The United States Senate on Tuesday approved the weak $US1 ($1.5) trillion bipartisan infrastructure package after negotiating for weeks. It will now head to the House of Representatives for final approval. Tucked into the end of the bill are provisions on cryptocurrencies that became a major sticking point in the waning hours of the Senate’s negotiations.
If the language is finalised, the legislation will impose new tax reporting requirements on cryptocurrency transactions. Congressional accountants estimate these could raise about $US28 ($38) billion in revenue over 10 years.
These provisions were met with massive opposition from the cryptocurrency lobby, showing how powerful the sector has become. Crypto advocates argue that the measure is too broad because if passed, it will apply to “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person,” including potentially so-called “miners” and software developers. Casting this wide a net, they argue, would stifle the industry and push it overseas.
But perhaps crypto should be stifled because it’s an absurdly energy-intensive industry. A March study found that by the end of the year, bitcoin mining could use almost as much energy as all the world’s data centres combined.
“The largest cryptocurrencies, the biggest being Bitcoin and the second largest being Ethereum at the moment, are together … consuming 1% of the global electricity consumption at the moment,” Alex de Vries, who runs the Bitcoin Energy Consumption Index and authored the March study, said. “That’s huge.”
The Crypto Lobby Is a Force
The cryptocurrency lobby fought tooth and nail to scrub these provisions from the infrastructure bill. Lobbyists directed thousands of crypto supporters — including Kiss bassist Gene Simmons and Trump-era banking regulator and current crypto executive Brian Brooks — to speak out against the bill on social media, Politico reported. Even Jack Dorsey, the CEO of Twitter and payments company Square, came out swinging — he tweeted that the infrastructure bill was “unworkable.”
Ahead of the infrastructure bill’s passage in the Senate, two amendments that would have limited the provisions — both from bipartisan groups of senators — cropped up. One that de Vries found particularly concerning was proposed by Sens. Mark Warner, Rob Portman, and Kyrsten Sinema, which would have not only narrowed the language to exempt more cryptocurrency actors from tax-reporting requirements but also restrained a more planet-friendly form of crypto mining known as proof-of-stake.
Currently, most of the crypto industry relies on another kind of blockchain, known as proof-of-work, wherein miner’s computers race to solve complex puzzles. This rewards those who have the most powerful computers, which is why bitcoin transactions use enough energy to power 330 homes in one hour. But the new model, proof-of-stake, would allow miners to certify new blocks by putting up a certain amount of crypto as collateral. The system allows only one machine with the highest stakes to have the opportunity to solve a calculation rather than letting all the mining machines race one other, allowing people to mine or validate block transactions based on how many coins they hold, not how much processing power they have. This rewards those with the biggest stakes rather than those with the most computational power, and thus makes transactions faster and vastly more efficient.
“The energy consumption of a system based on this alternative is 99.95% less than a proof-of-work-based system,” said de Vries, noting that due to concerns about energy usage, Ethereum, the world’s second-largest crypto, says it is launching a coin, Ethereum 2.0, based a proof-of-stake model.
The Warner-Portman-Sinema amendment would have exempted miners and crypto wallet developers who use the proof-of-work model from the tax provisions, which from a climate perspective would be an awful move. Despite this, the Biden administration praised the proposal.
A second amendment, proposed by Sens. Cynthia Lummis, Ron Wyden, and Pat Toomey, was also blocked by the Senate on Tuesday. On Friday, prior to its blockage, the Washington Post reported that Biden’s Treasury Secretary Janet Yellen was lobbying against it, but crypto enthusiast including Twitter’s Dorsey tweeted in favour of it. That amendment would have also limited the reach of the tax provisions even more than the Warner-Portman-Sinema proposal, though not in a way that would stifle proof-of-stake mining. It didn’t make it into the text of the legislation the Senate approved.
The cryptocurrency lobby has spent $US2.4 ($3) million in 2021 advocating for its interests. Though it ultimately wasn’t successful in limiting the language in the infrastructure bill, it will have another chance to do so as the House proposes its own amendments.
“This has definitely been a wake-up call to crypto,” Kristin Smith, executive director of the Blockchain Association, a crypto lobbying group, told Politico. “But on the flip side, I think Washington is starting to see that crypto is more of a force than anybody ever anticipated.”
We Need More Regulation
If it gets signed into law as-is, the language in the U.S. infrastructure bill could in theory cut down the crypto industry’s carbon footprint by disincentivising people from buying bitcoin or other cryptocurrencies for fear of losing money on taxes, depressing the overall market. Some cryptocurrency brokers already report transactions to the IRS, but most do not.
Still, de Vries doesn’t think this will be enough of a deterrent to have that much impact, so depending on this depressed demand wholly insufficient way to crack down on the industry’s emissions.
“I think people will still be buying cryptocurrencies,” he said. “I don’t see it having so much of an effect.”
De Vries said the infrastructure bill may not be the right place to do so, but it’s clear that the government should impose more regulations on crypto. That’s especially true because China has been severely cracking down on the industry, leaving many looking for a new nation to set up shop.
The current language in the infrastructure bill would constitute the strongest U.S. federal regulations on the industry yet and could open up the door for tighter regulation. There is interest from government officials in imposing restrictions: Last week, Gary Gensler, the chairman of the U.S. Securities and Exchange Commission, asked for U.S. Congress to expand his agency’s authority to regulate the cryptocurrency sector. But if the crypto lobby has shown us anything in the past week, it’s that it’s going to fend off regulation no matter the cost, planet be damned.