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Coin Center gave a regulatory update at Ethereum Devcon3.

At the Ethereum community’s largest conference, executive director Jerry Brito and director of research Peter Van Valkenburgh took the stage after the project’s lead developers to give the audience an update on Coin Center’s work and regulatory issues that could affect developers building on this technology.

The update covered Coin Center’s work in pushing for a more developer friendly money transmission licensing system, advocating for these technologies in Congress, and addressing questions about securities regulation for crypto-asset tokens.

[Image courtesy of Rhys Lindmark]

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Coin Center submitted comments to Her Majesty’s Treasury defending UK citizens’ right to develop and publish open-source software.

As outlined in its consultation paper, “Transposition of the Fifth Money Laundering Directive”, HM Treasury is currently considering broadening the scope of the UK’s anti-money laundering/countering the financing of terrorism (AML/CFT) regulations to impose data collection and reporting requirements on not only cryptocurrency developers, but all open-source software developers and others who facilitate the peer-to-peer exchange of cryptoassets.

In our comment letter, we urge HM Treasury to refrain from such an over-broadening of its AML/CFT regulations. We argue that such an expansion would violate UK citizens’ free speech and privacy rights, as codified in the International Covenant on Civil and Political Rights (ICCPR) and in the European Convention on Human Rights (ECHR). Those arguments, which are more fully laid out in the comment, are briefly summarized below.

Regarding privacy rights, both the ICCPR and the ECHR prohibit intrusions upon the privacy of persons unless those intrusions are made in accordance with law that is sufficiently clear in its terms to give citizens an adequate indication as to the circumstances in which and the conditions on which public authorities are empowered to resort to this secret and potentially dangerous interference with the right to respect for private life and correspondence. The imposition of financial surveillance upon every user of cryptocurrency, regardless of their particular circumstances, would fail to meet this standard and would, therefore, not be in keeping with the ICCPR and the ECHR.

Regarding speech rights, any law or regulation attempting to ban, require licensing for, or compel the altered publication (e.g. backdoors) of open-source cryptocurrency software would be unconstitutional under First Amendment-like protections for speech afforded to UK citizens by the ICCPR and ECHR.

These arguments, and their underlying principles—the right to free speech and to privacy—hew closely to our recent report on how the First and Fourth Amendments to the US Constitution protect open-source software developers and users here in the United States.

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The Human Rights Foundation has published a guide for activists and journalists to use Bitcoin privately.

In the second installment of their multi-part series meant to help those who may need to transact privately in the course of their sensitive work, security expert Eric Wall details the “how” of using Bitcoin privately.

To fight political dissent, authoritarian governments can abuse their power over the administrators of centralized payments networks. Bitcoin can be a lifeline in those situations. But using Bitcoin privately is no easy task. This guide aims to help, as Eric explains:

If you’re an activist or a journalist concerned with the dangers of having your bitcoin activity unmasked by a corporation or an authoritarian government, choosing the right wallet application could potentially mean the difference between life and death. While the previous article in this series aimed to answer the question “What traces do we leave when we’re using the Bitcoin blockchain?” to equip readers with a protocol-level understanding of Bitcoin’s privacy characteristics, this article aims to take things into the practical domain and familiarize the user with the applications we use to interact with the protocol to send and receive bitcoins; Bitcoin wallets.

The discussion being presented here is heavily focused on achieving privacy in the face of a spying corporation or government. For users who aren’t concerned by surveillance and simply wish to get started with bitcoin, this article is likely to be overkill. It is the purpose of this investigation to set fairly ambitious privacy goals for different use cases and explore the practical feasibility of achieving them using the tools currently available in the industry today.

Read the full guide here.

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Non-custodial cryptocurrency mixer developers are not subject to U.S. regulation.

A recent seizure of a custodial cryptocurrency mixer by EU authorities has prompted some people to ask us what this means for popular privacy software like CoinJoin or Wasabi Wallet, which are user-hosted software tools, not third-party services that take custody of user funds.

In the U.S. at least, recent guidance from FinCEN clearly specified that the developers of such software do not qualify as money services businesses as that term is defined in the relevant law and regulations. Here is the relevant portion of our analysis of FinCEN’s recent guidance:

[L]et's look at what the Guidance says about privacy-preserving cryptocurrencies like Zcash and Monero, as well as privacy-preserving services like tumblers. Section 4.5.1 states that mere developers of cryptocurrencies or protocols are not regulated as money transmitters. This section draws a critical distinction between those who provide services that can anonymize cryptocurrency payments and others who only provide software. In both cases the Guidance seems to be considering tumblers and mixers as well as dedicated privacy-preserving cryptocurrency networks. For example, one can imagine a mixer service provider (which receives coins from users, shuffles all the coins, and sends them back to its users) on the one hand, or one can imagine mixer software (which is merely a protocol that allows participants in a mix to move money to and from each other without any service provider in the middle e.g., TumbleBit protocol) on the other. Similarly, you could have privacy-preserving cryptocurrency software (e.g., Monero or Zcash) on the one hand, and on the other a centralized service (like Liberty Reserve or e-Gold) with no internal records kept of user transfers.

