BeinCrypto spoke to Alan Konevsky, Chief of Legal at tZERO. He spoke about regulations for cryptocurrencies, especially as the space “grows up.”
Recently, a new Senate bill in the United States sent a shockwave through the crypto community. The bill, with over 2,000 pages, had a small section pertaining to crypto taxes and reporting. Despite its small, nonchalant presence in the bill, its effects would have been massive.
The bill’s murky language grouped almost every type of participant within the crypto industry into the same tax and reporting bracket. Potentially even a simple transfer of bitcoin from a friend would’ve been reportable to the IRS.
Despite the proposed amendments, most of the community remains on edge until an official standard is in place.
Crypto-forward Senator Cindy Lummis immediately proposed a more reasonable course of action in opposition to the original bill. She tweeted that there is more work to be done.
“The fight is on. Unfortunately, it will likely be epic – expect 12 rounds,” said Lummis.
Regulations for a grown up crypto space
tZERO, where Konevsky works, provides solutions for token liquidity issues while remaining within the general framework of securities compliance laws.
His years of experience within the fintech sector and legal professionals provide insight into the current situation.
For Konevsky, the push for regulations shows the maturity of the crypto industry.
“Crypto has sort of found itself all grown up all of a sudden, and all of a sudden, we find ourselves in the spotlight of a national political process, in the middle of a very meaningful piece of unrelated legislation, where for revenue generation mesures crypto is relevant, because it is grown up and an attractive source of revenue.”
He stressed the importance of understanding the true objectives of lawmakers through such policies.
“Are the objectives that the policymakers are trying to achieve from reporting and therefore revenue, are they being handled the right way for crypto? Or are people applying the kind of tools that they’ve become used to with traditional finance and thinking of all the current participants in the crypto industry, analogous to traditional banks, traditional broker-dealers, traditional transfer agents, and polling firms, and other institutions? When in fact, crypto by DNA and function is very different,” he says.
“That’s kind of the core of the debate.”
Konevsky called the provision broad and saw the original version of it as unworkable for the crypto community.
“It’s not workable to treat everyone in crypto like a traditional financial institution, no matter how different they are, and to force them to report the data to the IRS that they don’t have, can’t have, shouldn’t have and can’t get. You’re not really growing up until Congress wants money from you.”
Creating understanding between worlds
Considering how the regulations were laid out, Konevsky sees these issues as one with multiple sides. On the one hand, it could be a standard case of ignorance. While on the other it could be a clumsy attempt at meaningful engagement. However, he doesn’t see it as strictly one or the other.
“It’s a combination of a couple of things. One, it is a reflection of lawmaking being focused. If you’re focused on raising revenue, this is how we dealt with reporting requirements in the past intended to increase revenue. So we’re going to do the same thing here. Right? That’s number one.”
“Number two, there is a need for continuing education about different natively digital representations of value that sit on a single technology layer without the groups of regulated financial institutions and other intermediaries being involved necessarily.”
For Konevsky, painting all these industries with one brush is a poor approach and one that will not work.
“Applying the same concept doesn’t work. If you want data, if you want reporting, who do you get it from? Right? You can’t all go after central custodians themselves from centralized exchanges, you can’t go after everyone. So it is a function of education.”
Crypto-forward advocates for regulations
However, despite the issues with the more recent bill, in Konevsky’s experience, high-profile legislators are generally enthusiastic about the innovation coming out of the decentralized communities.
“There are a lot of folks who are supporters of industry who understand a great deal about the industry, both the members and our staff. But it’s also an evolving project. So, that needs to continue to happen if the U.S. is to remain competitive in space, which is by definition, global.”
Nonetheless, Konevsky pointed out he thinks regulations can serve all parties. There needs to be the right balance.
“You know, the debate is how much regulation is appropriate? I don’t think it’s the right answer, that it’s none. Nor is that the pragmatic answer. You know, financial services are the most highly regulated part of social interaction. It has been for a long time and will continue. I think the reality is there are very legitimate objectives and very legitimate interests in terms of protecting investors, protecting consumers, protecting users, protecting the market,” he says.
“Meanwhile, the government has tremendous interest in maintaining control over monetary policy, and fiscal policy. Money has become an important instrument of foreign and domestic policy, as we’ve seen, several foreign investment policies.”
“It’s a very effective tool, and the government will do what it can to preserve that. So there are a bunch of different factors that make it neither right nor possible to assume that this will go from for regulation to zero overnight,” he says.
Regulations, between a rock and a hard place
Despite the advocates, if no crypto-forward change surfaces, Konevsky sees many in the community stuck in a difficult situation.
“I’d say the political process has yet to play itself out both in the Senate, where when there are a couple of amendments to the language, maybe more than a couple, at least one of them was better, co-sponsored by Senator Lummis. There, there are a number of folks in the house who have been terrific advocates of the benefits of blockchain technology,” he says,
“But at the end of the day, if you assume that the rule gets an act, the statute is enacted, the enabling regulations get adopted, and administering and enforcing a matter right now, it would put a lot of participants in the cryptocurrency and distributed financial ecosystem operating in the U.S. in a rock and a hard place position.”
Could the U.S. blockchain empire fall?
So while stuck in this limbo of learning curves and even-handed debate, Konesky does provide a warning should harmful legislation pass. He foresees a possible exodus of the crypto community from the U.S. should these legislators make aggressive moves against them.
“I don’t think you can be put in the position of collecting data and reporting if you give bitcoin to someone. I don’t think data miners or data or developers can do that. Some will then question, do I go abroad? It’s a very fluid space, by definition, you know, one of the main benefits is that it is a global network of value. A lot of innovation has been happening outside of the U.S. already. It’ll continue.”
As an example, he references China, where the government has taken a different approach. They have moved into central bank digital currencies as their own initiative in the digital currency space.
“Is the right thing for the U.S. to be hamstrung from a development perspective? I don’t believe that it is. It’s a risk where anything that you do here is so malleable, it’s so flexible, so global, a lot of it has been happening outside of the US already,” he explains.
“An incremental measure like this could be very impactful in a negative way. The industry will survive and will overcome these challenges, but it’s going to be a negative factor. A negative factor is kind of important in the delicate stages of development of this technology. It’s becoming a very difficult climate for folks to be excited about being in the U.S.”
The balance of limitations
Overall, the discussion boils down to how much legislators are limiting growth and innovation when it comes to regulations.
For Konevsky, it is possible to find a balance between controls and controlling and it all comes down to dialogue.
“Is it possible to get other vectors of regulation and to enable people to interact peer-to-peer in a way that still preserves kind of core values and perceptions about society. It’s possible. I think that a lot more needs to happen in conjunction with industry. People need to talk more. People need to listen more. You know, being willing to walk away from the hang-ups, whatever they are, each side has an agenda – when they say they don’t they do,” he says.
“So to have a dialogue and have more meaningful industry participation, like other industries have. Whether it’s financial services, automotive, whatever it is, participation in the legislative and policy making regulatory process is absolutely critical. We shouldn’t have to play catch up after the fact.”
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