[JumpCrisscross]

> reporting obligations on software developers who never have any custody of client funds

Custody doesn't haven an agreed-upon definition when it comes to crypto. That's the nut of the challenge. If we want reporting, someone who, in a traditional setting, would not have had to report, will when it comes to cryptocurrencies.

> these centralized services that have some involvement with crypto already comply with a large number of regulations

Many do. Many don't. Tether and Binance are exemplars of pathological noncompliance.

[doomroot]

> Custody doesn't have an agreed-upon definition when it comes to crypto.

This is not true, custody is very well understood when it comes to blockchain assets. Legal definitions of ownership are another question altogether that do require continual legislative attention, see Wyoming’s work in this area.[1]

You’ve also repeated the sins of the top comment by glossing over the actual issues with this provision by focusing on facts that almost everyone in the cryptocurrency space are in total agreement on.

> Tether and Binance are exemplars of pathological noncompliance.

The amendments to this provision are focusing on who should be excluded from these new requirements, of which Binance & Tether (or terms that could be construed to mean Binance or Tether) are nowhere to be found. The exceptions focus on miners, node operators, noncustodial software providers, and alternative consensus mechanism validators.

[1] https://www.google.com/amp/s/slate.com/technology/2021/06/wy...

[nine_k]

Could you please share an example or two where custody of funds is not clearly defined?

I'm not in finance, and to me this sounds weird. Unclear custody looks to me as an obvious opportunity to plainly steal someone's funds.

[SpicyLemonZest]

The basic example most others are built on is a locked smart contract, where none of the participants can control the funds until the smart contract is programmed to release them. Most crypto developers conceptualize this scenario as the smart contract having custody (you can only steal the money if you trick the smart contract into giving it to you), but the smart contract can't exactly report things to the IRS.

[sterlind]

How does the tax system work for financial instruments implemented by pen-and-paper contracts? Seems to me very similar to owning shares in Special Purpose Vehicles, with the (perhaps important) difference that a judge can't overrule the contract.. but they can still bind the owners right?

Part of me wonders if you could create a contractual "shim" that judges can read, which mirrors what the smart contract does and dictates behavior of the parties for matters outside the contract itself. Sort of like the template contracts used for mortgage-backed securities.

[SpicyLemonZest]

The difference is that the SPV is itself a legal entity responsible for keeping track of who owns it. (That's not to say it's a silver bullet, since SPVs can be and quite regularly are used to try and play accounting tricks to hide stuff from tax authorities.)