The Blockchain Association and the Texas Blockchain Council filed a lawsuit against the United States Internal Revenue Service (IRS) against new cryptocurrency regulations finalized on December 27. The new rules require brokers, including decentralized exchanges (DEXs), to report cryptocurrency transactions. This has sparked huge controversy in the blockchain industry.
New Regulations May Negatively Affect DeFi
Blockchain Association CEO Kristin Smith stated that the IRS’s regulations violate constitutional rights and the Administrative Procedures Act. Smith stated that the IRS has imposed “unlawful compliance obligations” on front-end commerce infrastructure developers, which could have negative impacts on the industry. He argued that the regulations misinterpret the operation of DeFi platforms and place unnecessary regulatory pressure on developers.
The new regulations expanded the IRS’s definition of “broker” to include platforms that facilitate the exchange of digital assets. This includes transactions carried out through smart contracts. Blockchain advocates state that this definition could violate the privacy of DeFi users. Legal experts also worry that regulations could stifle innovation in the industry.
Regulations Will Put Pressure on Developers
Marisa Coppel, Chief Legal Officer of the Blockchain Association, emphasized that new regulations will hinder blockchain innovation. Regulations could shift technological development abroad and hinder the growth of decentralized systems in the United States, Coppel said. This situation is further complicated by the legal issues experienced by Tornado Cash developer Alex Pertsev.
The IRS’s new reporting requirements will go into effect in 2027. Brokers will be required to collect transaction data by 2026. The IRS expects these regulations to affect 650-875 DeFi brokers and approximately 2.6 million US taxpayers. Blockchain groups believe these regulations threaten innovative developments in the industry.
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that crypto currencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
