Cryptocurrency mining as part of the proposed changes to US guidelines

The regulatory management of blockchains and cryptocurrencies is growing. From the ban on cryptocurrency mining in China to President Joe Biden’s Financial Markets Working Group convened by Treasury Secretary Janet Yellen, blockchain-powered and enabled financial actions have turn into of appreciable curiosity to policymakers. Most not too long ago, a provision in the Infrastructure Act 2021 proposed to change the definition of a dealer in order that it explicitly consists of “every person” […] accountable for the common provision of providers that transmit digital property on behalf of others. “

The stated goal of this “miner-as-broker” policy change is to improve tax collection on cryptocurrency profits by improving the ability of tax collectors to monitor cryptocurrency transactions. Since cryptocurrency miners regularly confirm the transfer of digital assets, such as cryptocurrencies, on behalf of cryptocurrency holders, these miners appear to be fulfilling the This is about broker. No wonder many in the crypto industry have raised concerns.

A key feature of blockchain technology is the competitive decentralized recording of records. The advantages and disadvantages of this new form of documentation compared to traditional centralized financial databases are hotly debated. But the new regulation could put an early end to this debate.

Related: The authorities are trying to close the gap on non-storage wallets

What are the direct consequences of identifying a miner as a broker?

First, miners – at least those in the United States – will be subject to significantly expanded requirements for reporting to the Internal Revenue Service. The cost for the miners to meet such requirements is likely to be high and largely fixed. Miners have to bear these costs regardless of how much mining power they have and before they mine a single block. This will prevent entry and potentially lead to more centralized control or concentration of mining power.

Second, these broker operators are responsible for complying with Know Your Customer regulations. Due to the pseudo-anonymous nature of most cryptocurrencies, such a policy would limit the types of transactions that broker-miners can process to non-anonymous transactions. How will it work? Presumably I would register with a miner (like linking my driver’s license to a Bitcoin address) and the miners would only validate transactions on behalf of registered users of the mine. But if this miner is small (with little mining capacity) then my transactions are less likely to be processed on the Bitcoin Network (BTC). Maybe it would be better if I (and you) sign up with a bigger miner. Or maybe we should all just use Coinbase and allow miners to process transactions on behalf of Coinbase. Again, the effect is a greater concentration of mining force.

Taken together, these policies are likely to increase the focus on U.S. crypto mining while increasing the cost of mining and potentially reducing the overall amount of mining that takes place. That said, these policies would shift mining in the United States from the “faceless supergroups” Senator Elizabeth Warren recently described, but potentially increase users’ reliance on such anonymous supercodes outside of the United States.

What are the global consequences if miners are identified as brokers?

Part of the global impact of the provisions proposed in the Infrastructure Act depends on the relative importance of U.S. crypto mining operations to the global mining landscape. Recent history offers some prospects. In June, China stepped up enforcement of the Bitcoin mining ban. As a result, there were fewer miners. We can see this in the decline in mining difficulties seen in early July. The mining difficulty determines the processing speed of transactions (about 1 block every 10 minutes for Bitcoin). The difficulty with a few miners is to keep the transaction speed constant.

A decrease mining problem requires much less energy to mine a block. The block reward is fixed. Bitcoin price did not go down with any problem in July. There are three issues to have in mind:

• The mining income for the remaining miners should enhance.
• New miners are usually not changing Chinese offline miners anytime quickly.
• The competitors in mining decreased.

These options are possible to lead to a consolidation or focus of mining energy. When new regulation – particularly naming miner brokers – is in place, we are able to anticipate related results.

Related: If you’ve gotten a bitcoin miner, flip it on

Is higher focus dangerous information?

Much of the safety argument of blockchain expertise comes from decentralization. Nobody has an incentive to rule out previous transactions or blocks. If a miner has important mining energy – most definitely fixing a number of blocks in a row – he can change part of the historical past of the blockchain. This scenario is understood as the 51% assault and raises issues about the immutability of the blockchain.

The proposed coverage has two interrelated penalties. First, a better degree of centralization, by definition, brings miners nearer to the level the place they’ll successfully change the blockchain ledger. Second, and maybe extra refined, the revenue from an assault is increased when the price of mining goes down – it’s merely cheaper to assault.

However, as my co-authors and I argue in ongoing analysis, such safety issues stem solely from Bitcoin’s mining protocol, which advises miners to add extra transactions to the longest chain on the blockchain. We assume that the success of 51% assaults is solely due to this suggestion to coordinate the miners on the longest chain. We present how various orchestration units can enhance the safety of the blockchain and restrict the safety penalties of elevated mining centralization.

No competitors, no blockchain

Whether or not the present digital asset rules are handed in the US Infrastructure Act 2021, policymakers appear poised to step up regulation and report cryptocurrency transactions. While the debate has primarily centered on the tradeoffs of elevated oversight of cryptocurrency trading by the US authorities and the potential hurt to US innovation in the blockchain sector, it will be significant to observe that policymakers and innovators alike perceive the potential impression of such Policy on competitors in cryptocurrency mining as this competitors performs an vital function in securing blockchains.