DON’T MANDATE MASS SURVEILLANCE OF CRYPTO

WHAT’S GOING ON?

In Fall 2021, the US Congress passed the Infrastructure Investment and Jobs Act (IIJA) amidst the backlash from the public. The infrastructure package contained some deeply misguided provisions around cryptocurrency. The provisions threaten the software developers who are trying to create alternatives to big tech, undermines human rights and free expression, and creates harmful surveillance requirements for artists and creators. We fought its passage through the viral campaign dontkillcrypto.com and now we’re fighting again.

On August 29, the US Treasury Department and the Internal Revenue Service (IRS) published proposed regulations on the sale and exchange of digital assets by brokers as part of the implementation of the IIJA. This rulemaking will define who qualifies as a “broker” under the tax code. It would mandate mass surveillance of the crypto-economy in the name of reducing tax avoidance and require anyone deemed a broker to collect personal information about the users of their crypto tools and report that information to the IRS for tax purposes. We think cryptocurrency and decentralized technology have the potential to be an important alternative to Big Tech and Big Banks. Builders and software developers exploring this technology and creating privacy-protecting tools for their communities should not have to aid government surveillance under the threat of being shut down. 

What is the new rule being proposed?

The Treasury and IRS want to make a new rule that makes anyone “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” a broker. This move would require anyone deemed a broker to collect, keep and report personally-identifiable information from their users (including names, addresses and other financial information via tax forms to the IRS). It forces developers using this technology to track their users and collect unneccessary information from them. This proposal would facilitate government financial surveillance and threaten privacy and anonymity online.

What are the concerns?

Financial data reveals some of our most sensitive personal information, including our personal interests, the causes we support, and our plans for the future. The agencies’ total failure to consider our privacy rights is outrageous given that this rule would dramatically expand the financial surveillance dragnet. There’s no reason for any of us to believe that these agencies can securely store such a massive amount of sensitive information on millions of people. In 2022, the IRS mistakenly made private information about 120,000 taxpayers publicly available and the Treasury has been hacked previously. Collecting unnecessary information serves no other purpose than to put those users at further risk that neither agency can protect them from.

Will this new rule stop tax evasion, money laundering and other serious crimes?

In short, no. People who are operating illegal schemes can continue to use other means. This will not be a miracle fix for problems that exist within traditional finance. Instead, it will cause more issues than it attempts to solve. Similar rules at traditional financial institutions have backfired, allowing these crimes to flourish at some of the world’s biggest, most heavily-regulated banks. If it hasn’t worked before, why would it work now? This rule will effectively impose financial surveillance on people who are participating in the crypto-economy for legitimate purposes, while having little-to-no impact on bad actors.