By CentBit.Online – Crypto & Blockchain Expert, Bangladesh
The Blockchain Association, in collaboration with the Texas Blockchain Council, has filed a lawsuit against the U.S. Internal Revenue Service (IRS), challenging its newly introduced cryptocurrency regulations. The lawsuit, announced on December 28, 2024, contests the IRS’s requirements for brokers to report digital asset transactions, set to take effect in 2027.
Overview of the New IRS Regulations
The IRS rules mandate that brokers report:
- Gross proceeds from cryptocurrency and digital asset sales.
- Detailed information about taxpayers engaged in these transactions.
Additionally, the regulations significantly broaden the definition of a “broker” to include decentralized exchanges (DEXs) and front-end platforms that facilitate crypto transactions.
Industry Pushback and Legal Basis
Kristin Smith, CEO of the Blockchain Association, criticized the regulations, stating that they violate the Administrative Procedure Act and infringe on constitutional rights.
“We stand with our nation’s innovators and will continue working to ensure the future of crypto — and DeFi — is here in the United States,” Smith declared in a social media post.
The Blockchain Association argues that these rules impose unlawful compliance burdens on software developers, particularly those involved in decentralized finance (DeFi). Developers of DeFi front-ends, which use smart contracts to facilitate transactions, would face challenges in meeting these requirements, potentially stifling innovation within the U.S.
Privacy and Decentralization Concerns
Marisa Coppel, Head of Legal at the Blockchain Association, emphasized the privacy implications, warning that requiring DeFi platforms to report user data undermines the core principles of decentralization.
The crypto community also fears that the regulations may drive DeFi innovation offshore, damaging the U.S.’s competitive edge in blockchain technology.
Legal Precedents and Developer Concerns
Parallels have been drawn to the case of Tornado Cash developer Alex Pertsev, who received a five-year sentence for facilitating illicit transactions through non-custodial software. This precedent raises concerns about the potential criminalization of DeFi developers under these new rules.
Broader Industry Impact
The IRS estimates that these regulations will affect:
- 650 to 875 DeFi brokers.
- Up to 2.6 million U.S. taxpayers.
Brokers will need to begin collecting transaction data in 2026 for reporting purposes starting in 2027.
Industry Experts Propose Alternatives
Analysts have outlined potential paths for DeFi platforms, should the regulations remain in place:
- Compliance with broker designation.
- Blocking U.S. users entirely.
- Operating as fully decentralized platforms with minimal user interaction and no transaction fees to avoid broker classification.
Alex Thorn, head of research at Galaxy Digital, stressed the importance of challenging the regulations.
Meanwhile, Uniswap Chief Legal Officer Katherine Minarik questioned the IRS’s rationale, arguing that DeFi platforms are incorrectly classified as brokers.
Uniswap CEO Hayden Adams echoed these sentiments, expressing hope that the regulations will be overturned via the Congressional Review Act (CRA) or further legal challenges.
Conclusion
The Blockchain Association’s lawsuit underscores the broader crypto community’s concerns about the potential stifling of innovation and privacy violations posed by these new IRS regulations. As legal and legislative battles unfold, the outcome could have far-reaching implications for the future of cryptocurrency and DeFi in the U.S.
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Tags: Blockchain Association, IRS Crypto Regulations, DeFi, CentBit Online, Crypto News Bangladesh, Decentralized Exchanges, Legal Challenges in Crypto
