Strongly criticize hasty infrastructure projects! Coinbase CEO: How do you collect KYC for smart contracts?

The top U.S. exchange Coinbase, which has always followed a legal and compliant path, has strongly reacted to the new policy this time. The CEO condemned the U.S. infrastructure bill proposed by the Senate, calling it a "hasty bill" that will have far-reaching negative impacts on the industry.

Raising $1.2 Trillion, Infrastructure Bill Targets Crypto Industry

Earlier reports indicated that in order to raise funds for the $1.2 trillion infrastructure bill, the "Senate Infrastructure Bill Bipartisan Group" is considering strengthening regulations on cryptocurrencies and imposing taxes on crypto transactions, sending shockwaves through the crypto community.

In order to achieve a tax revenue target of $28 billion through the crypto industry, the IRS has expanded the definitions of "cryptocurrency broker" and "investor," including:

• Miners
• Node operators
• Software developers
• Decentralized exchanges
• Non-custodial service providers
• Any party involved in cryptocurrency trading

The latest news, revealed by Washington Post reporter Jeff Stein, states that the White House supports Senator Rob Portman's amendment, which includes cryptocurrency developers and PoS stakers in the tax revenue target, while PoW miners and wallet issuers escape unscathed.

Coinbase: Hasty Legislation

CEO Brian Armstrong criticized the bill in a series of tweets.

He emphasized that Coinbase has been cooperative with the IRS for years, providing data to help customers fulfill their tax obligations, but the bill's definitions of tax targets are overly broad, meaning that any role in the industry such as miners, node operators, developers, and smart contracts will be considered as reporting brokers collecting KYC information.

1/ If you’ve been following threads on the Infrastructure bill, you know that there is a hastily conceived provision related to digital assets. This provision could have a profound negative impact on crypto in the US and unintentionally push more innovation offshore.

— Brian Armstrong – barmstrong.eth (@brian_armstrong) August 4, 2021

How Can Smart Contracts Collect KYC?

He pointed out:

This makes no sense; smart contracts are not companies and cannot be modified to collect KYC information or assist in issuing 1099 forms. Smart contracts are simply applications running on the blockchain that anyone can use.

1099 tax forms are tax documents issued by brokerages or related financial institutions, covering a wide range of income sources such as dividends, interest, mutual funds, and bond income that must be reported using this form.

Armstrong also mentioned that the infrastructure bill introduces unprecedented regulations, forcing Coinbase to monitor user transactions in a far more invasive manner than traditional financial institutions. He expressed his frustration:

All we ask for is an environment that competes fairly with traditional finance and does not unduly penalize the crypto industry.

Support for Amendment Proposal

In the article, Armstrong specifically emphasized the amendments proposed by Senators Ron Wyden, Pat Toomey, and Cynthia Lummis, whose version narrows the definition of brokers to intermediaries like Coinbase. Armstrong pointed out:

Only brokers and intermediaries like Coinbase have the ability to collect KYC information or assist in issuing 1099 forms, just like the current traditional financial system.

He urged the public to contact other senators to support the amended version of the bill proposed by Lummis and others. However, the White House has already supported the version proposed by Rob Portman, and the vote will take place later, potentially rendering the efforts of crypto industry professionals and some senators futile.