In- depth interpretation of ConsenSys’ letter to the US Treasury Department

On August 12, local time, blockchain company ConsenSys Software Inc. sent a letter to the U.S. Treasury Department in response to the regulator’s request for comment on the responsible development of digital assets.

The letter mentions that decentralized networks like Ethereum, the world’s largest programmable blockchain, can lead to unprecedented innovation and achievement in terms of developer community, user activity and business adoption, On this trusted open source foundation, people around the world are building the digital economy and online communities of the future. Consensys’ software suite, consisting of MetaMask, Infura, Quorum, Truffle, Codefi and Diligence, is used by millions and supports billions of blockchain calls, enabling developers, businesses and users around the world to build the next generation of applications Program, launch modern financial infrastructure and access the decentralized web.

The following is the main content of the letter:

1. Blockchain is a “programming platform”

As the U.S. Department of the Treasury understands, programmable blockchains like Ethereum allow anyone to write and publish code that anyone else can access, as long as they have access to the blockchain network and are able to write and transmit on-chain transactions. Blockchain software development has grown significantly in recent years, as has the number of developers solving specific programming problems on platforms like Github. According to an analysis published in late 2021, there are more than 18,000 active developers working on blockchain programming projects each month, and more than 34,000 new developers migrated to the blockchain ecosystem in 2021.

MetaMask is widely recognized as the world’s most popular Ethereum self-hosted wallet, but few realize it is both a developer platform and a client-side key management solution. ConsenSys isn’t the only company working to increase developer engagement and productivity, examples of a thriving developer ecosystem abound, with bright minds from around the world solving new problems posed by emerging technologies.  

From this perspective, the U.S. Treasury Department should consider regulatory issues surrounding blockchain protocols. While there has so far been a lot of attention, both regulatory and otherwise, to dollar-denominated digital token prices and the speculation that often accompanies secondary market transactions, this can only be achieved when the technical capabilities of emerging blockchain networks are refined. Achieve sound regulation.

2. Blockchain network and related software risks

There are certain risks associated with blockchain software (on-chain code and off-chain tools) and participation in the blockchain ecosystem, and Consensys provides some advice on how to mitigate these risks as follows:

  • Phishing: MetaMask users are targeted by social media and phishers via email, fraudsters trick users into sharing their wallet passwords that only users can own and protect. Currently, about 80% of all customer complaints received by MetaMask through its customer support channels are users reporting phishers, and social media platforms such as Twitter are also “hardest hit” by fraudulent activities. Words conjure up images of bots trying to spoof user wallet keys, and these social media platforms have done nothing to reduce fraudulent activity.

Solutions – First, social media, which provides a nurturing platform for fraudsters, should devote more time and effort to eliminating such behavior; second, regulators and law enforcement can work more closely to report, investigate, and disrupt organized Big phishing scam. Third, the blockchain ecosystem should create tools to combat online fraud.

  • Hackers and Bugs: One of the risks of on-chain software (i.e. smart contracts) is that it can be hacked by malicious attackers, and there are also potential bugs that can lead to loss of user funds.

Solution – First, people building and participating in a large number of experimental protocols need to identify the risks they are taking; second, the aging of the protocol, the record of reliable performance that users can rely on when using the protocol, but the risk will not Gone; third, software development best practices help reduce the risk of hacking and bugs, including third-party code audits before software is released.

  • Malicious smart contracts: Some programmable blockchain protocol users don’t understand that when they interact with a smart contract it usually grants the software approval to send tokens from their wallets to other addresses, which is a risk for users , because while some contracts require users to grant strictly tailored approvals to utilize their features, some smart contracts require broad approvals, including control of all tokens in a wallet for any purpose.

Solution – Blockchain developers are currently working to solve this problem from an industry best practice perspective. On the one hand, MetaMask is considering solutions that could be integrated into the MetaMask interface to warn users when smart contracts require unlimited approval for their wallets. Second, users’ familiarity with the capabilities of smart contracts and their dangers will also reduce this risk, and law enforcement agencies will also need to understand the risky interactions of on-chain software.

3. Legislative and regulatory advice

Consensys made four recommendations for crypto-related legislation and regulation:

First, it is proposed to amend the federal tax code to exempt small-value cryptocurrency transactions. Related tax laws have become an obstacle to the everyday use of cryptocurrencies in commercial transactions and other micropayments, and the recent bills introduced by Senators Toomey and Sinema hope to constructively address this issue, and we encourage the U.S. Treasury Department to support these initiatives.

Second, protocol rewards for validating blocks on PoS networks should not be considered taxable income. This is a particularly important issue given Ethereum’s migration to PoS and the continued growth of other PoS programmable blockchain networks. Without this solution, in the near future, millions of ordinary Americans may find it difficult to comply with their federal tax obligations, largely through no fault of their own. The U.S. Treasury Department should provide guidance, and the IRS should provide such treatment under existing law.

Third, FinCEN’s proposed reporting rules for non-custodial wallets would impose greater reporting responsibilities or monitoring burdens on wallet users, and the U.S. Treasury should refrain from finalizing any rules designed to limit non-custodial digital asset wallets or otherwise lawful use . Furthermore, wallets are mechanisms by which users do more than just hold, send and receive virtual currency. They are increasingly a mechanism for users to control their digital identities, participate in online communities such as DAOs, and engage in commercial activities that do not pose any money laundering or terrorist financing risks. When it comes to digital identities in particular, many ordinary people will use Ethereum accounts as identities to log in to online applications in the near future, undermining the freedom, privacy, and usability of non-custodial wallets and running counter to the goals of technological innovation.

Fourth, the U.S. Treasury Department should advocate for changes to the law to allow U.S. government employees involved in blockchain decisions to hold certain amounts of digital assets. Consensys respectfully recommends that the U.S. Treasury Department push for regulatory updates to correct digital asset minimum exemptions and support the legislative process to correct related policy deficiencies.  

Summarize

Despite the growing daily use cases of blockchain, new phenomena such as NFTs, on-chain digital identities, and decentralized autonomous organizations are still in their early stages of development, and as programming experiments continue to innovate on these concepts, more users are expected to enter the ecosystem The system explores digital ownership, provably private digital identities, and new community-based methods of organization, decision-making, and action.  

The U.S. Department of the Treasury and government agencies and policymakers around the world also play an important role in driving adoption of new technologies, but as is the case with the Internet, new technologies take time to become willing and able to use by potential users, ease of use and wider utility will surely spark more interest in blockchain systems among ordinary people, but it will all take time.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/in-depth-interpretation-of-consensys-letter-to-the-us-treasury-department/
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