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Bitcoin innovators need legal safe harbors

These powerful regulatory tools were essential to the early Internet and now we need them again.

We got lucky with the Internet. The net we’ve come to know, love, and rely upon owes much of its existence to two laws passed by Congress in the late 1990s: the Communications Decency Act (CDA) and the Digital Millennium Copyright Act (DMCA). The Internet would probably still exist today if it wasn’t for these laws, but it would be a very different, and likely less useful, tool.

Both the CDA and the DMCA were laws that created safe harbors. Both laws lowered the legal liabilities that would face a private individual or entrepreneur who wanted to create a website, and both laws fostered the emergence of the invaluable digital public spaces—like Twitter, Reddit, Blogger, Tumblr, Facebook, and Google Search—that make the web so rich with diversity and free expression today.

The CDA insulated online intermediaries from defamation claims and state criminal liability stemming from content that was posted onto their websites by users. This is why Facebook isn’t constantly sued by persons claiming to be defamed by something someone posted on their wall. You can still sue that person, you just can’t sue Facebook. They’re in a safe harbor. This is why a blogger doesn’t need to worry about being sued for things that someone wrote in the comments section of their blog, and why Amazon can’t be sued for offering cloud computing services that power a controversial gossip app. A safe harbor makes these public spaces possible.

The DMCA insulated online intermediaries from copyright liability so long as they complied with notice and takedown requirements. This is why Google isn’t liable for hundreds of thousands in statutory damages whenever someone uploads a copyrighted movie or song to YouTube without permission. This is why WordPress isn’t liable if a blogger who uses their services is accused of plagiarism. The law provides them a safe harbor that makes these services legally possible.

These laws are not special treatment for internet businesses, but rather a sensible legal reclassification of innovative tools. They were necessary laws because the businesses that were emerging online didn’t fit into traditional legal buckets. Is Facebook like a newspaper if the “news” being shared through its servers is entirely created by Facebook users rather than reporters and editors employed by the company? Should you be able to sue Facebook for libel like a newspaper? Is Google a filmmaker and distributor if it allows people to host their videos and share them with the world on YouTube? Should you be able to sue them like a production studio? In both cases, the answer—I think we all now agree—is no.

Companies like Google, Facebook, Amazon, WordPress, and Dropbox, among others, are not providing the content that you find on their websites, they are building infrastructure that enable ordinary people to create and share whatever it is they are passionate about. They are building pipes, not making water. YouTube doesn’t make music videos, it lets an otherwise ordinary 14-year-old boy make and share his songs. Twitter isn’t reporting news, it lets an otherwise ordinary Tunisian girl report news by describing her community as she sees it.

We were at a critical juncture in the late 90s, and we asked ourselves, do we treat these infrastructure providers as something new, and save them from the crushing liability that could come if we do nothing? Or, do we let them struggle under laws that were never calibrated with their business models (let alone the public good that they could create) in mind? We chose the right path back then and now we have a chance to do it again.

Bitcoin, Ethereum, Zcash, and all the other new tools we’re watching emerge are also, at a fundamental level, infrastructure. Instead of being infrastructure for news or entertainment, these technologies are becoming the infrastructure for online trust, privacy, and commerce. Just like the websites of the 90s, some people will use that infrastructure to do something that can and should create legal liability. I can use the Bitcoin network to run a hosted wallet business, storing and transmitting other people’s bitcoin on their behalf. That, it stands to reason, is the sort of thing that should make me regulated just like PayPal or Bank of America are regulated. But I can also contribute code to the Bitcoin reference client, or build a software tool that helps people put non-financial data into the bitcoin blockchain, and those infrastructure-building activities should never subject me to banking regulation, or the liability that would follow my failure to register as a money transmitter.

Just like the web services providers who came before, there is a class of new inventors and entrepreneurs who don’t fit neatly in the baskets created by our legal system. If we want these new networks to flourish as the web did, then we must ensure that mere infrastructure builders are insulated from crushing liability. To do that, we need a federal safe-harbor for non-custodial uses of these technologies.

It’s time for Congress to make another critical choice, and we’re ready to help.

Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permisionless blockchain technologies.