I 

113TH CONGRESS 

2D SESSION H. R. 5892 

To protect cryptocurrencies. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 2, 2015 

Mr. STOCKMAN introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committees on Ways 

and Means and Agriculture, for a period to be subsequently determined 

by the Speaker, in each case for consideration of such provisions as fall 

within the jurisdiction of the committee concerned 

A BILL 

To protect cryptocurrencies. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Online Market Protec5 tion Act of 2014’’. 

6 SEC. 2. MORATORIUM. 

7 (a) Neither the Federal Government nor any State 

8 or political subdivision thereof shall impose any statutory 

9 restrictions or regulations specifically identifying and gov10 erning the creation, use, exploitation, possession or transVerDate Sep 11 2014 00:14 Jan 03, 2015 Jkt 049200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H5892.IH H5892

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1 fer of any algorithmic protocols governing the operation 

2 of any virtual, non-physical, algorithm or computer source 

3 code-based medium for exchange (collectively, 

4 ‘‘cryptocurrency’’ as defined herein) for a period beginning 

5 June 1, 2015, and extending five years after the enact6 ment of this Act (such period, the ‘‘moratorium period’’), 

7 except for statutes already enacted and effective prior to 

8 the date of enactment of this Act, and further suspending 

9 the enactment and effectiveness of any and all pending 

10 statutes and regulations until the end of the aforemen11 tioned moratorium period, except as otherwise provided in 

12 this section. 

13 (b) During the moratorium period, the Federal Gov14 ernment and all State governments and political subdivi15 sions thereof shall not impose any further statutory re16 strictions or regulations affecting Smart Contract plat17 forms such as cryptographic escrow services, multi-signa18 ture transactions, and oracles, so as to allow for the 

19 growth and facilitation of these important facets of 

20 cryptological technology. 

21 (c) Federal and State Agencies shall consider 

22 cryptocurrencies ‘‘exempt commodities’’ akin to gold and 

23 silver, rather than ‘‘excluded commodities’’ such as na24 tional fiat currencies. The Bitcoin cryptological protocol 


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1 is not strictly a currency, but is a broad multifaceted pro2 tocol which allows for myriad novel applications. 

3 (d) Federal and State Agencies shall have no jurisdic4 tion over Cryptocurrency Economy Transactions or 

5 Bitcoin Economy Transactions. The financial regulations 

6 authorizing these agencies are designed to protect users 

7 of financial instruments from fraud, manipulation, and 

8 other types of misconduct that result in real economic 

9 losses; not virtual losses solely within a cryptographic net10 work. 

11 (e) Nothing in this Act shall prevent, impair or im12 pede the operation of any government agency, authority 

13 or instrumentality, whether of the Federal Government or 

14 of any State or political subdivision thereof, to enforce cur15 rently existing criminal, civil or taxation statutes and reg16 ulations. 

17 SEC. 3. DEFINITIONS. 

18 (a) ‘‘Algorithm’’ is defined as a procedure for solving 

19 a mathematical problem in a finite number of steps per20 formed by a computer. 

21 (b) ‘‘Algorithmic chain’’ is a series or chain of bits 

22 of data comprising a unique string of data which is the 

23 basis for the cryptographic proof of a valid transfer or 

24 transaction of cryptocurrencies. The algorithmic chain for 


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1 a cryptocurrency is commonly referred to as a 

2 ‘‘blockchain’’. 

3 (c) The ‘‘cryptographic proof’’ for each transaction 

4 or transfer is based on one unique algorithmic chain, dis5 tinct from all previously existing algorithms and neither 

6 replicable nor reusable yet sharing with all other units at 

7 least one common source code element in the algorithmic 

8 chain (or ‘‘blockchain’’) in the transferor’s existing Bitcoin 

9 or bitcoins. 

10 (d) ‘‘Protocol’’ refers to procedures or guidelines gov11 erning the creation, development and operation of a 

12 cryptocurrency. 

13 (e) ‘‘Service’’ is defined as the Internal Revenue Serv14 ice. 

15 (f) The phrase ‘‘using the Internet or other elec16 tronic, non-physical medium’’ means by placement of ma17 terial in a computer server-based file archive so that it 

18 is publicly accessible on, through, or over the Internet, 

19 using hypertext transfer protocol, file transfer protocol, or 

20 other similar protocols. 

