In the latest play of a sequence of tumultuous American regulatory moves against the cryptocurrency industry, the White House has shown support for an amendment that will seek to exclusively penalise new Proof of Stake (PoS) technology adoptees.

The announcement comes at a poignant time, immediately after the Ethereum’s’ London hard fork update this week – an important leap forward towards the network’s upgrade to Ethereum 2.0 (PoS).

Proof of Work (PoW) is the traditional method for validating blocks in the blockchain. However, PoS offers a new energy-saving opportunity to validate blocks proportional to the percentage of coins owned by a miner.

PoS represents a more decentralised approach – with greater network transaction speeds and is already in use in projects such as Cardano (ADA).

A new infrastructure bill has become the battleground for the debate over cryptocurrency regulation. The proposed legislation is seeking to tax $28 billion from the crypto industry, but has come under fire from many crypto-supporting congressional figures that see it as damaging to innovation in digital technology and government encroachment on an emerging financial industry.

Most controversial is a fierce argument about the classification of crypto miners as brokers (and consequent broker-equivalent tax liabilities). In this instance, senior Republican figures such as Senator Pat Toomey and Senator Cynthia Lummis have been quick to point out what they see as a gross misunderstanding of the role played by miners in decentralised financial networks.

Major misinterpretation

This has led to the proposition of the so-called Lummis-Toomey-Wyden amendment, which aims to clarify this major misinterpretation and exempt the miners from the proposed brokerage taxes.

In response to this, a rival amendment has been proposed by other lawmakers – known as the Portman-Warner amendment – which, curiously, offers the same exact exemption but exclusively for Proof of Work (PoW) miners.

This has become a hotbed of controversy, with many seeing it as an attempt to pick and choose the winners of the crypto tax legislation, and accuse the Portman-Warner amendment of stifling industry innovation.

Now the White House has made the surprise decision to weigh in on the debate.

Andrew Bates, the White House Deputy Press Secretary, released a statement backing the Portman-Warner amendment.

“The Administration is pleased with the progress that has yielded a compromise sponsored by Senators Warner, Portman and Sinema to advance the bipartisan infrastructure package and clarify the measure to reduce tax evasion in the cryptocurrency market,” it said.

“The Administration believes this provision will strengthen tax compliance in this emerging area of finance and ensure that high-income taxpayers are contributing what they owe under the law.”

Why would the White House attack PoS?

It is difficult to speculate about the rationale for the Biden administration’s decision to lend its support to the controversial amendment.

Some suggest it could simply be a lack of understanding of Proof of Stake. Indeed, it is no secret that American lawmakers have a patchy knowledge of cryptocurrencies and decentralised finance more broadly – something that became very apparent during a recent Congressional Banking Committee discussion proceeding the infrastructure bill’s introduction.

It would be surprising if this was simply a matter of incompetence.

Crypto writer Sean Dickens highlighted this could be part of a wider attempt by the White House aimed at preserving the environmental impact argument against cryptocurrencies as PoS poses a serious solution to the issue of energy consumption by crypto mining – and the narrative has been used as a key weapon by opponents of the crypto industry.

Dickens also pointed out this could be related to the new US CBDC, which may rely on PoW blockchain technology.

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