Seasoned corporate lawyer and Compound Finance (COMP) general counsel Jake Chervinsky shares his (sad) commentary on the new U.S. taxation proposal.
KYC for everyone: no more pseudonymous DeFis?
Mr. Chervinsky states that the new U.S. infrastructure bill notably expands the definition of "broker." If passed, all non-custodial actors might fall into this category. Why is it dangerous?
1/ 🚨 Here's the deal with the US infrastructure bill:— Jake Chervinsky (@jchervinsky) July 30, 2021
A new provision has been added that expands the Tax Code's definition of "broker" to capture nearly everyone in crypto, including non-custodial actors like miners, forcing them all to KYC users.
This is not a drill 👇
According to Compound's GC, this will reshape the taxation requirements for nearly every actor in the crypto industry: proof of Work (PoW) miners, proof of stake (PoS) validators, liquidity providers of decentralized finances (DeFis), protocol governors and so on.
Even non-economic participants in crypto markets (node operators, software developers) will be eligible for tightened taxation rules.
As new "brokers," they will be obliged to fill out form 1099 that includes a critical amount of sensitive data, including real name, address, phone number, etc.
As some of the categories mentioned include actors that are by default anonymous, the new bill might damage every segment of crypto economics. Also, if read literally, it most likely imposes a ban on crypto mining in the U.S.
Mr. Chervinsky adds that this new rule will not be efficient: its implementation will be far more expensive than the potential increase in raises it is set to result in:
The infrastructure bill is estimated to cost > $1 trillion. Congress scored the new "broker" definition at $28b in added tax revenue.
Also, this bill damages normal discussion on crypto regulation and may scare miners who are moving their equipment overseas amidst the Chinese crypto witch hunt.
The views of Mr. Chervinsky are shared by many prominent crypto enthusiasts. Bitcoiner Muneed Ali, co-founder of Stacks and CEO of Hiro, calls it "a kill switch for crypto":
The proposed Tax Code in the US infra bill means miners & validators need to KYC all "customers," i.e., transactions.— muneeb.btc (@muneeb) July 30, 2021
It's equivalent to saying you need to KYC users if you touch internet packets.
It's a kill switch for crypto in the US, and policymakers don't understand this.
Mr. Chervinsky calls the community to oppose this bill but admits that crypto entrepreneurs should brace themselves for a "long fight."