Crypto Controversies in Infrastructure Bill
All the articles covering the crypto controversies in the infrastructure bill are overly complex. Essentially, Congress wants to increase regulation of the crypto industry, as well as partially pay for infrastructure spending with crypto taxes.
However, there is debate over if miners and software developers should be subject to the same increased regulation as brokers. Or is it increased regulation?
Brokers are already subject to know your customer (KYC) and anti-money laundering (AML) regulations, so they will continue operating business as usual.
Due to the partially anonymous and decentralized nature of bitcoin transactions in particular and crypto transactions in general, it would be physically impossible for miners or software/hardware providers to know who their customers are.
So, one amendment proposed by (insert unimportant Senators) introduced language specifically protecting miners and software developers from these crypto infrastructure rules; however, competing (unimportant) Senators introduced a bill that only protected proof of work miners, not proof of stake miners, or other software developers.
At the last minute, the amendments were struck down (I think, it’s unclear/unimportant what actually happened) by another unimportant senator who wants more money for the military industrial complex.
Ultimately, this is probably good news for the crypto industry from the perspective of existential risk. What I mean by this is the fact that senators were caving to pressure from the crypto industry shows that it is highly unlikely that Congress will ban crypto in the near future.
Which is a win for crypto. At the end of the day, it really just shows that Congress has no clue what it is doing to regulate crypto.
They didn’t understand the technology, so they specifically favored bitcoin to proof of stake altcoins, they treat individual software developers and miners as if they are even capable of complying with KYC laws, and they don’t even require anything new for existing brokers!
How should crypto actually be regulated? I think a first step is to accurately estimate the percentage of bitcoin/crypto transactions that are used for money laundering.
In the past, I’ve argued that most crypto transactions either involve financial speculation or money laundering. A small percentage is used for purchasing legitimate goods.
Financial speculation involves leveraging bullish and bearish bets on the direction of an assets price change, so it makes sense that transactions of a commodity like bitcoin or even gold involve a large amount of financial speculation.
What makes bitcoin different than cash, however, is that most cash transactions are for legitimate goods, whereas there is virtually (pun intended) no advantage to using crypto over credit/debit/cash for purchasing legitimate goods.
Nevertheless, it is merely my hypothesis that a very large percentage of crypto transactions are used for money laundering.
Here, I propose a test for how to estimate how much money is laundered by using an advanced web scraper, as well as undercover purchases/sales, to look at localbitcoins.com and dark websites and comparing that to government drug money databases.
Localbitcoins is a popular website used for peer to peer cash to crypto transfers. An example of a localbitcoins transaction would be as follows: You deposit money into my bank account, and I send you bitcoin. While most operators follow KYC regulations, that doesn’t prevent their users from laundering their crypto.
In fact, if I had to estimate, I would guess that a majority of peer to peer cash to crypto transactions are used to buy drugs. But that’s just a guess…
A way law enforcement could test this would be as follows: Set up a localbitcoins market place to test demand for cash to crypto services. Likewise, set up a dark website where they sell drugs to estimate demand for drugs.
By correlating the data from the two sources, especially as the limit of law enforcement agency sales approaches monopolistic levels, the government could estimate how much crypto is used for money laundering.
Wait… Is the government already doing this?