Infrastructure Package Threatens to Slow Cryptocurrency Innovation
The debate over the trillion-dollar, 2000-page infrastructure package is heating up in Congress, but not for the reason everyone thought. Despite fears over rising debt and inflation, one of the most controversial parts of the legislation revolves around cryptocurrency and blockchain technology.
While there are various cryptocurrencies, the most commonly known one is Bitcoin. Bitcoin and other virtual currencies use blockchain technology, which functions like a giant virtual spreadsheet, to keep track of transactions between cryptocurrency users. Blockchain also has uses outside the cryptocurrency space such as keeping property records in less developed countries.
So what does an innovative technology have to do with infrastructure?
To pay for the trillion-dollar package, the legislation raises funding through a variety of measures. For example, auctioning wireless spectrum and levying a tax on the selling of Bitcoin or other cryptocurrencies. While the tax on cryptocurrency is unlikely to raise significant funding for the package, its regulation of the technology could have serious implications.
To enforce the new taxes, the IRS would impose reporting requirements on those making transactions using cryptocurrency. The reporting requirements would ensnare people far beyond those buying and selling various cryptocurrencies. The regulations would impose requirements on those creating the currency through the process of “mining” as well as software developers or other cryptocurrency startups. While involved in making the cryptocurrency technology work, these people don’t have the information to meet the reporting requirements laid out by the IRS.
Here in lies the problem of regulating cryptocurrency in infrastructure legislation. Cryptocurrency isn’t a one-size fits all technology. It’s incredibly complex and involves multiple different methods of creating a currency and tracking the transactions between people.
No doubt Congress will one day want to create rules regarding an industry with a market cap of two trillion dollars. But including regulation of a massive industry as a small portion of a large bill supposedly about roads and bridges isn’t only difficult, it’s potentially damaging.
With China cracking down on cryptocurrency in favor of its own centrally planned digital currency, the United States has the potential to be a leader in the technology. States like Wyoming and cities like Miami have attracted investment by having a welcoming regulatory structure to the technology. The Louisiana House even passed legislation that would have welcomed innovation in the technology. But the federal government could stop all this innovation and investment in its tracks with little benefit due to shortsighted regulation.
If Congress is dead set on regulating cryptocurrencies, it should take the time needed to understand the technology and do so with time for debate and nuance. America needs to lead with innovation, not regulate it away to raise a few million dollars in revenue.
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