Originally published on Medium · August 5, 2021
The infrastructure bill working its way through Congress in the summer of 2021 contained a provision that sent shockwaves through the Bitcoin and cryptocurrency communities: a definition of "broker" broad enough to potentially classify Bitcoin miners, node operators, and software developers as brokers subject to strict IRS reporting requirements, including know-your-customer obligations.
The Lummis amendment — proposed by Sen. Cynthia Lummis along with co-sponsors — was designed to fix the problem by carving out those who validate distributed ledger transactions. The intent was right. But the technical execution may fall short of the goal.
The Problem with the Original Language
The infrastructure bill's original broker definition was extraordinarily broad. Applied literally, it would have required miners, node operators, and even software wallet developers to collect and report identifying information about their users — an impossible task for most, and a fundamental misunderstanding of how Bitcoin actually works.
The digital asset community recognized the threat quickly and lobbied hard for a fix. The Lummis amendment emerged as the bipartisan solution, exempting those who perform services "for validating distributed ledger transactions."
The Technical Gap
Here is the problem: miners do not actually validate transactions alone. Under Bitcoin's protocol, transactions are validated by the collective action of the majority of nodes on the network. Each node independently verifies every block against the protocol rules. Miners propose blocks by solving the proof-of-work puzzle — they do not unilaterally validate anything. Validation is a network-wide function, not a miner function.
This distinction matters legally. If a court or the IRS reads "validating distributed ledger transactions" according to Bitcoin's technical architecture, miners may not fall within the exemption — because miners, strictly speaking, don't validate. They mine. Nodes validate. The Lummis language conflates two distinct roles in the Bitcoin protocol.
This is precisely the kind of drafting gap that occurs when legislators work from a general understanding of blockchain rather than Bitcoin's specific technical design. The intent to exempt miners is clear. Whether the language achieves it is not.
Proposed Fixes
Two amendments to the amendment would substantially improve the protection for Bitcoin miners and other proof-of-work participants.
First, the exemption language should be expanded to include those performing "proof-of-work" computations essential to blockchain security. This directly captures what miners do — expend computational work to propose valid blocks — without relying on the legally ambiguous term "validating."
Second, the exemption should cover entities operating multiple business lines that include mining. A company that mines Bitcoin and also provides wallet services should not lose its mining exemption because of the ancillary service. As drafted, the amendment may inadvertently create a trap for integrated businesses.
The Broader Lesson
This episode illustrates a recurring problem in cryptocurrency regulation: legislative language drafted without precise technical understanding of the underlying protocol can create unintended — and sometimes severe — consequences for participants in the ecosystem.
Bitcoin miners, node operators, and developers are not brokers in any meaningful sense. They do not know their users' identities, they cannot freeze or reverse transactions, and they have no relationship with the parties to the transactions they process. Applying broker regulations to them would be both technically incoherent and practically unworkable.
The Lummis amendment is a well-intentioned step toward the right outcome. But the precision of the language matters — and in this case, getting the words right requires understanding exactly how Bitcoin's protocol assigns roles among miners, nodes, and the broader network.