The Blockchain Association Takes Action Against IRS Cryptocurrency Regulations
The Latest Development in the Regulatory Saga
On December 27th, the United States Internal Revenue Service (IRS) issued final regulations requiring brokers to report digital asset transactions. This move has sparked a joint lawsuit from the Blockchain Association and the Texas Blockchain Council, who argue that the new rules are unconstitutional and violate the Administrative Procedure Act.
The New Rules: A Broader Definition of a Broker
Under the new regulations, a broker is defined as any entity that facilitates the exchange or sale of digital assets, including decentralized exchanges (DEXs). This expansion of the definition means that even front-end platforms that do not directly handle transactions can be considered brokers if they exercise sufficient control or influence over the process. The IRS estimates that between 650 and 875 DeFi brokers and up to 2.6 million US taxpayers will be affected by these regulations.
The Impact on Blockchain Software Developers
The new rules raise significant concerns for blockchain software developers, as they may be considered responsible for ensuring compliance with the new regulations. This has sparked fears of "unlawful compliance burdens" being placed on developers building front-end trading infrastructure. The Blockchain Association has argued that this move will push innovation offshore, threatening the future of DeFi in the United States.
A Threat to Privacy Rights
The IRS’ new definition of a broker includes DeFi trading front-ends, which do not directly effectuate transactions. Marisa Coppel, Head of Legal at the Blockchain Association, has argued that this move is an infringement on the privacy rights of individuals using decentralized technology.
The Joint Lawsuit: A Fight for the Future of Crypto
In response to the new regulations, the Blockchain Association and the Texas Blockchain Council have filed a joint lawsuit against the IRS. Kristin Smith, CEO of the Blockchain Association, stated:
"Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional."
The association has expressed its commitment to standing with innovators and users of DeFi, and will continue to fight this "misguided rulemaking."
A Threat to Innovation: The Push for Compliance
The new regulations have sparked concerns among developers and users of decentralized technology. The Blockchain Association has argued that the push for compliance will lead to a loss of innovation in the sector, as developers are forced to prioritize regulatory compliance over creativity.
A Historical Precedent: Sanctioning Code Developers
The decision by the IRS raises significant concerns about the potential for code developers to be sanctioned for how their software is used. This has echoes of the case against Tornado Cash developer Alex Pertsev, who was found guilty of money laundering in May 2023.
A Broader Impact: The Future of DeFi
The new regulations have sparked a debate about the future of decentralized finance (DeFi) in the United States. As the industry continues to grow and evolve, regulatory bodies must balance the need for oversight with the need to protect innovation and creativity.
Conclusion
The joint lawsuit filed by the Blockchain Association and the Texas Blockchain Council is a significant development in the ongoing saga of cryptocurrency regulations. The new rules have sparked concerns about the impact on blockchain software developers, DeFi users’ privacy rights, and the future of innovation in the sector. As the regulatory landscape continues to evolve, one thing is clear: the fight for the future of crypto has only just begun.
Sources
- Blockchain Association
- Texas Blockchain Council
- IRS Final Regulations
- Tornado Cash Developer Found Guilty
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