The US debates over cryptocurrency reporting requirements
For the last two weeks the crypto community has been closely following a drama unfolding in the US Senate over a new bi-partisan infrastructure bill, which also includes strict cryptocurrency regulations.
The new bill expands crypto taxation and contains a very vague definition of a ‘broker’, essentially imposing sophisticated tax reporting requirements on all participants in the crypto economy. The new regulation would potentially hold miners, proof-of-stake validators, wallet providers and even smart contract developers responsible, as brokers, for reporting to the Internal Revenue Service data that they often do not have access to.
The crypto community called all Americans to ask their representatives in the Senate to support several amendments to the bill that were designed to lessen the burden on new taxation and accounting requirements by explicitly excluding certain entities from the definition of a broker. However, all efforts to prevent mass crypto surveillance hit the wall of the banking lobby.
For example, one of the amendments could have excluded developers from a ‘broker’ definition, but US Treasury Secretary Janet Yellen moved in to push for a competing ‘Warner-Portman amendment’ that didn’t exclude coders. Shortly after, the crypto community has drawn attention to the fact that Yellen is an unelected official and has recently received millions of dollars from banks for her speeches, most of which happened over Zoom calls because of the pandemic.
After a few days of heated debates, a bi-partisan compromise amendment has been introduced but it failed to achieve unanimous consent, as well as Senator Cruz’s last-ditch attempt to completely strike crypto from the bill. 87-years-old Senator from Alabama Richard Shelby - who receives most of his campaign donations from the traditional finance sector - decided to object all amendments as long as his own amendment to increase military spending by $50 billion wasn’t approved.
As a result, the infrastructure bill passed the Senate without any clarification on a crypto ‘broker’ definition and is now set to go through the House of Representatives, where the cryptocurrency lobby will direct its resources to.
While some say that such strong regulations, if pass, will stifle innovation, others argue that draconian anti-crypto laws are necessary to make sure that the community builds resilient censorship-resistant tools designed with privacy in mind. As we know, Bitcoin has survived for over a decade and became a highly valuable asset not because of friendly regulations, but rather in spite of a very hostile regulatory environment.
The most recent crackdown on cryptocurrency mining in China led to a massive exodus of miners to more friendly jurisdictions. Will tighter crypto regulations start a similar wave of exodus from the US jurisdiction, or will KYC/AML and other reporting requirements become a new norm in the crypto/DeFi space?
At the end of the day, we’ve already seen how face recognition technology - once deemed to be a dystopian surveillance tool of an authoritarian state - became socially acceptable and widely-used even in many ‘western democracies’.
The base fee is here
Ethereum’s London hard fork went live, bringing a long-awaited and somewhat controversial EIP-1559 to the mainnet.
The fork coincided with the start of a bull-run, which historically spikes transaction fees due to the rise of network activities. In the first few hours after the upgrade most Ethereum blocks were 100% full, hitting newly doubled gas limit of 30 million per block. The gas price rose above 200 gwei at the peak of clearing the mempool - a backlog of unconfirmed transactions.
The key difference of current network congestion is that the base fee is not allocated to miners, but rather is being burned, essentially removing some ETH from circulation. While the new mechanism increases scarcity of Ether by currently burning somewhere between 2 and 4 ETH per minute, it doesn’t make the second largest cryptocurrency deflationary yet, because on average more ETH is being minted than burned as a base fee.
Although, that might change in the future as the fist deflationary Ethereum block in history has already been mined. The largest Ether burners since the upgrade are NFT marketplace OpenSea, decentralized exchange Uniswap and crypto game Axie Infinity.
In other news
Riccardo ‘Fluffypony’ Spagni - a former lead developer of privacy-focused cryptocurrency Monero - has been arrested in the US on charges of corporate fraud, and is now awaiting extradition to South Africa. Authorities allege Spagni made roughly $100,000 creating fake invoices while working for South African company Cape Cookies back in 2009.
World’s largest centralized crypto exchange Binance was banned in Malaysia, and stopped providing futures and derivatives products in Italy, Germany, and the Netherlands. Amid ongoing scrutiny from regulators across the world, Brian Brooks - the former head of the U.S. Office of the Comptroller of the Currency - has resigned after serving less that 4 months as a CEO of Binance’s U.S. arm, citing “differences over strategic direction”.
Due to a vulnerability between contract calls, cross-chain protocol Poly Network has been exploited to the tune of over $600 million in various tokens across the Ethereum network, the Binance Smart Chain, and the Polygon network. After a day of negotiations, the hacker has returned the stolen funds (except for 33 million USDT frozen by Tether). The Poly Network team has offered the attacker a $500,000 bounty for exposing the security vulnerability.