US Senators Move to End Regulatory Uncertainty for Blockchain Code

Source: Coindoo Original Title: US Senators Move to End Regulatory Uncertainty for Blockchain Code Original Link: In the United States, a strange legal paradox has haunted blockchain developers for years: writing software could be interpreted as running a financial business, even when no money ever passes through the developer’s hands.

That ambiguity has left engineers, open-source contributors, and infrastructure providers exposed to the same regulatory risks as banks and payment processors – despite having no ability to touch, move, or control user funds. A new bipartisan Senate effort is now attempting to break that logic.

Key Takeaways

• A bipartisan Senate bill would clarify that writing blockchain code is not the same as running a financial services business
• Developers who do not control user funds would be exempt from money-transmission regulations
• Lawmakers say legal uncertainty has driven blockchain innovation and talent out of the US

The Core Question: Who Actually Controls the Money?

At the heart of the debate is a simple issue regulators have struggled to answer: does building the tools that power a financial system make someone responsible for how those tools are used?

The proposed legislation says no – not unless the builder has legal authority over transactions. The distinction is not philosophical; it is functional. Control over private keys and the power to execute transfers is what defines custody. Writing code, running infrastructure, or maintaining networks does not.

That separation has been largely absent from existing US regulatory frameworks, which were built for intermediaries, not decentralized systems.

A Legal Shield for Infrastructure, Not Intermediaries

The bill draws a protective boundary around non-custodial activity. Software developers publishing decentralized protocols, node operators validating transactions, and companies offering self-custody tools would all fall outside money-transmission rules – provided they cannot independently move user assets.

Even firms supplying hardware wallets or backend network services would remain unregulated under financial-custody laws, so long as they lack unilateral transaction authority. In other words, providing infrastructure would no longer be treated as providing financial services.

Why This Matters Beyond Crypto

Supporters argue the issue goes far beyond blockchain. Treating code as a regulated financial activity sets a precedent that could affect other forms of open-source infrastructure, from encryption tools to distributed computing systems.

Fear of enforcement has already reshaped behavior. Developers have avoided launching projects in the US, delayed releases, or relocated entirely to jurisdictions with clearer rules. The result has been a slow erosion of domestic innovation – not because of wrongdoing, but because of legal uncertainty.

Who Is Behind the Push

The proposal was introduced by Cynthia Lummis, who leads the Senate Banking Subcommittee on Digital Assets, alongside Ron Wyden. Despite coming from different parties, both lawmakers argue the current approach misapplies financial law to technical activity.

Lummis has publicly criticized the idea that developers should face bank-style oversight without ever handling customer funds, calling the framework disconnected from how decentralized systems actually operate.

States Still Enforce – But With Limits

The bill does not eliminate state authority altogether. Instead, it restricts states from imposing money-transmission licenses on developers who are strictly engaged in protected, non-custodial activities.

The intent is to prevent a regulatory maze where projects must navigate dozens of conflicting state requirements, a burden that has previously driven teams offshore or underground.

A Line the Law Has Never Clearly Drawn

For more than a decade, US regulators have attempted to fit decentralized technology into laws written for centralized finance. This proposal represents a shift in approach: regulate control, not creation.

If enacted, it would not loosen oversight of custodians or exchanges. Instead, it would finally codify a principle long assumed by developers but never guaranteed by law – that writing software is not the same as holding someone else’s money.