revenue gained from the legislation is likely much less than the potential tax revenue that would have been garnered without it. The regulation is also a deterrent to crypto start-ups. If the United States doesn’t find a better approach to blockchain, many of those start-ups will seek out homes in more crypto-friendly countries.
