Crypto Market Bill Draft Criticized for Allowing Continued Prosecution of Developers
The recently released draft of CLARITY Actan important piece of legislation aimed at regulating the crypto market, has caused a wave of criticism from supporters within the community.
Initially, the bill was intended to include protection for developers. However, expert commentary suggests that it opens the door to further prosecution of developers and improved oversight mechanisms for users of non-maintainable software.
Draft Crypto Market Structure Bill Is Not Essential Security
Market expert Ryan Adams highlighted another important problem in the crypto bill, which means that if the banks succeed in eliminating the provisions of the stablecoin production within the CLARITY Act, it will show that the Senate is prioritizing the interests of the bank above those of the general public.
Adams’ concerns were echoed by various users, who said is open that the strategy appears to be designed to allow banks to profit by controlling how the yield is managed and distributed.
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Independent report by Rage reinforces these concerns, explaining how the proposed draft includes so-called developer protections that may not work. Notably absent are protections against the strict implications of the Bank Secrecy Act (BSA) for safekeeping funds.
Additionally, the framework provides advice on potential applications for decentralized finance (DeFi) that could empower agencies to implement laws such as the Travel Rule, as well as anti-money laundering (AML) measures targeting web-based communications and blockchain analytics firms.
According to the report, the Senate has received 137 amendments to the bill ahead of its vote, scheduled for January 15. Updated version Blockchain Regulatory Certainty Act (BRCA) is also included, which is seen as important for protecting engineers.
BRCA Gaps
While the BRCA provides exemptions under AML and terrorist financing regulations, it continues to leave developers vulnerable to liability for the actions of users using their software.
BRCA says that developers are “non-controlling”—defined as those with no collective control digital asset transactions-will not be classified as money transmitters under relevant laws. However, this only limits certain cases and does not prevent criminal liability for those whose software is misused.
Pro-crypto Senator Cynthia Lummis commented on this feature of the BRCA, indicating that it retains all the necessary AML safeguards, meaning that despite any benefits, accountability remains a looming threat for developers.
At the same time, the “Act to Keep Your Currencies” within the draft includes provisions that state that government agencies cannot prevent the holding of digital assets. However, other conditions assert that this right does not prevent the application of laws related to illegal funds, leaving room for government intervention.
Previous efforts by the Securities and Exchange Commission (SEC) to enforce a broker-dealer rule that would classify decentralized financial services as intermediaries requiring reporting obligations are echoed in the current draft.
In this case, the Senate Banking Committee appears to be leaning toward the same control methodintended to provide guidance on BSA and AML compliance for “unlimited financial agreements,” thus raising concerns about the consequences for crypto developers maintaining and revising the agreements.
Private Concerns Mount
Under the new sections, the Senate Banking Committee is introducing a concept called “Layers of Distributed Ledger Applications,” a report that calls for scrutiny and creates compliance obligations for software applications that allow users to interact with decentralized financial agreements.
The provisions also force the Treasury to implement other supervisory measures to reduce exposure to illegal financial risks indexed by distributed ledger analysis tools, effectively ensuring that crypto transactions are always properly monitored.
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As such, the lack of strong protections for developers and users involved in privacy-enhancing technologies in the current draft suggests that the Senate’s market structure proposal will do little to protect non-custodial developers.
Instead, it also increases their vulnerability to government surveillance and user surveillance. Ultimately, this development presents a major challenge for privacy software users and developers.
Featured image from DALL-E, chart from TradingView.com
