While the bill was created to target companies like TikTok, the crypto advocacy group says the bill’s language is too broad – and can harm crypto.
Earlier this month a bipartisan group of US senators introduced a bill that will strengthen the federal government in fighting perceived foreign technology threats.
The RESTRICT Act – an acronym for Restricting the Emergence of Security Threats that Risk Information and Communications Technology – has the support of 21 lawmakers who have co-sponsored the bill, and the White House, which has expressed urgency for Congress “to act quickly to send it to the president’s desk.”
The act intends to protect America’s national security by calling on the Secretary of Commerce “to identify, deter, disrupt, prevent, prohibit, and mitigate transactions involving information and communications technology products in which any foreign adversary has any interest” by establishing new procedures.
And some in crypto fear that disaster may strike within the industry in the US.
Introduced right before a congressional hearing on TikTok where US officials have repeatedly questioned its CEO about the company’s ties to China.
However, the language described in the bill is too broad to the point that it can be interpreted in a way where Americans will be prevented from conducting crypto transactions, and even engaging with certain blockchain networks like Bitcoin entirely, according to cryptocurrency advocacy group Coin Center.
“Although the primary targets of this legislation are companies like Tik-Tok, the language of the bill could potentially be used to block or disrupt cryptocurrency transactions and, in extreme cases, block Americans’ access to open source tools or protocols like Bitcoin,” a blog post from Coin Center writes.
Out of all of the problems presented by the RESTRICT Act, the core issue is that the bill will create a regime within the Secretary of Commerce – which will run parallel to the US Treasury Department’s Office of Foreign Assets Control (OFAC), says Coin Center’s Director of Research Peter Van Valkenburgh.
According to Van Valkenburgh, the to-be-created regime would end up in “redundancy”, creating “two different parts of the executive branch [that] can independently and without a lot of procedural checks ban technologies.” Regulators and officials can now, at a blink of an eye, ban technologies with just a public announcement.
The advocacy group also finds issue with the bill’s use and scope of the word “interest”, in context to any technologies an American adversary may be interested in. According to Coin Center, the term can be “exploited in order to ban Americans from using entire classes of technologies” if it is interpreted too broadly.
As an example, Coin Center cited its ongoing challenge in court over the OFAC blacklisting of the Ethereum coin-mixer Tornado Cash. Last year, the entire Tornado Cash platform was sanctioned by the OFAC due to its alleged use by North Korean state-sponsored hacking groups in laundering stolen money. Tornado Cash’s technology is used to maintain privacy in making Ethereum transactions.
Currently, the OFAC is granted the power to forcibly prevent Americans from making transactions with sanctioned non-Americans, under the International Emergency Economic Powers Act (IEEPA).
If the OFAC interprets the language in the loosest way, the government entity can argue that “the entire class of all Bitcoin transactions, for example, is a class of transactions in which U.S. foreign adversaries have an interest.” If that’s the case, Coin Center cautions that the entire Bitcoin network may be sanctioned.
Just as with OFAC's IEEPA, we do not object to sanction-like powers being used to target foreign entities.
If an overzealous secretary argued that a crypto network is a foreign entity, we would fight that. Cryptocurrency belongs to no one in particular. This should not apply.
— Neeraj K. Agrawal (@NeerajKA) March 28, 2023
Coin Center however states that it would not object to the RESTRICT Act if the language is used “narrowly”, that is, if bitcoin transactions were prevented under a ‘narrow’ scope, targeting specific recipients or use cases.
Beyond the ongoing problems with terminology, Coin Center raised concerns over the ability for Americans to challenge abuse of power via the RESTRICT Act’s language, and how the new bill can potentially infringe on free speech.
“It’s going to be harder to challenge the designations made by the Secretary of Commerce under the RESTRICT Act if it was to pass into law because of the limitations on people’s ability to bring challenges,” says Van Valkenburgh.
Interpretation of the bill’s language can also expand to other areas of the technology it can apply to as well. If the RESTRICT Act is passed, technologies covering “mobile networks,” “cloud-based or distributed computing and data storage,” in addition to “e-commerce technology” can be pressured by the OFAC to shut down US-based operations if they interpret them to be involved with “foreign adversaries.”
Senate Bill 686, The Restrict Act, wants to put you in jail for 20 years for using a VPN for using a website or app is operated by a “foreign adversaries.” These are the foreign adversaries btw pic.twitter.com/v05Hs3B4oJ
— Lolo (@LolOverruled) March 27, 2023
“It’s one thing to say that the national security complex should be able to ban specific examples of technology when they are directly owned and controlled by a foreign adversary,” Van Valkenburgh said. “But it’s another thing to say that you can just identify a whole class of technologies, irrespective of their foreign ownership, and then claim that some foreign adversary has an interest in them.”