21 (g) ‘‘Cryptocurrency’’ is a popular term encom22 passing code-based protocols supporting an electronic, 

23 non-physical media for the exchange of value, and for the 

24 sake of both clarity and the avoidance of confusion in the 

25 mind of the public, based on the prior use of this term 


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1 by the Internal Revenue Service in its initial guidance (see 

2 Notice 2014–21, released March 26, 2014) this term is 

3 used herein. However, it is believed ‘‘cryptocurrency’’ en4 compasses the same protocols as those covered by terms 

5 such as ‘‘digital currency’’, ‘‘virtual currency’’ or ‘‘elec6 tronic currency’’. 

7 (h) ‘‘Agencies’’ is defined as the regulatory bodies of 

8 the Federal Government and the State governments or po9 litical subdivision thereof, including but not limited to the 

10 Commodity and Futures Trading Committee (‘‘CFTC’’), 

11 the Securities and Exchange Commission (‘‘SEC’’), the 

12 Board of Governors of the Federal Reserve, the Financial 

13 Crimes Enforcement Network (‘‘FinCEN’’), and the New 

14 York State Department of Financial Services 

15 (‘‘NYSDFS’’). 

16 (i) ‘‘Smart Contracts’’ are cryptographically encoded 

17 agreements, often utilizing multi-signature technology, 

18 which allow for automatic or multi-party execution and 

19 public recording of transactions or property transfers 

20 when certain predetermined parameters are met. 

21 (j) ‘‘Multi-Signature Transactions’’ are cryptographic 

22 contracts encoded in the blockchain, often involving third23 party arbitrators or oracles, which are finalized when a 

24 pre-set number of involved parties sign off. In a three25 party multi-signature transaction involving an arbitrator, 


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1 the transaction may be finalized only when two (2) out 

2 of the three (3) parties—a buyer, a seller, and/or the arbi3 trator—sign off on the transaction. 

4 (k) ‘‘Cryptographic Escrow Services’’ are services 

5 that allow for fund transfers subject to the authorization 

6 of an arbitrator or other intermediary. These transactions 

7 can utilize multi-signature technology, allowing for the 

8 possibility of arbitration without requiring any actual 

9 transfer of funds through the intermediary. 

10 (l) ‘‘Oracles’’ are automated programs or algorithms 

11 acting as signatories to multi-signature transactions. Uti12 lizing databases and information amalgamators, an oracle 

13 automatically executes its signature when predetermined 

14 threshold is met. 

15 (m) ‘‘Cryptocurrency Economy Transactions’’ or 

16 ‘‘Bitcoin Economy Transactions’’ are transactions involv17 ing financial instruments denominated in Bitcoin or an18 other cryptocurrency underlying a transaction which is 

19 also denominated in Bitcoin or another cryptocurrency. A 

20 Bitcoin-denominated credit default swap that references a 

21 Bitcoin-denominated loan would be a Bitcoin Economy 

22 Transaction. 

23 SEC. 4. DECLARATION OF MORATORIUM. 

24 (a) IN GENERAL.—It is the public policy of the 

25 United States that no new statutes, regulations or adviVerDate Sep 11 2014 00:14 Jan 03, 2015 Jkt 049200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H5892.IH H5892

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1 sory opinions be passed, implemented, enforced or issued 

2 governing the creation, use, possession or taxation of 

3 cryptocurrencies, the protocols governing each and the 

4 data, codes, algorithms or other calculations comprising 

5 each, until the expiration of the moratorium as provided 

6 in this Act. 

7 (b) PUBLIC INTEREST.—It is further the public pol8 icy of the United States that the development and use of 

9 any medium of exchange which utilizes cryptographic 

10 proof of and for a transaction of cryptocurrency without 

11 the need for or reliance upon third-party intermediaries 

12 or verification will enhance the economic well-being of the 

13 American people and result in significant economic 

14 growth. Given the blockchain’s capacity to serve as a pub15 lic ledger, software developers are creating mechanisms for 

16 ‘‘smart’’ technologies that will eliminate the need for many 

17 forms of costly intermediation ranging from third-party 

18 arbitration in legal disputes to key-exchanges in car and 

19 hotel rentals. The capacity for publicly recorded multi-sig20 nature transactions will allow for the seamless property 

21 transfers that are certifiable, public and secure without 

22 the use of an intermediary. These and other uses increase 

23 market efficiency and facilitate economic activity and 

24 growth. Moreover, these advances promote the autonomy 


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1 and liberty of individuals and small businesses at the ex2 pense of needless bureaucracy. 

