In a significant legislative move on Monday, Senators Cynthia Lummis (R-Wyo.) and Ron Wyden (D-Ore.) jointly introduced a bipartisan bill intended to provide clarity and legal protection for blockchain developers. The legislation, known as the Blockchain Regulatory Certainty Act, seeks to specifically exempt "non-controlling" blockchain developers and infrastructure providers from federal money transmitter laws currently enforced under the Bank Secrecy Act.
The term "non-controlling" refers to developers and parties who create or maintain blockchain-based ledgers but do not possess the legal authority to execute or control individual transactions without approval from external third parties. This delineation aims to ensure that software creators who are not responsible for transactional control are not mistakenly treated as financial intermediaries.
Under the proposed bill, activities such as offering hardware or software tools for customer self-custody options as well as providing infrastructure necessary to maintain distributed ledger services would be formally recognized as "protected". This designation intends to prevent these activities from being subject to money transmission regulations that typically cover entities involved in handling or transferring funds.
Senator Lummis, who chairs the Senate Banking Digital Assets Subcommittee, emphasized the need for this legal clarity. She stated, "This bill gives our developers the clarity they need to build the future of digital finance without fear of prosecution for activities that pose no money laundering risk." Lummis further remarked, "It’s time to stop treating software developers like banks simply because they write code," highlighting a key concern for those working in the blockchain development ecosystem.
The move follows recent adjustments from the Department of Justice regarding its stance on developers of decentralized cryptocurrency platforms, especially those who lack criminal intent in their activities. This legislative initiative comes after notable legal cases that raised questions about the classification of software developers within financial regulatory frameworks.
A high-profile example is Roman Storm, the co-founder of Tornado Cash, a cryptocurrency mixing platform. Storm was convicted last year on charges related to operating an unlicensed money transmitting business. Prosecutors argued that Storm intentionally profited from the criminal use of the protocol, whereas the defense contended that developers who provide non-custodial software should not be equated with financial intermediaries responsible for explaining funds’ origin or destination.
Public figures like Edward Snowden have publicly supported Storm, pointing out that maintaining privacy rights does not constitute a criminal offense. This debate underscores ongoing challenges in regulating emerging blockchain technologies without constraining innovation or unfairly penalizing developers who do not directly handle customer funds.
Money transmitting businesses are defined under federal law as entities offering financial services involving the transfer of funds for the public. Such businesses fall under strict regulations, including requirements to prevent money laundering and fraud. However, the proposed legislation would delineate clear boundaries, ensuring that non-controlling blockchain developers and infrastructure providers are not subject to these stringent regulations based solely on their technical involvement.
Overall, the introduction of the Blockchain Regulatory Certainty Act represents a legislative effort to modernize regulatory frameworks in line with technological developments. By protecting software developers and infrastructure operators from being inadvertently classified as money transmitters, this bill aims to foster innovation in digital finance while addressing regulatory concerns.