The U.S. Congress will consider three bills that aim to relieve regulatory uncertainty and encourage the development of blockchain technology.
Rep. Tom Emmer, a Republican from Minnesota and co-chair of the recently formed Congressional Blockchain Caucus introduced (1) a resolution that supports blockchain technology, (2) a bill that would clarify that processors of blockchain transactions are not subject to regulations for “money transmitters” and (3) a bill that would provide a temporary tax “safe harbor” for owners of cryptocurrencies that have undergone a split known as a “hard fork.”
“The United States 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,” said Congressman Emmer in a press release.
Blockchain is a digital ledger — a log of transactions. The ledger is shared across a network of computers, and transactions are recorded onto the ledger only if the computers on the blockchain network reach consensus on the validity of the transaction. Transactions are logged on the ledger as part of a block, and the blocks are strung together in a chain, with each including a reference to the preceding block – thus the name “blockchain.” Bitcoin and other “cryptocurrencies” are “digital” money that ride on blockchain technology.
While countries such as Malta, Bermuda and Liechtenstein have been proceeding with legislation to encourage development of blockchain technology, more than three years have passed since pro-blockchain legislation was introduced in Congress. In late 2014, Texas Republican Steve Stockman introduced legislation in the U.S. House of Representatives to impose a five-year moratorium on regulation of blockchain technology, but that legislation has not made it out of committee.
Resolution Expressing Support for Digital Currencies and Blockchain Technologies
The first piece of blockchain legislation introduced by Congressman Emmer is a resolution “expressing support for digital currencies and blockchain technologies.” The resolution outlines the usefulness of blockchain technology in exchanges of value, the provision banking services to financially underserved people, identity and rights management, security for the Internet of Things, government record-keeping and increased efficiencies in industries such as insurance, healthcare and energy. It further notes “the emergence of blockchain networks in many ways parallels the emergence of the internet at the end of the 20th century.”
Blockchain Regulatory Certainty Act
The second piece of legislation, called the “Blockchain Regulatory Certainty Act” clarifies that miners of cryptocurrency are not subject to licensing and registration requirements for “money transmitters.” Miners use powerful computers to process cryptocurrency transactions and post them to a shared ledger of transactions.
Although the miners typically receive a fee to process transactions, they do not control the digital funds that are being exchanged in a transaction. The U.S. Financial Crimes Enforcement Network (FinCEN) issued rulings that stated that cryptocurrency miners and investors would not be subject to money transmitter regulations. Emmer’s legislation would appear to put into law the regulatory guidance from FinCEN.
Safe Harbor for Taxpayers with Forked Assets
The third piece of legislation introduced by Emmer provides some protection for U.S. taxpayers who own cryptocurrencies that have been “hard forked.” A hard fork occurs when a cryptocurrency essentially splits into two versions (with one following the path of the original blockchain, and the other following a new path. (Two of the most prominent cryptocurrencies — Bitcoin and Ethereum — have undergone hard forks.) Owners of the original currency then own both versions, and tax experts have noted that U.S. tax regulations are not clear on whether the owner of the receives income (for tax purposes) from the split and if so, when that income is deemed to have been received. The Section of Taxation of the American Bar Association submitted comments in March 2018 asking the U.S. Internal Revenue Service to create a safe harbor for taxpayers who owned forked currency in 2017, but the IRS has not issued guidance in response. Emmer’s legislation would require the IRS to issue regulations or guidance on the tax treatment of forked cryptocurrency.