In July, the White House and Sen. Rob Portman (R-Ohio) agreed to a proposal that would require increased tax obligations for bitcoin “brokers” as a means to help fund the bipartisan infrastructure bill. However, the dubious definition the deal brings on what a “broker” would be in the Bitcoin network spurred criticism and revolt.
Under the original proposal terms, developers of free, open-source software (FOSS) in the Bitcoin space, bitcoin miners, node operators, and hardware wallet manufacturers would be considered “brokers” and thus demanded to abide by the new requirements.
The initial plan, crafted by Portman with the help of Treasury Department officials, aims to increase tax revenue from bitcoin and cryptocurrency transactions by effecting two changes. The first would require bitcoin payments worth more than $10,000 to be reported to the U.S. Internal Revenue Service (IRS). The second would require “brokers” in the bitcoin space to file a 1099 form for transactions with BTC and other cryptocurrencies. Here’s where the confusing definition of “broker” comes in.
Although actual bitcoin brokers – regulated bitcoin exchanges such as Coinbase – could realistically file 1099 forms in such circumstances, the proposal would also require filing by a wide range of actors in the Bitcoin space. But software developers, miners, node operators, hardware wallet manufacturers, Lightning channels, and others cannot obtain the necessary information for filing the 1099 forms – they do not know who their users are.
As a result, the Biden administration would end up crippling the growth of the Bitcoin network, the adoption of bitcoin the currency, and innovation on all the associated industries and firms.
Some senators opposed the proposal, devising amendments. The proposal was rebuked by Wyden, Sen. Patrick Toomey, and Sen. Cynthia Lummis, who pushed an amendment intended to prevent the Biden administration from applying the new rules to such a wide range of actors in the Bitcoin network.
But U.S. Treasury Secretary Janet Yellen has been lobbying against such agreements, The Washington Post reported. Yellen spoke with lawmakers Thursday to raise objections and lobby Wyden about the matter, pushing back against the attempt to limit the proposal.
The Treasury Secretary, however, is filled with Bitcoin fear and disgust. In February, she told CNBC that she didn’t see usefulness in Bitcoin and didn’t think it could be used as a transaction mechanism.
“I fear it’s often for illicit finance,” Yellen proceeded to tell CNBC. “It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
Besides not understanding one percent of what Bitcoin is, Yellen has gotten her own share of controversies. She has been making millions in corporate speeches on Wall Street in the past two years. Such “speaking fees” have been paid by large corporations including Citi, Goldman Sachs, Google, City National Bank, UBS, Citadel LLC, Barclays, Credit Suisse, and Salesforce.
Her interests, however, seem to be conflicting, to say the least. In January, light was shed on how Yellen received $810,000 from one of the firms involved in the GameStop case of last year. Citadel, the payer, was losing money as GME skyrocketed, fueled by a short-squeeze, only to see GameStop trading magically be halted by brokers across the U.S after some time.
Yellen’s “speaking fees” have been all the buzz and highlight how her incentives could be misaligned. She reportedly earns $221,400 a year in her governmental position while earning $7 million from “speeches” to banks. There is already an online petition for Yellen to resign her position as U.S. Secretary of the Treasury.
Despite Yellen’s power of influence, Senators have been working on the proposed changes. Sen. Cynthia Lummis, for one, said that “the fight is on.” But the latest text, released today, is still far from ideal, as Pierre Rochard noted.
“As written, the amendment excludes passive node operators who are just validating transactions but not broadcasting or relaying transactions,” Rochard tweeted. “It also does not exclude miners because they are providing another function/service. It does not exclude free open source software.”
Additionally, the text does not exempt hardware wallet manufacturers and Lightning nodes and channels. If approved in such conditions, the bill would cripple the U.S. current position in the Bitcoin space, especially mining. Since China introduced crackdowns on the industry, many companies have flocked overseas, and the U.S. has been a popular destination. But with the changes that the bill seeks to install, developers, miners, and many Bitcoin actors might flee the country.