What does bitcoin have to do with roads and bridges? A lot.
The $1trn infrastructure bill the US Senate approved on Tuesday, is planning to be paid through the cryptocurrency affecting tax-reporting requirements for cryptocurrency brokers, the way stockbrokers report their customers’ sales to the US Internal Revenue Service (IRS).
This could result in cryptocurrency being more tightly regulated which in its pushes for tax compliance, the Biden administration is keen to take forward.
The plan could raise about $28bn in revenue over 10 years, Congressional accountants estimate, but is expected to increase further very quickly.
To replace all of the US bridges defined as structurally deficient, according to the Federal Highway Administration, for example, it would cost $25.6bn.
So, a virtual currency would effectively pay for roads, bridges, water systems, internet broadband access and shoring up the electrical grid.
This is what President Joe Biden called “a generational investment” on par with building the transcontinental railroad in the 1800s or the Interstate highway system in the 50s.
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It is no wonder the cryptocurrency market has exploded in recent years as a potential revenue source – and the mounting push by some government officials to put new reins around a largely unregulated market.
After weeks of much debate by lawmakers, the Senate passed the bipartisan infrastructure package in a 69-30 vote. It now moves to the House of Representatives.
What is cryptocurrency?
Cryptocurrency is virtual currency based on blockchain technology that allows users to spend or receive money anonymously through computer code.
When money is sent from one person to another, they are digitally signed each time and are not connected to banks or governments.
Being disconnected from banks and governments, it predominantly appeals to libertarians, and risk-taking millennials who uphold the belief that the financial system is corrupt.
International criminals, money launderers, drug dealers and ransomware hackers, are also among those who favour the virtual currency.
Bitcoin and others can be bought and sold on exchanges with US dollars and other national currencies.
The cryptocurrency market
Since its inception, the cryptocurrency market has surged to an estimated $1.8trn.
Bitcoin is the most used and known cryptocurrency in the market and is currently worth $45,000 each, down from a high in April of $64,800.
Bitcoin is in constant flux, with its worth quickly changing in immediate response to public pronouncements by chief executive of Tesla, Elon Musk.
Ethereum, Dogecoin, Ripple and Litecoin are names of other renowned cryptocurrencies.
Where do US Government officials stand?
Lawmakers are divided on the topic of cryptocurrencies, with many seeing it as a mark of technological innovation linked to blockchain, the digital ledger that records transactions.
However, alarm bells ring for many top US lawmakers.
Gary Gensler, the chairman of the Securities and Exchange Commission (SEC) appointed by US President Joe Biden, called for more protection for investors in the cryptocurrency market, describing it as “rife with fraud, scams and abuse” and “like the Wild West.”
The agency has won many cases against crypto dealers, but Mr Gensler is calling on more authority and funding from Congress to help regulate the market.
The Federal Reserve, is keen to foster faster payments by developing its own digital currency pegged to the US dollar.
How does cryptocurrency affect the infrastructure bill?
The Senate’s work on the massive infrastructure package was largely overshadowed by the debate over cryptocurrency.
It was initially set in place for the legislation to be paid by bolstering IRS enforcement, in order to remove the possibility of tax cheating individuals and businesses.
However, this fell through after Republicans in the house objected to expanding the agency’s reach. That would have brought in an estimated $100bn over 10 years.
Going back to the drawing board on revenue raisers, the plan was hatched for stricter tax-reporting requirements for cryptocurrency brokers. The estimated $28bn it would generate over a decade is only about a quarter of what the IRS crackdown proposal envisaged. But it’s still the biggest revenue raiser of several in the infrastructure bill.
Disappointed by the outcome, the swarm of opposition lobbying came from the cryptocurrency industry and internet freedom advocacy groups.
Opponents criticise the provision for holding up innovation by defining brokers too broadly and as the new tax-reporting obligations meant software developers and crypto “miners” got caught in the firing line – those who lend computing power to verify other users’ transactions and receive coins in exchange. Opponents argue that these people don’t have access to cryptocurrency users’ data the IRS would be collecting.
After much debate, a compromise was reached with opponents, but failed to obtain approval from the Senate, which has transitioned the debate on cryptocurrency, taxes and brokers to the House.
What’s the situation with cryptocurrency and taxes?
Some cryptocurrency brokers already report transactions to the IRS, though most don’t, experts say. Brokers place buy and sell orders for users on the cryptocurrency exchanges.
The exchanges are required to collect personal identifying information from users and report their annual activity to the IRS.
The IRS defines cryptocurrency as “property” similar to stocks or gold. That means you pay capital gains tax when you sell it or cash it in at a profit.
