At the helm of Government Curated, political savant Donald Gainsborough has a unique vantage point on the legislative battles shaping America’s future. We sat down with him to dissect the high-stakes debate surrounding a new crypto bill. Our conversation delved into the delicate balance between fostering technological innovation and empowering law enforcement, exploring the specific legal definitions that could redefine financial crime in the digital age. We also touched on the practical challenges prosecutors face and the intense political negotiations happening behind the scenes that will determine the fate of decentralized finance in the United States.
A central proposal aims to shield software developers from being classified as money transmitters to foster innovation. Yet, Senators Grassley and Durbin warn this creates an enforcement gap. How can legislators balance these goals, and what specific safeguards could prevent decentralized platforms from attracting criminal organizations?
This is the absolute heart of the conflict, and it’s a genuine tightrope walk. On one side, you have this powerful argument that we must protect innovation; you can’t have developers living in fear for simply writing code. On the other, you have the stark warnings from seasoned legislators like Grassley and Durbin, who see this creating a dangerously broad exemption. They paint a very real picture of a significant enforcement gap that risks attracting illicit actors—we’re talking about cartels and sophisticated criminal organizations—to these decentralized platforms. The balance lies in precision. The spokesperson for Senator Scott put it well: the goal is to protect developers while ensuring law enforcement can prosecute actual illegal money transmission. This means the safeguards can’t be a blunt instrument; they must be surgical, likely focusing on control and intent, rather than just the act of creating software.
Concerns have been raised that this type of legislation might have precluded the government from bringing charges against the founder of the Tornado Cash platform. Could you explain the specific legal definitions at issue here and the potential precedent this sets for prosecuting financial crimes on decentralized platforms?
The Tornado Cash case is the ghost haunting these legislative halls, and for good reason. The entire debate hinges on the definition of a “money transmitting business.” The co-founder of that platform was found guilty of operating an unlicensed one, a conviction that many in the crypto world vehemently decried. The core issue is whether someone who writes code that facilitates transactions, but doesn’t personally control the funds, is a transmitter. Senators Grassley and Durbin are explicitly stating that this proposed bill’s language would have “likely precluded the government from bringing charges” in that very case. If this bill passes as is, it sets a monumental precedent. It could effectively draw a line in the sand, making it far more difficult, if not impossible, to prosecute individuals behind DeFi platforms used for laundering money, as long as they can argue they were merely software providers.
The National Association of Assistant United States Attorneys expressed that this bill could materially limit the pursuit of financial crimes. From a prosecutor’s perspective, what are the biggest challenges in building a case against illicit actors on DeFi platforms, and how would this legislation complicate that process?
From a prosecutor’s standpoint, the landscape is already incredibly challenging. Criminals are actively using tactics to obscure unlawful transactions, and decentralized platforms can make that even easier. The biggest hurdle is often proving control and intent within these complex, code-based systems. Now, imagine legislation that codifies an exemption for the very people who build these systems. The letter from the Assistant U.S. Attorneys is a direct plea from the front lines; they are saying this bill would “materially limit” their ability to pursue these cases. It’s not a hypothetical concern for them. This legislation, as written, would hand a powerful defense to illicit actors, forcing prosecutors to navigate an even more complex and ambiguous legal framework when trying to hold criminals accountable for moving funds outside established regulatory channels.
Senator Lummis stated that blockchain developers have lived under threat for too long for simply writing code without ever controlling user funds. Can you describe a real-world scenario where a developer could be unfairly targeted under current law, and how this bill would change that outcome?
Senator Lummis is voicing a very real fear within the developer community. Imagine a talented programmer who contributes to an open-source, decentralized lending protocol. They write a piece of code that improves the platform’s efficiency, publish it, and move on to other projects. They never touch, control, or have access to a single dollar of user funds. Years later, a criminal organization exploits a different part of that protocol to launder money. Under the ambiguity of current law, a prosecutor could argue that by writing essential code, that developer was part of an unlicensed money transmitting business. They could face investigation, legal fees, and the threat of prosecution simply for their contribution. This bill, specifically the Blockchain Regulatory Certainty Act language, would create a clear legal shield. It would affirm that if you don’t have control over the funds, you aren’t a money transmitter, changing the outcome from a potential criminal charge to a non-issue.
The bill’s markup was delayed amid opposition, suggesting a difficult path forward. What are the key points of negotiation between Republicans and Democrats on this issue, and what specific amendments or compromises might be necessary to achieve a “sound outcome” that both sides can support?
The delay of the markup tells you everything you need to know: this is not an easy lift. The core negotiation is between the Republican-backed push for innovation and developer protection, as embodied in the BRCA language, and the Democratic-led concerns about illicit finance and consumer protection on DeFi platforms. The key sticking point is how broad that developer exemption should be. Democrats were already preparing to amend the language before the vote was pulled. To reach what Senator Grassley calls a “sound outcome,” a compromise will be essential. This might involve tightening the definitions to ensure the exemption only applies to those who truly have no control over the protocol’s operations or user assets, or perhaps adding specific anti-money laundering requirements for certain types of DeFi platforms that pose a higher risk, without labeling their creators as money transmitters.
What is your forecast for crypto market structure legislation in the U.S. this year?
Given the recent delay and the deep divisions on fundamental issues like the DeFi provisions, the path forward this year is fraught with uncertainty. While there is a clear bipartisan desire to create rules for the road, the specific language is proving highly contentious. Key figures like Chairman Scott are committed, and you can see a willingness to negotiate from people like Senator Grassley. However, bridging the gap between protecting developers and preventing financial crime is a monumental task. I suspect we will see more intense negotiations and revised drafts, but passing a comprehensive market structure bill before the year is out will be an uphill battle. It’s more likely we see continued debate and perhaps progress on smaller, more targeted pieces of legislation rather than the grand bargain everyone is hoping for.
