Is the author of open-source computer code used in the cryptocurrency industry really a ‘‘digital asset transaction facilitator” responsible for violating Russian sanctions?
How about someone running a communication protocol? Even if they have no idea that their work could or would be used in that way?
Yes, according to a bill announced Thursday (March 17) by Sen. Elizabeth Warren, D-Mass., during a Senate Banking Committee hearing on cryptocurrency’s use in facilitating illicit transactions.
The goal, she said, is “to strengthen our sanctions program and close off any avenues for Russian evasion.”
However, the proposed legislation, the Digital Asset Sanctions Compliance Enhancement Act, uses such a staggeringly broad definition that more or less anyone involved in creating cryptocurrencies or running a business using one would be covered.
It is also, according to a leading cryptocurrency advocacy group, “unnecessary, overbroad and unconstitutional.”
The legislation would “place sweeping restrictions on persons who build, operate, and use cryptocurrency networks even if they have no knowledge or intent to help evade sanctions,” CoinCenter executive director Jerry Brito and research director Peter Van Valkenburgh said in a statement.
See also: Use in Ukraine Lends Some Luster to Crypto’s Dark Side in Senate Hearing
Specifically, the text states that “the term ‘digital asset transaction facilitator’ means — any person, or group of persons, that significantly and materially facilitates the purchase, sale, lending, borrowing, exchange, custody, holding, validation, or creation of digital assets on the account of others, including any communication protocol, decentralized finance technology, smart contract, or other software, including open-source computer code.”
The real goal of the bill, Brito and Van Valkenburgh argue, is to “place sweeping restrictions on the cryptocurrency ecosystem under the guise of bolstering sanctions against Russia for its unjustified invasion of Ukraine.”
Necessary Roughness
Warren, a leading advocate of stricter regulation of digital assets, said “the crypto industry claims that Russians can’t use crypto to hide their wealth.”
But, she added, we “know crypto provides a new payment option for criminals and cheats… In fact, according to one of our witnesses here today, about three-quarters of the money collected in ransomware attacks last year went to Russia-linked actors. So Russians certainly know how to run illegal scams through crypto.”
In a statement, Sen. Jack Reed (D-R.I.) added that a “sanctions system without strong authorities to limit evasion using digital assets is like having a security system but leaving the front door open.”
Brito and Van Valkenburgh countered that “frontline officials from the White House, Treasury, and the Department of Justice have all stated that cryptocurrency is a poor tool for sanctions evasion and one that they have well under control.”
DeFi in danger
The bill also goes after some cryptocurrency investors in one of Warren’s biggest cryptocurrency targets: Decentralized finance, or DeFi.
Read more: Sen Warren Calls DeFi the ‘Most Dangerous’ Part of Crypto at Senate Hearing
The joker in the deck in that definition of a “digital asset transaction facilitator” is the word “validation.”
That would encompass virtually anyone involved in writing new transaction information onto a blockchain — including bitcoin miners and anyone playing a similar role — on other new blockchains in a process called staking, like top 10 cryptocurrencies solana (SOL), cardano (ADA) or avalanche (AVAX).
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And because the newer blockchains’ proof-of-stake consensus mechanism allows anyone to delegate funds to blockchain validators, it would rope in a large portion of large and small investors in DeFi.
Related reading: PYMNTS DeFi Series: What is Staking?
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