- A coalition of crypto organizations is pressing Congress to protect developers in any crypto market structure bill.
- Without specific exemptions, they argue that new rules designed for crypto exchanges could be extended to open-source software tools.
- Privacy tool developers would be among the most impacted by overexpansive legislation.
As Congress finalizes a market structure bill for the crypto sector, there are fears that new crypto regulation could criminalize some Web3 developers.
Voicing these concerns, Coinbase, Uniswap, and Paxos are among over 100 signatories to a letter urging Congress to protect software developers and non-custodial service providers.
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112 Crypto Firms Submit Coalition Letter on Developer Protections
In the letter, 112 “crypto builders, investors, and advocates” called on Congress to provide “robust, nationwide protections for software developers and non-custodial service providers in market structure legislation.”
“Without such protections, we cannot support a market structure bill,” the letter states.
The letter argues that if legislation criminalizes the mere act of writing code, this could suppress software development, especially for open-source projects.
The problem is especially apparent in the crypto sector, where permissionless protocols are the norm and illicit activity is pervasive.
In recent years, the question of developers’ legal rights and responsibilities has been raised by several enforcement cases.
For example, when the SEC issued a Wells Notice against Uniswap Labs in 2024, it appeared to hold the company responsible for decentralized trading activity that it couldn’t control even if it wanted to. However, that investigation has since been dropped.
More recently, the Justice Department filed charges against Tornado Cash developer Roman Storm, attempting to blame him personally for money laundering that occurred on the platform he created.
Code as Speech
Cases like Uniswap and Tornado Cash have a long history in American law, which has wrestled with the question of who to hold responsible for software use for decades.
A key concept is the notion that code should be treated as constitutionally protected speech, as established by Bernstein v. Department of Justice in 1995.
In that case, cryptographer Daniel Bernstein successfully sued the government over a law that classified encryption tools as munitions subject to export controls.
However, digital rights advocates have also suffered disappointing losses over the years.
For example, in 2015, Ross Ulbricht was convicted on drug charges for his role in operating the Silk Road, even though there was no evidence that he ever engaged in drug dealing directly.
Cases like Silk Road and Tornado Cash have an especially chilling effect on the development of privacy tools, which authorities often depict as criminal tools.
AML in the Spotlight
A key battle line in the debate over developer protections is the question of whom anti-money laundering (AML) obligations apply to.
Both the Senate’s Responsible Financial Innovation Act and the House’s CLARITY Act would extend new AML obligations to exchange operators and wallet providers.
But without specific language exempting them, there is a risk that the rules will extend to the developers’ custodial wallets and decentralized platforms.
This could place software developers who currently distribute their products for free in a difficult position, as they tend not to collect any personal information about users.
A similar debate played out during the drafting of the EU’s anti-money laundering directive, which prohibits crypto firms from enabling anonymous transactions.
However, the final draft of the legislation states that “the prohibition does not apply to providers of hardware and software or providers of self-hosted wallets insofar as they do not possess access to or control over those crypto asset wallets.”
