After several months of negotiations, the U.S. Senate passed
the Infrastructure
Bill in August. Officially dubbed the
'Infrastructure Investment and Jobs Act', the bipartisan
bill is part of President Biden's wider economic agenda. The
2,700-page bill proposes certain amendments to crypto regulations
that could impact video game developers and other emerging
technologies companies.
About the Infrastructure Bill
The $1.2 trillion Infrastructure Bill is the first installment
of Senate Majority Leader Chuck Schumer and House Speaker Nancy
Pelosi's two-track legislative strategy to enact Biden's
economic agenda. It passed 69-30 and includes funding for critical
infrastructure development including roads, bridges, electric
vehicles, broadband, cybersecurity, water, and electrical grid
resilience. The passage of the bill represents a compromise of
sorts by carving out spending on social programs many Democrats
wanted in exchange for some Republican support. Investment in those
social programs is expected to be rolled into a massive $3.5
trillion bill for later consideration.
The bill includes a $ 65 billion investment to improve the
nation's broadband infrastructure. The aim is to reduce the
cost of internet service by requiring federal funding recipients to
offer affordable plans. It also aims to create price transparency
by boosting competition in areas where existing providers do not
provide adequate service. While this mandate could boost the
playing of video games, industry observers say it is one of only a
few positive glimmers for game developers amid the bill's many
detrimental effects.
The Potential Impact of Crypto-related Provisions
The Senate version of the bill requires cryptocurrency brokers
to report to the Internal Revenue Service (IRS) certain information
regarding the returns or profits booked by their clients. Coupled
with existing law that requires brokers to report any transactions
over $10,000, the new regulation will make it easier for the IRS to
track the transfer of digital assets. The ultimate aim, obviously,
is to keep tabs on individuals' capital gains and income in
order to collect taxes. This provision is similar to the obligation
of a traditional broker to report the sale of a stock or bond. The
move signals the U.S.'s continued trend toward treating digital
assets as securities and could pave the way for similar treatment
of non-fungible tokens. Industry advocates say the crypto-related
provisions create legal and regulatory complications for several
reasons.
1. Ambiguity
According to some commentators, the definition of the term
'broker' is ambiguous and carries the potential to include
anyone involved in any kind of cryptocurrency transaction such as
miners, stakers, and software developers within its ambit. This is
because the bill defines a broker as any person who is responsible
for regularly providing any service effectuating transfers of
digital assets on behalf of another person.
2. Adverse Economic Impact
According to the Blockchain Association, the Infrastructure Bill
contains harmful reporting requirements with which many in the
American crypto space will be unable to comply. To avoid the
onerous regulation and large penalties and fines they would face
for non-compliance, many crypto players will be forced to move
their operations overseas, taking potential jobs and future
economic growth with them.
3. Privacy Issues
According to digital rights advocacy organizations, the proposed
crypto-related provisions raise privacy concerns, as the IRS'
mandate to collect customers' names, addresses, and
transactions means almost every company that deals in, uses, or
accepts cryptocurrency as payment may suddenly be forced to store
the personal identification information of their users. This
certainly raises issues with respect to privacy and security.
Digital rights advocacy organizations such as the Electronic
Frontier Foundation (EFF) and Fight for the Future have urged lawmakers to
reconsider the crypto regulations that they say threaten
citizens' civil liberties.
4. Non-Financial Implications
Another criticism leveled against the Infrastructure Bill is
that crypto technology is not all about the (digital) money. Much
of the crypto world does not revolve around the trading of
financial instruments but instead includes a wide range of
activities such as collecting digital art and deployment of
low-bandwidth wireless networks. These activities carry very little
risk of being used to evade taxes or launder money. Requiring
such companies to collect detailed information on their users and
provide tax returns has the potential to stifle adoption and
innovation.
Conclusion
The crypto-related provisions of the Infrastructure Bill could
have far-reaching impacts on emerging technologies companies'
innovation and implementation of crypto and blockchain technology
as well as their commercial and regulatory futures.
House and Senate negotiators may consider the industry's
objections to the Senate version. Because they were passed as
amendments to the House's INVEST in America Act, both houses
will have to agree on a single version of the bill before sending
it for the President's signature. Even if the Senate's
crypto amendments are signed into law, it will take some time
before its full impact becomes clear. Still, companies involved in
the crypto space should prepare sooner rather than later to deal
with potential new requirements and assess their business models.
Consulting an attorney experienced in the emerging technologies
space to get tailored advice on how the IRS reporting provisions
will affect them may be the most prudent course of action.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Gloss