What’s significant about this distinction is that, according to the Guidance, service providers are money transmitters and software providers are not. Again, this is not a surprising interpretation and it is one for which Coin Center has long advocated, but it is excellent that FinCEN explains it all and offers clarity to mere developers of these highly significant privacy technologies. The Guidance states clearly:

An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing ‘the delivery, communication, or network access services used by a money transmitter to support money transmission services.’ This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission.

As we said then, we are glad to see FinCEN’s care in carving out the developers and users of privacy-protecting software that will become important tools for those who need it most in an increasingly surveilled society.

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Photos from the 2019 Coin Center Annual Dinner now available.

Thank you to everyone who came out for our most successful fundraising gala yet. It was a pleasure to host some of the best and brightest from the cryptocurrency world for a lighthearted night of fun. And once again, thank you to our generous sponsors and guests for helping to support Coin Center's vital policy advocacy mission.

Here are some pictures from the event.

Stay tuned for next year’s dinner. Hope to see you there!

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The IRS has told Congress that it will issue new cryptocurrency tax guidance soon.

In a new letter, the IRS Commissioner said he has “made it a priority” to issue additional guidance on crypto taxation.

Last week, Commissioner Charles Rettig responded to an April 11 letter from a bipartisan group of 21 Members of Congress, led by Rep. Tom Emmer, that asked the agency to issue needed guidance on the tax consequences and basic reporting requirements for taxpayers that use virtual currencies. In that response, Commissioner Rettig acknowledged that there are “areas where needed and helpful additional guidance can be provided,” and went on to say:

I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance. Specifically, your letter mentions (1) acceptable methods for calculation cost basis; (2) acceptable methods of cost basis assignment; and (3) tax treatment of forks. We have been considering these issues and intend to publish guidance addressing these and other issues soon.

We are glad to see that the IRS acknowledges the need for additional clarity on these basic tax questions, which we highlighted and suggested common-sense answers to in our recent report “A Duty to Answer.” We are also happy to see the continued leadership of Rep. Emmer and others in Congress on an issue which affects all U.S. cryptocurrency users.

A direct download of this letter is available here.

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Congress just sent a letter to the IRS about “urgent need for guidance” on crypto taxes.

Today, 21 members of Congress, led by Rep. Tom Emmer, sent a letter asking the agency to issue needed guidance on the tax consequences and basic reporting requirements for taxpayers that use virtual currencies. Congress has now sent four separate letters to the IRS about this issue.

In a statement, Rep. Emmer’s office said:

While initial guidance was provided, ambiguity around basic questions of how taxpayers should calculate and track the basis of their virtual currency holdings is unacceptable. According to a recent report from Coin Center, the 2014 guidance by the IRS failed to address fundamental tax questions, and repeated requests to the IRS for additional clarity have been made by a variety of entities. It also indicates that rather than providing clarity, the IRS has instead increased enforcement activities against taxpayers who “misreport” their cryptocurrency transactions.

Coin Center worked with Rep. Emmer to produce the bipartisan letter, which reflects several of the questions and concerns outlined in our recent report about cryptocurrency taxation, A Duty to Answer. The letter notes that the single piece of crypto tax guidance the IRS has released—the six-page “IRS Virtual Currency Guidance” from early 2014—fails to answer basic questions about crypto taxes, and that taxpayers deserve clarity from the agency. In other words, as the IRS Taxpayer Advocate put it a decade ago, “the IRS has a duty to answer all of the basic questions about transactions undertaken regularly by significant numbers of taxpayers, such as those involving virtual items.” In addition to describing these questions, our report provides common-sense recommendations on how the IRS should answer them.

In signing the letter, Rep. Emmer was joined by the other co-chairs of the Congressional Blockchain Caucus—Reps. Bill Foster, David Schweikert, and Darren Soto—as well as Reps. Patrick McHenry, James P. McGovern, French Hill, Terri Sewell, Warren Davidson, Stephen F. Lynch, Ted Budd, Eric Swalwell, Trey Hollingsworth, Ed Perlmutter, Greg Gianforte, Josh Gottheimer, Mark Meadows, Lance Gooden, Matt Gaetz, Ted S. Yoho, and Bryan Steil.

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Congressional report on cryptocurrency cites multiple Coin Center resources.

Last week, the Congressional Research Service (CRS), which serves as nonpartisan shared staff to congressional committees and Members of Congress and operates solely at the behest of and under the direction of Congress, published “Virtual Currencies and Money Laundering: Legal Background, Enforcement Actions, and Legislative Proposals.”

We were pleased to see that the report cites Coin Center resources four separate times: “Bitcoin: A Primer for Policymakers” twice on the first page, as well as “The Bank Secrecy Act, Cryptocurrencies, and New Tokens: What is Known and What Remains Ambiguous” and “Bitcoin innovators need legal safe harbors.” We will continue to publish materials that advocate for good policy on issues related to public blockchain networks and are glad that they are being read by policymakers.

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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 permissionless blockchain technologies.