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Cryptocurrency Legislation in 2024: Prospective Actions by the US Congress

Setting the stage for 2024 crypto legislation

As we embrace 2024, it's pivotal for Congress to address the cryptocurrency market. Amidst widespread resolutions, from personal fitness to financial goals, it's time for legislative bodies to also step forward. This year presents an opportunity for crucial reforms in the crypto sector, ranging from defining 'legal tender' to establishing a right to self-hosted wallets. With the aim of balancing innovation and regulation, let's delve into five significant legal reforms that could redefine the future of digital currency.

Keeping the Federal Reserve's legislative initiatives in check

The first step Congress should consider is curtailing the Federal Reserve's authority to launch a central bank digital currency (CBDC). The Federal Reserve's "Doomsday Book" reveals a tendency to rely on discretionary power rather than clear congressional mandates. Amending the Federal Reserve Act to explicitly prohibit the creation of a CBDC would set a necessary boundary, without hindering ongoing research into digital currencies. This move is crucial to maintain a balance between innovation and monetary control.

Congress should next focus on the Federal Reserve's financial activities. The law mandates cost recovery for new initiatives, yet transparency in this area remains vague. Take the FedNow project: its development cost approximately $545 million, yet participation fees are non-existent. 

To enhance accountability, Congress could amend the 1980 Depository Institutions Deregulation and Monetary Control Act, setting clear timeframes for cost recovery and mandating third-party audits. This step ensures financial transparency and responsibility in government projects.

Clarifying the meaning of 'legal tender'

A critical area of reform is the definition of 'legal tender.' Often misunderstood, the term is limited to the payment of taxes, fines, and contracts, not mandating acceptance by private entities. Congress can significantly reduce confusion by amending the law to clarify that legal tender status does not obligate private businesses or individuals to accept U.S. currency for goods and services. This amendment would provide clarity, especially in the context of cryptocurrency and other alternative payment methods.

Safeguarding the use of self-hosted wallets

Protecting the use of self-hosted cryptocurrency wallets is another vital reform. Comparable to holding physical cash in traditional wallets, self-hosted digital wallets should not be subjected to excessive surveillance. The infamous 2020 Treasury Department's wallet rule, which sought identification of self-hosted wallet users, highlights the need for legislative protection. 

Congress should mandate that any intervention in private transactions requires a warrant, upholding privacy rights and encouraging responsible innovation in the crypto sector.

Strengthening the right to financial privacy

Finally, Congress should address the Right to Financial Privacy Act. While the act was intended to safeguard financial activities, its effectiveness is undermined by numerous exceptions. By removing these exceptions, Congress can reinforce the requirement for warrants to access Americans' financial records. This change would not only uphold constitutional protections but also reinforce checks against unchecked government power, fostering a balance between privacy and security.