Blockchain and Digital Currencies Supported by Congressman, SEC Commissioner
United States Congressman Tom Emmer (R-MN) announced on September 21, 2018 that he would be introducing three pieces of legislation designed to support blockchain and digital currencies. Aiming to help establish a reasonable regulatory framework for the technologies, Congressman Emmer – who was also named as a new co-chair of the Congressional Blockchain Caucus – stated that the U.S. “should prioritize accelerating the development of blockchain technology and create an environment that enables the American private sector to lead on innovation and further growth, which is why I am introducing these bills.”1
The pieces of legislation include two bills and one resolution. First, the Blockchain Regulatory Certainty Act would create a safe harbor that excuses blockchain-related entities from having to register under state licensing laws as money transmitters as long as they do not gain actual custody of consumer funds. Second, the Safe Harbor for Taxpayers with Forked Assets Act would restrict penalties on taxpayers who profited from a cryptocurrency “hard fork”2 if they made a good faith effort to comply with relevant laws, reflecting an effort to account for the current lack of guidance provided by the Internal Revenue Service.3 Finally, the resolution would express support for blockchain and digital currencies and take the position that regulators should adopt a “light touch” approach to the industry.
Just nine days earlier on September 12, Commissioner Hester M. Peirce of the U.S. Securities and Exchange Commission expressed support for digital assets in a speech at the Cato Institute’s FinTech Unbound Conference (with the standard SEC disclaimer that her views are her own and do not necessarily represent those of the Commission). Noting that investors’ ability to take calculated risks is important, especially in the capital markets where actions inherently involve taking risks to earn returns, Commissioner Peirce posited that the SEC should avoid being overly cautious in its approach to digital assets. She argued that the SEC’s central mission (protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets) actually requires it “to ensure that investors have access to products and services that enable them to construct investment portfolios that meet their needs.” Because digital assets can offer such utility, according to Commissioner Peirce, the SEC should ensure that investors have adequate information to evaluate digital assets and the ability to invest in such assets if they do decide to pursue these opportunities.
Commissioner Peirce also expressed the view that the Commission would eventually have to either allow innovation to occur within regulated markets or risk pushing investors away to less-regulated or even unregulated markets. Indeed, she opined, if the SEC chooses to overzealously regulate digital assets, innovation may be stifled, which ultimately holds back the financial markets.
In addition, members of Congress and representatives from throughout the digital asset industry have recently convened many times to discuss regulation of the industry and the ways in which law enforcement can and should approach cryptocurrencies. These events and the views expressed by Congressman Emmer and Commissioner Peirce show that there are leaders in the nation’s capital seeking to promote the growth of blockchain and digital assets.
1) “Emmer Spearheads Groundbreaking Legislation to Support Blockchain Technology and Digital Currencies,” United States Congressman Tom Emmer – Press Release (September 21, 2018).
2) A “hard fork” refers to an event in which a blockchain protocol and its rules are radically changed. As a result, nodes running previous versions of the blockchain must upgrade their software in order to be accepted by the newest version. Hard forks are usually implemented to add blockchain functionality or reverse transactions.
3) IRS guidance on cryptocurrencies was issued in 2014 but has not been updated. In summary, the guidance takes the position that cryptocurrencies are treated as property for U.S. federal tax purposes. Among other things, this means that wages and payments via cryptocurrencies are taxable and subject to reporting requirements.