National Security Implications of the Crypto-Tax Provision
Dear Members of Congress, Senators, and Staff,
As a 501(c)4 organization dedicated to facilitating American leadership in blockchain technology, digital currency, and DLTs (Distributed Ledger Technologies) we are writing to affirm our support for a broad infrastructure package that addresses the years-long decay in our nation’s structural integrity. We strongly believe that digital infrastructure remains vital to our nation’s stability, economic competitiveness, and national security.
The COVID-19 pandemic has reminded us that our digital infrastructure and financial system are a vital part of our national infrastructure. Therefore we must ensure that the technologies being utilized for important government services such as the distribution of stimulus, relief, and assistance are structurally sound and secure. Blockchain technology is built on cryptography and has been vital in the distribution of vaccines in two UK hospitals, where healthcare professionals were able to monitor in real-time the status and temperature of the Pfizer vaccine, which is vital to the distribution due to the sub-zero temperatures required for safe storage of the vials. This innovation was enabled by Hedera Hashgraph’s blockchain which relies on a public and decentralized blockchain that this legislation could threaten.
As White House National Security Adviser Jake Sulivan put it, “Passing this historic Bipartisan Infrastructure Deal into law is an urgent national security imperative for the United States,[...] America can only compete and win globally if we prioritize rebuilding modern, resilient infrastructure and creating good jobs. Investment in American infrastructure -- when coupled with other investments in innovation and technology - will determine our long-term competitiveness with China and the rest of the world. They are critical to building our position of strength.” This is why Blockchain Defense Initiative strongly urges the US Congress to address our nation’s industrial policy for DLTs and blockchain technology as the Chinese Communist Party’s expansionism and technological superiority accelerates specifically in blockchain technologies.
Recent attacks on American infrastructure have shown how vulnerable and outdated our current systems are, and how vulnerable our entire country is from threats in cyberspace. Currently, centralized systems with single points of failure have cost our entire society billions of dollars every year. That figure is expected to rise to over $1 trillion during the year 2021. By utilizing recent advancements in decentralized technologies, built bottom-up from cryptography, our country could secure our vital infrastructure and increase our efficiency and competitiveness.
Although this technology is still in its early stages, the American private sector and the free market have the opportunity to advance and integrate this technology to a place where it can be used to solve many of the problems facing our society. This is only possible if a regulatory environment that fosters innovation and investment is created.
We are deeply concerned by the proposed language regarding the treatment of blockchain-based digital assets that are currently underpinning the major advancements in blockchain technology. The langauge of concern goes as follows: “(D) any person who (for consideration) is responsible for and regularly provides any service effectuating transfers of digital assets.” By expanding the definition of a broker to include “facilitators” this bill potentially includes cryptocurrency miners, DeFi protocols all under the definition of broker. Doing so would make it technically impossible to operate decentralized blockchain networks in the United States.
By requiring unprecedented regulatory compliance and over-taxation of the blockchain industry, this infrastructure bill could single-handedly destroy and offshore America’s rapidly growing blockchain industry, as well as grant China supremacy in blockchain technology, DLTs, and cryptocurrencies. China has been developing its own Blockchain Service Network for years now using public-blockchain technology to build state-run infrastructure. In addition to this, China has been working on developing and implementing a Digital Yuan that allows the CCP full access and visibility into all transactions. America has an opportunity to introduce blockchain technology and digital currency that embodies the characteristics of free enterprise, democratization, and efficiency.
If Congress is looking to profit from the significant growth in blockchain-based payment rails, it should look at doing so through the development of clear and positive regulations for the blockchain ecosystem and industry. We strongly urge all Senators in favor of this legislation to reconsider the unprecedented crackdown on American innovators that are vital to our national security.
Alex Allaire - Chief Executive Officer Daniel Vaynshteyn- Executive Director