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Comment by pembrook | Hacker News Reader

> regularly providing any service effectuating transfers of digital assets

I fail to see how this is a "privacy disaster." It looks like crypto brokers are going to be treated like all other brokerages.

Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?

Bitcoin is basically digital gold, and just like with gold, when you chose to buy or sell it the convenient way (eg. through an ETF instead of actual physical gold), it gets reported to everybody.

You can always custody your own bitcoin and find partners to transact with directly and choose not to report it (like with physical gold), but, similar to physical gold, it will be extremely cumbersome, risky, and not worth your time to do so.

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The argument is that software developers or miners should not be treated as brokers, the later being akin to ISPs. If you are not going to engage with this argument, why bother?

Why argue against something that isn't actually in the legislation and is intended to scare people?

Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers--given they can engage in "transfers."

But just because some entity can be considered to exist on the same "continuum" as crypto brokers, doesn't mean there isn't a clear division between them: https://rationalwiki.org/wiki/Continuum_fallacy

One could also contort themselves into the assertion that convenience stores engage in transfers with "digital assets" (shifting credit via digitally created loans provided by Visa).

Maybe I should publish an article saying this legislation will require 7-Eleven to report to the government every time you buy a twinkie? That'll really get some clicks!

If this part is true

> the proposal would seek to expand the definition of “broker” under section 6045(c)(1) of the Internal Revenue Code of 1986 to include anyone who is “responsible for and regularly providing any service effectuating transfers of digital assets”

Then this appears to be false

> something that isn't actually in the legislation

Because "digital asset" is extremely broad and can easily be seen to cover things like video game inventory items.

Is there a specific and detailed definition of "video asset" in the legislation?

> Because "digital asset" is extremely broad and can easily be seen to cover things like video game inventory items

I believe digital asset is a defined term in this legislation, though the quote doesn’t show any capitalisation.

That's the trouble with armchair legislation, no one bothers to read the text in full or understand the rules of the game. Most legislation has a dictionary to define the terms use within.

These definitions are critical and updates to modify a definition without modifying the text can still have dramatic affect.

See page 2435. Digital asset is defined as a digital representation of value recorded on a cryptographically distributed ledger or any similar technology.

Practically, the Secretary and the courts will decide what this means.

If you’re using in-game tokens to represent value and maintain a ledger, then sure, that could count. Which is good. why should it be possible to sidestep this law by creating a coin that is liquid and fungible and has etfs that track it but just happens to be used for in game purchases? That would be a silly and absurd loophole.

If your in game currency is one-way, ie can’t be converted back to USD or any other assets, then it’s by (legal) definition not representation of value.

> but just happens to be used for in game purchases

Because if I make a game where items drop, and players can transfer items between each other, but not convert any of it to real world money... then making the system, or possibly every single player, be responsible for reporting all activity and participants to the government is... to be blunt, bat-shit crazy?

That would not be a representation of value. I address literally exactly this scenario in my comment.

If it is possible to sell in-game items for out of game money (either using in game processes or an external system like a 3rd party site), then would this mean they are "value". If so, does that mean each player that sells items needs to report every transaction? Or that the game system needs to report every in game transaction (transfer of items from one character to another). And that reporting needs to include real life information about the players involved?

Players already have to report substantial real gains on sales of game assets. If you’ve been doing this and not reporting income, especially if it’s beyond trivial sums (eg like 5 figures or so), talk with your accountant ASAP.

Beyond that, it depends, but the answer definitely isn’t “no”. That’s true even today, btw: game companies can’t knowingly allow money laundering through their in game currency, for example, and gambling laws almost always apply if you can cash out and the game contains any type of chance component (eg loot boxes).

Basically, if your game is setup in a way that could be trivially used for transferring real world assets between players, even existing regulations probably already apply. This is one of many reasons most games only support one way transactions — you can move money into the game but not back out (at least without breaking tos)

“X but in a video game” is almost always actually really X when it comes to money and other assets that can flow into and out of the game easily. A VR Wells Fargo branch is still a bank.

> Players already have to report substantial real gains on sales of game assets

That's a pretty far cry from needing to report "user data, including users’ names and addresses" for every in game transfer of digital assets. (As noted in another message, it's still unclear to me if that's what the bill is requiring).

Can you go into more detail here? Looking at a writeup on the legal definition of value [1], it says

> Value sometimes expresses the inherent usefulness of an object and sometimes the power of purchasing other goods with it. The first is called value in use, the latter value in exchange. Value in use is the utility of an object in satisfying, directly or indirectly, the needs or desires of human beings. Value in exchange is the amount of commodities, commonly represented by money, for which a thing can be exchanged in an open market. This concept is usually referred to as market value.

