The Right to aSelf‐Hosted Wallet? Crypto Laws Congress Should Pass in 2024
To begin the new year on the right foot, many people have taken resolutions from losing weight to saving money. The new year is agreat time to start fresh, so perhaps Congress should also set afew resolutions.
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From reining in the Federal Reserve to leveling the playing field for cryptocurrency use, there are many options to choose from. However, to not risk setting too many goals all at once, here are five reforms that Congress should strive for this year.
First, Congress should formally establish that the Federal Reserve does not have the authority to launch acentral bank digital currency (CBDC). The Federal Reserve’s recently released “Doomsday Book” makes it clear that all too often, the Federal Reserve has relied on its own discretionary authority rather than explicit congressional authorization. Furthermore, statements from Federal Reserve officials have similarly preserved asort of legal gray area around the authority to issue aCBDC.
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From amending the definition of “legal tender” to codifying aright to own self‐hosted wallets, there is alot of action Congress could take on crypto in 2024.
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All Congress needs to do is amend the Federal Reserve Act to explicitly state that the Federal Reserve may not create aCBDC or use aCBDC for implementing monetary policy. Doing so does not prevent researching CBDCs(as some politicians have charged) and doing so puts clear boundaries around the Federal Reserve.
Second, Congress should rein in the Federal Reserve’s activities in general. Although the law requires the Federal Reserve to recoup its costs when it launches anew initiative, whether that’s happening can be an open question. For example, FedNow cost around $545 million to develop and yet the price of participation in the program is being kept at $0. As it stands, if and how those costs are being recouped is amystery.
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To address this issue, Congress should direct its attention to the Depository Institutions Deregulation and Monetary Control Act of 1980. Although the title is amouthful, the issue can be fixed simply by amending the law to set aspecific time frame for costs to be recovered and require third‐party audits for oversight.
Third, Congress should clarify what exactly the term “legal tender” means in practice. Far too often, people are confused by the term and make the mistake of thinking that others are requiredto accept U.S. currency whenever it is presented. In reality, the dollar’s legal tender status only denotes its acceptability for the payment of taxes, fines, and contracts. In fact, the Federal Reserve itself addressed this confusion on its frequently asked questions page.
Congress could fix much of the issue by amending the law to add something as simple as “Legal tender status does not require private businesses, persons, or organizations to accept United States coins and currency as payments for goods and services.” Doing so would help clear up the confusion around the use of cash, cryptocurrency, foreign currency, and the like.
Fourth, Congress should prevent any agency from restricting the use of self‐hosted wallets. Holding cryptocurrency in aself‐hosted wallet is merely the digital equivalent of holding physical cash in atraditional wallet. However, some government officials have not been happy with the limits on current financial surveillance and thus sought to intrude on this space. For example, shortly before Christmas in 2020, the Treasury Department published its infamous wallet rulethat would have required the identification of self‐hosted wallet users.
Rather than increase financial surveillance even further, Congress should make it clear that intervening on transactions between two parties requires awarrant. As Coin Center explained in response to the wallet rule, these types of intrusions present “a grave threat to personal privacy, Fourth Amendment rights against warrantless search, as well as asubstantial threat to continued responsible innovation.”
Fifthly, Congress should remove the laundry list of exceptions from the Right to Financial Privacy Act. Fans of cryptocurrency and advocates of civil liberties are likely excited when they learn of the Right to Financial Privacy Act in the United States. Where previous history effectively gave the green light for sweeping financial surveillance, this law was meant to establish that financial activity is indeed protected. Yet, the law was rendered largely useless because it includes along list of exceptions.
Congress can fix this problem by striking the exceptions and leaving the rest of the law as it stands. Doing so would merely require that law enforcement and other government agencies seek awarrant for Americans’ financial records. It’s true that requiring awarrant would make it harder for law enforcement and other government agencies, but constitutional protections exist to protect American citizens from unchecked government power. Removing the exceptions from the Right to Financial Privacy Act is to put checks on that power.
These five reforms cover agreat deal of ground. Preventing the unauthorized launch of aCBDC, reining in the Federal Reserve’s expansionary tendencies, clarifying legal tender applications, preventing restrictions on self‐hosted wallets, and establishing financial privacy protections can certainly seem like atall order. Yet each one of these goals is relatively simple to implement in the grand scheme of things. If Congress wishes to start the new year on the right foot, any of these reforms would be agreat start.