3 SEC. 5. DECLARATION OF NEUTRAL TAX TREATMENT. 

4 (a) IN GENERAL.—It is the public policy of the 

5 United States that the production, possession or use of 

6 cryptocurrency, whether in trade, commerce or personal 

7 non-commercial transfers, should not be disfavored or dis8 couraged by the Federal tax code or other Federal or 

9 State statute or regulation. 

10 (b) TAX TREATMENT.—It is the public policy of the 

11 United States that the current guidance just promulgated 

12 and released by the Service in its Notice 2014–21 is advi13 sory, subject to public comment and not in final form 

14 pending the expiration of the comment period. As such, 

15 Congress believes that the current guidance is less than 

16 optimal for the American people and economy, and directs 

17 the Service to issue or revise interim regulations consistent 

18 with the following. 

19 (c) TREATMENT AS CURRENCY.—It is the public pol20 icy of the United States that virtual currencies should be 

21 treated as currency instead of property in order to foster 

22 an equitable tax treatment and prevent a tax treatment 

23 that would discourage the use of any cryptocurrency. Tax 

24 treatment of cryptocurrency as property does not account 

25 for the substantial illiquidity and highly limited acceptance 


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1 and use of cryptocurrency, and substantially and unfairly 

2 discourages taxpayers engaging in a trade or business 

3 from using cryptocurrency in commerce. This cir4 cumstance is likely to discourage economic activity and sti5 fle innovation and growth. At present, a taxpayer accept6 ing cryptocurrency for goods or services will be taxed on 

7 the fair market value of the cryptocurrency despite the 

8 fact that exchange rates (from cryptocurrency to conven9 tional currency) are both highly volatile and published or 

10 available only on a small number of proto-exchanges in 

11 the early stages of development, acceptance and awareness 

12 by cryptocurrency users. As a result, current tax treat13 ment will measure income on the basis of an illiquid and 

14 likely inaccurate fair market value that exceeds the tax15 payer’s true fair market value and hence income, resulting 

16 in the risk of a consistent overtaxation or overpayment 

17 that will act as a strong deterrent to or penalty for accept18 ing cryptocurrency in payment. Such tax treatment is in19 consistent with the tax treatment of secured notes for pay20 ment in trade or commerce, which recognizes a discount 

21 from the face value of the note due to the illiquid nature 

22 of the payment. (Note: See IRS Pub. 525 at 4.) 

23 (d) REVENUE IN TRADE OR BUSINESS; TAXATION

24 UPON MONETIZING EVENT.—It is the public policy of the 

25 United States that taxpayers accepting cryptocurrency in 


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1 trade or commerce should be deemed to realize actual in2 come only when cryptocurrency is monetized through con3 version or exchange into dollars or any official government 

4 currency, and that fair market value should be calculated 

5 as net proceeds from the conversion. (Note: This treat6 ment seeks to achieve the most accurate and fair measure 

7 of actual income received, as distinguished from theo8 retical income in the form of cryptocurrency which, until 

9 its conversion to dollars, remains under substantial risk 

10 of diminution from illiquidity or other conversion risks or 

11 inefficiencies. This treatment is consistent with tax treat12 ment of statutory stock options where the taxable event 

13 is not the receipt or exercise of the option, but the sale 

14 of the underlying stock for proceeds in cash. The goal here 

15 is to have income taxed when the income is actual instead 

16 of theoretical and subject to substantial if not total risk 

17 of loss through liquidity problems, exchange problems or 

18 other barriers to monetization.) Accordingly, as it is the 

19 further public policy of the United States that income on 

20 cryptocurrency received in trade or business should be de21 fined as the net proceeds from conversion of the received 

22 cryptocurrency into dollars, the Service is hereby directed 

23 to revise or issue interim regulations consistent herewith. 

24 (e) REVENUE FROM MINING OR CREATION OF

25 CRYPTOCURRENCY.—It is the public policy of the United 


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1 States that the Service’s guidance that taxpayers should 

2 have the fair market value of the cryptocurrency they suc3 cessfully ‘‘mine’’ or produce included in gross income is 

4 inequitable, overstates actual income by overstating fair 

5 market value by not accounting for the liquidity risk or 

6 the risk that substantial effort may yield no production, 

7 and strongly and unfairly penalizes or discourages such 

8 income producing efforts and deters economic growth, ac9 tivity and innovation. Accordingly, as it is the further pub10 lic policy of the United States that mined produced 

11 cryptocurrency should be taxed as income only when ac12 tual a transfer and conversion of proceeds into dollars re13 alize income, the Service is hereby directed to revise or 

14 issue interim regulations consistent herewith. 

15 SEC. 6. SEVERABILITY. 

16 If any provision of this title, or any amendment made 

17 by this title, or the application of that provision to any 

18 person or circumstance, is held by a court of competent 

19 jurisdiction to violate any provision of the Constitution of 

20 the United States, then the other provisions of that title, 

21 and the application of that provision to other persons and 

22 circumstances, shall not be affected. 

Æ 


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