Conceptually, in game items certainly have a an "inherent usefulness", in that they make the game more enjoyable for the person (or person's character) that possesses the item. This value is transferred between players regardless of whether or not the game provides a way to convert it to real money. For all practical purposes, it is impossible for any game that supports trading assets between characters to completely prevent interactions of the form "if you give me this item, I will give you some amount of real world money".

It seems that any in game assets meet the legal definition of value (that I understand from that page). This would mean that any transfer of said assets between characters would need to be reported on.

I'm open to clarification/correction, with a clear statement that my understanding of this is extremely limited. But it seems like the above is accurate. And seems to fall into the previously mentioned "bat-shit crazy" bucket, if true.

[1] Value https://legal-dictionary.thefreedictionary.com/Value

That’s a generic legal dictionary. And it’s a definition of one word in a term of art.

(Digital) representation of value means something more specific in the context of securities law. Something that has intrinsic value but cannot be used as a medium of exchange, unit of account, or store of value is unlikely to be regulated as a security.

> unlikely

There's the thing though. The minute you get to the point where the law is ambiguous, you start seeing law enforcement using it as leverage to get what the want. If the bar is "can they convince a judge that this should count", then they an use it to screw someone over.

I'm in favor of strong limitations on the powers granted to government officials, because there ARE bad apples; and giving the good apples power means the bad apples can decide to ruin someone's life because they can.

But thank you. I very much appreciate you taking the time to put forth your thoughts / knowledge on the subject.

> The minute you get to the point where the law is ambiguous, you start seeing law enforcement using it as leverage to get what the want.

Regulations are rarely explicitly legislated because legislative bodies don't have the time or expertise to maintain the specifics of regulations. Of course, you always want there to be appropriate scoping, but some division of responsibility between the executive and legislative branches is necessary.

I think a good middle-ground here is the updated language from Wyden et al.. I'm not sure how much leverage they have, though -- (D)s won't defect over this issue and it's unclear whether people like Toomey could be brought on board. And if it's not going to flip votes, then changing the language isn't really worth the lift. I would guess the best way to get this change adapted would be to pressure Toomey to vote on infra but insist on this change -- a single additional (R) in the Senate would make this language change over night. But, again, I kind of doubt Toomey considers this a wedge issue.

> If the bar is "can they convince a judge that this should count", then they an use it to screw someone over. I'm in favor of strong limitations on the powers granted to government officials, because there ARE bad apples; and giving the good apples power means the bad apples can decide to ruin someone's life because they can.

It's not just a judge or a single official. The Secretary will create rules through the regular rule-making process. And then those rules might be challenged in court.

There is no "good faith" when violence is involved.

https://www.theatlantic.com/politics/archive/2016/06/enforci...

>>Law professors and lawyers instinctively shy away from considering the problem of law’s violence. Every law is violent. We try not to think about this, but we should. On the first day of law school, I tell my Contracts students never to argue for invoking the power of law except in a cause for which they are willing to kill. They are suitably astonished, and often annoyed. But I point out that even a breach of contract requires a judicial remedy; and if the breacher will not pay damages, the sheriff will sequester his house and goods; and if he resists the forced sale of his property, the sheriff might have to shoot him.

>>This is by no means an argument against having laws.

>>It is an argument for a degree of humility as we choose which of the many things we may not like to make illegal.

> Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers--given they can engage in "transfers."

Pardon me for having a legal education and knowing that prosecutors are often more than willing to bend over backwards and squint through one eye.

If it's possible for a prosecutor to argue it, they will eventually argue it, and most of the time the courts won't push back.

The entire history of governance and prosecution is bad faith arguments.

They only need the thinnest veneer of legality in order to abuse their power.

>Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers

You mean that squinting and bending that DAs often do to get some ridiculous plea bargain from some innocent schmuck?

> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?

"Disaster" is a loaded word, but of course it would be a huge privacy improvement if they didn't!

This isn't like that at all. This would be like the government requiring Microsoft to KYC every single user of Excel, because people use their software to manage money.

Not really, since excel can be used for everything from budgeting to making a list of your favorite movies. Cryptocurrency is for transactions and speculation, not much different than any other financial product when you shuck off the technical mumbo jumbo surrounding it. Why would that not be regulated?

Except it's not, if you look at the broader Ethereum & smart contract ecosystem. It's also for decentralized organizations (Aragon), incentivizing distributed storage (Filecoin/IPFS), pricing ad markets (Brave/BAT), supply chain management (VeChain), managing ownership (NFTs), and project governance and voting (many tokens).

This is like saying "The Internet is for porn" because that's your only exposure to it. Yes, it's the most common early use - but it's very far from the only use.

Those things should be split out then, so there isn't a coin attached to it.

If you couple things badly, you can end up with more responsibilities than you want

There has to be a coin attached to it because that is how you incentivize actors within the ecosystem to take certain actions (eg. "share their hard disk space" for FileCoin or "view ads" for BAT).

