It was already a huge topic when the “Conversation” portion of last
Friday's newsletter reported the raging legislative discussion over the crypto
provision in the Senate infrastructure bill. What occurred over the following
three days, though, pushed it to a whole new level. The argument officially
ended in a defeat for the crypto community, but as this week's editorial points
out, it also served as a positive watershed moment in the technology's public
image.
The legislative fight caught a new-versus-old conflict, as the editorial
points out. The news hook for this week's podcast episode is the 50th
anniversary of one of the most significant and underrated events of the second
half of the twentieth century: the removal of the dollar's gold peg on Aug. 15,
1971. Sheila Warren and I discuss the history of that event and how it defines
the impending digital currency battle with Cornell economic professor Eswar
Prasad and CoinDesk podcast managing editor Adam B. Levine as our guests.
After you've finished reading the column, have a listen.
The moral high ground is a gift from Congress to crypto.
A defeat may be regarded as a triumph every now and again.
That's how I feel about the crypto community's valiant but ultimately
unsuccessful effort to modify a very harmful cryptocurrency monitoring
provision in the Senate's infrastructure funding bill.
The episode, which had a made-for-Hollywood storyline in which thousands
of highly driven campaigners were ultimately stymied by a single, self-serving
senator, has made it easier to convey crypto's tale of inexorable progress. The
industry now has the same fundamental narrative that revolutionaries and
activists have had throughout history, namely, that of a never-ending fight
that will ultimately triumph when the old gives way to the new.
The crypto community, as my colleague Emily Parker pointed out this
week, has to improve its storytelling skills. Even though proponents of Bitcoin
continue to extol the advantages of a decentralized, peer-to-peer exchange and
a provably scarce store of digital value, the concept has yet to catch on with
a big enough segment of the general public. While views are changing as crypto
use grows, the widespread lack of knowledge allows politicians like Sen.
Elizabeth Warren (D-Massachusetts) to scream against the “dangers” of crypto.
However, the last week has seemed like a watershed moment.
It all began when Sen. Rob Portman (R-Ohio) slipped a provision into the
infrastructure funding plan that would raise bitcoin exchanges' tax reporting
obligations and generate an estimated $28 billion in additional tax revenue (as
part of the measure's $1 trillion-plus price tag).
The provision's greatest flaw was the broad, catch-all wording defining
what defines a "broker," which crypto industry attorneys warned might
be interpreted in a variety of ways, possibly putting miners and open-source
developers under a reporting requirement to the Internal Revenue Service. The
clause, as worded, created the prospect of draconian monitoring of people's
day-to-day transactions, would push crypto innovation offshore, and was very
certainly unenforceable, as we argued in an editorial on Monday.
Activists at the grass-roots level
Coin Center, the Blockchain Alliance, the Digital Chamber of Commerce,
and the Association for Digital Asset Markets (ADAM) all sprang into action
very quickly. Senators Ron Wyden (D-Oregon), Cynthia Lummis (R-Wyo.), and Pat
Toomey (R-Pennsylvania) agreed to propose an amendment that would limit the
obligation for reporting to exchanges that provide custodial services to their
clients while exempting miners and developers. The fact that the sponsorship
was nonpartisan was crucial.
These organizations effectively mobilized thousands of crypto
aficionados to phone, write, and tweet their senators, asking them to support
the Wyden-Lummis-Toomey amendment, thanks to some smart social media marketing
by Fight for the Future. This massive demonstration demonstrated that, although
lobbying organizations are financed by crypto companies, their true strength
comes from crypto investors and others involved in the sector who are highly
motivated to participate in grassroots efforts. It gave it the appearance of a
popular message rather than one delivered by entrenched interests.
The advertising made an instant impression. Lawmakers from both chambers
of Congress and across the political spectrum began to speak out in favor of
the amendment, while condemning the original provision as a danger to American
innovation leadership and a violation of privacy.
Even Portman said that the Senate should consider changing the
provision's wording to eliminate ambiguity.
His first formal attempt to fix it, a competing amendment co-sponsored
with Senators Mark Warner (D-Va.) and Kyrsten Sinema (D-Ariz.) in accordance with
the White House and Treasury Department's wishes, arguably did more harm than
good by attempting to distinguish between proof-of-work and proof-of-stake in a
clumsy attempt to keep developers of the latter within the law's purview.
However, the three of them ultimately came to an agreement with Wyden,
Lummis, and Toomey, writing a new amendment Monday that was approved by all six
senators and that crypto advocacy organizations like Coin Center indicated they
could support. For the crypto community, just getting to that stage was a huge
accomplishment.
The straggler
The following few events were nearly laughable.
The proposed amendment received 99 out of 100 senators' backing in a
consent vote that required 100 percent agreement. Richard Selby, a Republican
from Alabama, was the lone holdout. He refused to approve the bill unless it
included a $50 billion military contracting clause. Sen. Bernie Sanders (I-Vt.)
voted against it, and the do-or-die amendment failed, leaving the bill's
original crypto clause intact, despite widespread awareness of its problematic
language. (Shelby even said there were flaws in it.)
Shelby's motivation, according to many in the crypto world, was to
defend the interests of his Wall Street contributors rather than the military
sector. He is retiring in 2022 after 35 years in the Senate, fueling a
conspiracy theory that he was preparing the way for his employees to obtain
positions on Wall Street when he left by doing the anti-crypto bidding of
bankers.
Whether true or not, the image of a white, elderly man who has occupied
his office since the Cold War petulantly refusing to support sensible
legislation that is pro-innovation and designed to maximize long-term tax
revenues, all for his own narrow, special interests, is precisely what crypto
requires.
When set against the grassroots activism of tens of thousands of crypto
fans throughout the nation, many of whom are several generations younger than
Shelby, Shelby's obstinacy has become the poster child for the old guard
opposing change in order to preserve its own interests. It speaks directly to
the centralized gatekeepers issue that Bitcoin and other blockchain
technologies aim to solve.
What better picture for crypto supporters to use to highlight the issue
than that of an out-of-touch senator who has been taken by corporate interests
and is obstructing the desires of every other senator? In this instance, he is
referred to as "The 1%."
The community is rightly energised as the bill's battle moves to the
House of Representatives. Sure, there will be lots of opposition from other
self-interested lawmakers, but this badly written crypto clause may still pass.
Even if that occurs, the moral triumph has already been achieved. The
crypto community, which was previously considered fringe, has gained
legitimacy, which will ultimately lead to a legislative climate that is
beneficial to the sector.
The narrative has shifted, with an ending that seems to be much more
pro-industry than what its opponents had hoped for.
Out of this world: Punks and penguins
We're in the middle of a craze for chubby penguins, crypto punk, and
bored monkeys. Of course, I'm referring about non-fungible tokens.
The NFT marketplace has a high volume of trading. This obsession is best
represented by OpenSea. Check out this graphic produced by Shuai Hao of
CoinDesk using data from Dune Analytics.
The NFT mania is still going strong, as shown by OpenSea's soaring
August volumes. Many analysts thought the market was all hype when NFT prices
soared early this year, only to plummet quickly, but these figures indicate
otherwise. It is now more important to focus on volumes than than pricing.
This isn't to suggest that costs aren't rising as well. We're not talking about the $69.3 million grossed by Beeple's "The First 5,000 Days" in March. However, the 400 ether ($1.3 million) paid for this picture from the Bored Ape Yacht Club series is far from insignificant.
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