Only July 27, Senators Warren (D-MA) and Marshall (R-KS), alongside Senators Manchin (D-WV) and Graham (R-SC) re-introduced the Digital Asset Anti-Money Laundering Act. This proposal aims to eradicate digital asset innovation from the United States at the expense of market security by imposing impractical and unworkable compliance burdens on industry participants. We have met with nearly all members of the Senate Banking Committee on this proposal and it is unlikely to pass the Senate. However, it will receive significant media attention, possibly a markup in the Senate Banking Committee, and could attract additional co-sponsors. For those reasons, we strongly encourage all consumers interested in preserving and improving the health and viability of the digital asset ecosystem to call their Senators to voice opposition to this bill.
The legislation would classify certain industry participants, including individual miners and validators, as financial institutions subject to the Bank Secrecy Act compliance regime. Treating these entities commensurate with the largest banks, hedge funds, and money transmitters would weigh them down with unnecessary compliance, stifle innovation, hinder industry growth, and force activity offshore to jurisdictions with less adequate security and oversight.
For example, digital asset validators and miners do not typically engage in activities that qualify them as financial institutions under the Financial Crimes Enforcement Network’s (FinCEN) definition. FinCEN’s regulations are designed to cover entities that engage in traditional financial activities, such as accepting deposits, issuing loans, or engaging in other types of lending or financial intermediation. Digital asset validators and miners are generally involved in the technical operation of blockchain networks and do not provide financial services to customers. Blockchains are the software rails on which transactions, financial and otherwise, operate–but we do not subject software providers of banking infrastructure to the same regulations as banks.
Registering as a financial institution would impose significant compliance costs and hinder or preclude participation in the digital asset ecosystem. Covered entities may be forced to depart the U.S., resulting in a brain drain of talented developers and technical experts critical to continued digital asset ecosystem development. This is already occurring: in 2017 the U.S. led all other nations with a 40% share of global blockchain developer roles; that share has dwindled to 29% today and is projected to decrease by an average of 2% annually–and in an industry expanding at a torrid pace, meaning we are holding a diminishing share of a growing pie.
Instead of requiring digital asset validators and miners to register as financial institutions, regulators should focus on developing a regulatory framework that is tailored to digital assets’ unique characteristics and balances the imperative for consumer protection with the benefits of innovation and growth.
As such, we oppose this legislation and urge Congress to reconsider its approach to regulating the digital asset industry. There is an outcome to this subject that balances consumer protection and allows for innovation to flourish. We hope policymakers choose to work collaboratively with industry to develop sensible, nuanced regulations before our allies and adversaries exploit our indecision, to the long-term detriment of our economic competitiveness and consumer choice.