The central premise of these projects is that humans make terrible decisions, markets make good decisions, so let's replace humans with markets whenever possible. Right now, some exec at Google determines how many ads you see on the Internet. The premise of Brave & BAT is that you decide whether you want to see ads on the Internet, you get compensated for viewing them, and if enough people decide the ads are not worth their time, they'll turn them off and drive the price of BAT up enough that people do want to view them.

Right now, some exec at Amazon decides how much you pay for S3. The premise of FileCoin & IPFS is that lots of ordinary home users have spare hard drive space, and they should be able to be compensated for renting out that space to projects that need lots of distributed storage. The market price of FileCoin is that which equilibrates demand for storage with supply.

The requirement is compensation. You could just pay them through PayPal. There's no need to have them do a stock trade for somebody else in order for you to pay them for S3 space.

PayPal is centralized.

S3 is centralized.

This is not an apples to apples comparison.

Compensation is what is driving the decentralized ecosystem (including payments, file storage, among the other things mentioned in this thread).

Okay. How about companies that create book keeping software? Should they be required to KYC their customers.

"digital assets" includes more than cryptocurrency

No it's not. Not at all.

Is it accurate to treat crypto facilities as equity brokers, or more like foreign currency exchanges? (Forex probably have their own reporting requirements, the question is about analogous service, not the reporting/privacy part.)

You probably don't want crypto transactions to be taxed like forex ones--unless you enjoy paying capital gains taxes before you've even sold: https://www.investopedia.com/terms/s/section-1256-contract.a...

You're confused. Section 1256 applies to futures, not forex. Spot forex positions are taxed as ordinary capital gains under Section 988. Under very specific conditions a high-volume spot forex trader who never takes deliver may elect to be taxed under 1256, but that's completely optional.

https://greentradertax.com/a-case-for-retail-forex-traders-u...

>Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government?

Yes. Do you not? They have no right to that information. Why do so many in the "hacker" culture simp for the authority structure?

Be careful to attribute what you read on Hacker News to the entire "hacker culture". There are so many strongly held opinions I've never heard hackers say out loud in real life, most famous example must be about unions. I've heard zero hackers arguing that unions are bad in real life, while when the discussion comes up on Hacker News, the discussions seems to lean 50/50 on if unions are actually good or bad.

I'm sure that isn't in any way Pinkerton astroturfing.

Never knew any cypherpunk or cypherpunk-adjacent people, then?

Hi. I started hacking in 3rd grade in Apple Basic on an Apple IIe, published dozens of CVEs in my youth, helped start a hackerspace, build sota robots, etc etc etc.

Pretty sure I get to call myself a hacker in any sense of that word.

I’m a fan of KYC and paying taxes precisely because I’m a hacker and can immediately see how easy it is to hack civil society without those things.

Also, this isn’t a forum for hackers in any definition of the word. It’s a public discussion forum run by and often for the benefit of a powerful and rich VC firm with substantial investments in alt fin tech speculation. are you sure you’re not the one simping?

Most folks here arguing that banking laws are also a privacy disaster only because of the proposed law. I'm not saying they were ok with it earlier and changing their stance now. Just that, they simply had no stance earlier and accepted the status quo.

(Personally, I think the wording has to be tightened. My only stance is crypto should be on-par with other banking laws. No special treatment. Crypto should (hopefully) succeed but shouldn't become a refuge for money laundering, facilitation of crimes and other less than desirable activities. It could lead to long term harm for the ecosystem than adding KYC and making it mainstream.)

If you don't believe that the government has the right to make laws, then that's one argument.

If you don't believe that the government should be allowed to attempt to tackle money laundering, that such crime is simply to be shielded at all cost from being reduced, then that's another.

So the question is "what do you want?".

And the cryptocurrency community has been completely unable to present anything that isn't literal anarchy or feudalism. And guess what, nobody will be able to sell anarchy or feudalism to the general public, or even outside a very very small community.

This other comment said it better: https://news.ycombinator.com/item?id=28047145

Yes. Clearly.

My car doesn't keep an up to date record of my name and adress so it can report my position and speed to the authorities. Warrantless wiretapping is illegal in most (every?) form outside finance, and there's no justification for banks or investment firms being any different.

Governments have a right to make laws, they don't have a right to continuously monitor every citizen to enforce them.

> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government?

Yes.

Yes, I do. The IRS has slowly gathered power since 1913. Federal taxes were supposed to be short term and temporary, for war levies and such.

Furthermore, the tax code within the constitution controverts itself: "all Duties, Imposts and Excises shall be uniform throughout the United States" - I.8.1

I also must throw in the fact that IRS enforcement is disproportionately against "regular" people. The IRS doesn't go after enormous tax dodging billionaires very often, because going after some small business owner who mis-reported something or is trying to squeak something by is a better way to make quota.

It results in yet another area where "laws are for little people."

Yes I call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government. Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099.

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