  What you need to know today in crypto and beyond July 30, 2021 Sponsored By:  Welcome to The Node.
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–Daniel Kuhn
Today's must-reads Top Shelf  58 PAGES: Legislation to provide a “comprehensive legal framework” to regulate the digital asset industry was introduced in the U.S. House of Representatives Wednesday. Among its many provisions are proposed definitions for digital assets (and clarity that they are not U.S. legal tender); increased and well-defined supervisory roles for the Securities and Exchange Commission and Commodity Futures Trading Commission, among other alphabet agencies; and the possible authority for the federal government to ban some stablecoins. Full text of the 58-page bill can be found here.
BIT … DERIVATIVE? U.S. crypto users are getting around measures meant to block derivatives trading on offshore exchanges like FTX and Binance, according to Inca Digital data cited by the Wall Street Journal. This is accomplished by using a virtual private network or old-fashioned lying when signing up. Binance is currently winding down futures and derivatives products across Europe, starting with Germany, Italy and the Netherlands.
IT’S A GAMBLE: Authorities in India are investigating whether Binance’s WazirX exchange was used to launder $134 million through illicit betting apps. Meanwhile, an unrelated set of former professional poker players have raised $130 million for their DeFi-focused investment fund, Ascensive Assets.
ENTERPRISING EFFORTS! A blockchain-based platform developed by authorities in the Chinese province of Yunnan has helped local companies transfer $580 million across international borders as of June. Cheaper, faster, state-owned! Meanwhile, Ethereum daddy Joe Lubin spoke to the evolving notion of “enterprise” as the network turns six. JPMorgan and Goldman Sachs are “not just paying a lot of attention to the public mainnet,” Lubin said.
INVESTMENT STRATEGIES: If anyone is still counting, MicroStrategy now holds 105,000 bitcoins and will continue its “digital asset strategy,” CEO Michael Saylor said in a Thursday earnings press release. ARK Investment Management, helmed by the irrepressible Cathie Woods, bought 1.3 million Robinhood shares on its first (disappointing) day trading on Nasdaq. And, finally, Compass Mining found a loophole where clients can avoid bitcoin taxes by buying mining hardware through their individual retirement accounts.
–D.K.
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Overheard on CoinDesk TV Sound Bite  “The U.S., given its global role as financial standard setter, has to be rather cautious in how it deploys the CBDC (central bank digital currency).”
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In this sponsored webinar on Aug. 10, Foundry CEO Mike Coyler explains how this new demographic of miners has special requirements, which the company has been catering to through its rapidly growing Foundry USA Pool and other services. Register for free.
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–D.K.
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Putting the news in perspective The Takeaway  The Taxman Cometh (Confused) In a potentially hugely disruptive move, a last-minute provision of a major bipartisan infrastructure bill moving through Congress would impose stricter reporting requirements on cryptocurrency transfers, which the bill estimates would raise an additional $28 billion in tax revenue.
But the legislation, according to at least two crypto-regulatory experts, is so badly flawed that it might be unenforceable. Specifically, the rule as written appears to define any actor who participates in a transfer of cryptocurrency as a “broker.” This could impose transaction reporting requirements on a strange array of players, including miners and decentralized exchanges.
The creators of software wallets could even be required to track and report user transactions, according to both crypto lobbyist Jerry Brito of Coin Center and Blockchain Association head Kristin Smith. Software, and hardware crypto wallets, of course, do not track or report user transactions, which would make the law impossible to comply with.
The disconnect highlights the shaky foundations of U.S. attempts to tax or regulate crypto. There are at least two separate bills in the House of Representatives attempting to establish basic definitions, jurisdictions and standards for crypto regulation. Having those in place before trying to rush through a poorly conceived tax might have been a good idea.
The case of software wallets is illustrative. They’re fundamentally tools for interacting with a database, not tremendously different from a web browser. They are not services, any more than your leather wallet is a “service” for holding dollar bills. There is in fact no “service” managing bitcoin or any other legitimate cryptocurrency, a fact that fundamentally clashes with the regulatory framework legislators are trying to shove it into.
These flaws are particularly worrisome because the measure has been introduced as a revenue-generating element of the much larger bipartisan infrastructure bill, creating a rushed environment with little margin for subtlety or revision. On Twitter, Brito described the bill as “must-pass,” and said that Coin Center staff “worked all day [Wednesday] trying to fix” the measure, and continued into Thursday. The good news is the bill is still in process, so there’s at least the possibility for things to change.
Aside from their technical shortcomings, the new tax rules lean on near-universal monitoring and automated reporting, rather than a privacy-protecting system of voluntary reporting, with investigation and enforcement for those who break the law. This potential law, much like the new European money-laundering rules introduced this month, would likely create huge honeypots of personal and financial data to be targeted by hackers – including your data, whether you sought to evade taxes or not.
The sins of this poorly designed tax, though, shouldn’t be laid at the feet of taxation as a whole: Strange as it may seem, cryptocurrency development has been advanced to a huge degree by investments funded by past tax revenue. SHA-256 cryptography was developed by the National Security Administration. The internet itself was created largely by the Defense Department’s DARPA program. David Chaum, one of the 10 or so most important pioneers of digital cash, earned a PhD at the University of California, Berkeley in the 1970s, when public funding kept tuition costs to about $800 a year.
Most world-transforming innovations rely on a similar level of collective support, because basic or speculative research is usually not profitable fast enough for the private sector to invest in. So there’s nothing inherently objectionable about crypto being expected to give back and support the next generation of innovators. But the current rushed and technically flawed approach could significantly harm the very innovation that took so many years and resources to bring to life in the first place.
–David Z. Morris
 Crypto State 2021: Middle East Even though many countries in the Middle East restrict or outright ban activities related to blockchain technology, the region is having its crypto moment. From Dubai’s first-of-its-kind Bitcoin Fund listing to the Bank of Israel’s trial of a digital shekel, interest is picking up in the region as crypto companies work closely with regulators in the Middle East and North Africa (MENA) to gain some clarity about oversight of digital currencies.
Join us as we jet-set through the Middle East on our #CryptoState2021 virtual tour and explore how different markets are thinking about crypto, their roadblocks and challenges, and crypto’s impact on the region. Register for the Crypto State: Middle East virtual tour on Aug. 11.
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