The infrastructure bill’s ambiguous language, whether intentional or not, poses an existential threat to the Bitcoin mining business in the United States.
The United States Senate voted on August 10 to pass a $1 trillion plan to improve America’s infrastructure. The Senate’s entry into crypto law has been a disaster from the perspective of the crypto community, particularly miners. Unless the bill’s definition of brokers is defined, it will single-handedly stifle the expansion of a domestic business that is just getting started.
The bill provides for numerous interpretations of the term “broker” as written. There is no real debate — or ambiguity — about what a broker does in the English language. A broker is defined as “one who works as an intermediary: such as […] an agent who negotiates contracts of buy and sale (as of real estate, commodities, or securities),” according to Merriam-online Webster’s dictionary. Brokers in conventional finance buy and sell financial assets for their clients, such as stocks and bonds. Compare this to Bitcoin (BTC) miners, the most popular cryptocurrency.Bitcoin miners, unlike brokers, solve cryptographic puzzles to validate new blocks, which is a necessary activity for the Bitcoin network to function. For offering this computation service, miners are compensated with Bitcoin. As a result, they are categorically not brokers.
Unfortunately, the bill passed by the Senate contains overly broad and ambiguous language in its definition of “broker”:
“Any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
A threat to the BTC mining industry
In defining a broker this way, the bill requires mining companies to provide the same information to regulators that a stockbroker is required to provide, such as taxable net gain or loss, identity of the buyer/seller, the amount of the transaction and the location of the transaction. Simply put, miners have no way to collect this information because they only validate the blocks, not the information inside them. As such, if miners are considered brokers under this language, they would not be able to comply with the law. This uncertainty, intentional or not, poses an existential threat to the U.S. Bitcoin mining industry.
Crypto mining is vital for the functionality of proof-of-work cryptocurrency networks, the most notable being Bitcoin. Without mining, many of the revolutionary aspects of blockchain technology would not be possible. For example, aspects such as decentralization, accountability, verification and security are all made possible through mining. Without mining, there is no Bitcoin network.
Currently, the U.S. crypto mining industry is expanding. Features such as a stable government, cheap energy, excess land and a strong economy have made the country an attractive location for crypto miners. Bitcoin adoption is increasing, both among individuals and companies — as adoption takes hold, the U.S. industry is growing employment for financial professionals, software developers, engineers, marketers and facilities managers.
Many Americans have Bitcoin balances, and many people all over the world use Bitcoin to send money and wealth to family members in various nations. Citizens of countries with mismanaged currencies are putting their faith in the Bitcoin network to keep their purchasing power despite fast dropping currencies. To summarize, the United States is a significant player in a fast expanding market that benefits millions of people. China, which does not trust Bitcoin’s decentralized, market-based ethos, has sought to shut off mining within its borders, indicating that this role is growing.
The Senate bill takes triumph out of the jaws of defeat. The bill’s unclear language is stifling investment just as crypto mining in the United States is likely to grow dramatically. We have firsthand experience with this at our company. Employment, wages, and consumer spending have all been halted as a result of the bill, which is a terrible irony considering that the policy’s stated goal is to promote economic growth and job creation.
Unless the language in the bill is changed to clarify that miners are not brokers, the United States will miss out on several benefits that crypto mining offers, such as grid stability, capitalization of stranded energy, and the repurposing of wasted energy. Crypto mining enhances grid stability by helping utilities balance supply and demand. Miners maximize profits when energy is cheap and plentiful, providing utilities revenues when prices are low. When energy demand increases and prices rise, crypto miners stop mining, which releases energy supplies to the grid and brings down prices for other users.
Crypto mining and energy consumption
It’s backwards to say that crypto mining loses energy. Crypto mining does not waste energy; rather, it makes use of energy that would have been wasted otherwise. The output of energy generators is not fine-tuned to completely match supply and demand. Because of mismatched supply and demand, energy is frequently produced but not utilised, and/or is lost due to long-distance transmission.
The most cost-effective miners are located close to the utility’s power. The Bitcoin these miners “produce” does not create incremental demand for additional energy, but rather uses energy that would be produced anyway. Thus, in addition to providing investment and jobs to local economies, crypto miners promote a more robust grid, reduce energy waste and generate revenues that utilities can use to transition operations off of fossil fuels and into renewable energy sources.
There is still hope
Given these and other benefits, the Senate’s broadside against crypto mining is both puzzling and deflating. But there is still a chance that the U.S. House of Representatives rectifies the unfortunate language. Although the proposed amendments to the Senate infrastructure bill were not adopted, the fact that it was offered at all demonstrates that there is some support for crypto mining in the Senate. The House of Representatives may pass a different infrastructure bill. If this happens, it is possible that House and Senate negotiators could produce a final bill clarifying that crypto miners are not brokers. This would be the best outcome for the industry and the economy.
Crypto mining is going to take place somewhere because demand for Bitcoin and other cryptocurrencies is increasing. It would be better for the U.S. economy and the environment if the crypto mining industry continues to expand domestically. The first step to making the U.S. a leader in crypto mining is to clarify that miners are not brokers. The failure to do so will have long-lasting ramifications, preventing the United States from becoming a leading player in this fast-growing industry.