We are living through a technological transformation as significant as the birth of the internet, and the decisions Washington makes now will determine who bears responsibility when that technology is used to cause harm. Right now, however, Congress is getting its bill to rein in crypto dangerously wrong.
The CLARITY Act, sponsored by lawmakers who say it is needed to give federal regulators clear jurisdiction over crypto markets that currently fall through the cracks between the SEC and the CFTC, would create a separate regulatory framework for cryptocurrency. The bill may be well-intentioned, but it is riddled with dangerous loopholes that can be exploited by bad actors. For example, even if the bill were to become law, Iran’s Revolutionary Guard could continue laundering funds through decentralized finance platforms, which run on code rather than traditional banking rails, to fund proxy militias. Cartels, meanwhile, could continue using the same platforms to obscure proceeds from narcotrafficking.
Is it OK to deliberately design a system where nobody bears the responsibility?
Think about it this way: When something goes wrong in a powerful automated system, should there be someone responsible, or is it OK to deliberately design a system where nobody bears the responsibility? Under the CLARITY Act, the more a crypto or artificial intelligence system spreads control across algorithms, token holders and automated contracts, the less accountable it becomes. Under such a law, distributing responsibility would stop being a technical choice and become a legal choice to ensure that when fraud happens, when sanctions are evaded, when markets are manipulated, nobody is left holding the bag.
In short, the bill creates exemptions from financial accountability for software developers and others involved in crypto-based financial systems, not based on what they do, but on how they’re organized. Under this proposed bill, if no single entity is formally and unilaterally “in control” — a structural gap North Korean state hackers currently exploit to move billions in stolen funds through decentralized platforms — then no one is accountable.
The bill would let bad actors off the hook with the excuse that their system is simply processing instructions from someone else. But that describes many financial institutions that are held accountable. For example, Visa and Mastercard never hold your money. They just route your transactions but they still screen for fraud and sanctions violations. Hawala networks don’t move physical money or have central vaults; they move money through entries in ledgers. Custody was never the sole trigger. Function was.
78 House Democrats helped pass the CLARITY Act last year. Our senators can’t make the same mistake.Demand that your senators oppose the toothless CLARITY ACT and push for real crypto regulation instead.
(@indivisible.org)The bill in question is intended to address crypto, but it’s important to get it right because it may also reshape how courts and regulators police AI systems, some of which are beginning to act on their own. For example, AI agents this year began autonomously negotiating payment terms and completing commercial transactions without human approval, routing a growing share of that activity through the same kinds of systems the CLARITY Act exempts from oversight. Courts and regulators need to determine who bears responsibility for when things go awry — such as fraud, sanctions evasion or market manipulation.
Historically, American law has embraced a concept that has survived every technological disruption: Accountability follows power. Airlines are liable for crashes. Banks are liable for facilitating fraud. Phone companies are made to cooperate with lawful investigations. In each case, legislators didn’t ask what these industries called themselves. They rightly asked who had the ability to prevent harm, and who was making money. Then they wrote the rules accordingly. But that philosophy is missing from this attempt to regulate cryptocurrency.
The lesson from Section 230 is that a law built around what you are, instead of what you do, is slow and difficult to recalibrate once the underlying risk changes, and Congress needs to design the CLARITY Act to avoid that same trap.
It would be wise at this moment to remember Section 230 of the Communications Decency Act. Passed in 1996, before social media existed, Section 230 exempted platforms from liability for user content based on what kind of entity they were — an early message board like Prodigy versus a modern platform like Facebook or YouTube — and not what they did with that content. As well as it initially worked, platforms began using algorithmic amplification and recommendation systems to actively shape what its users saw, all of which fell inside the same categorical exemption created in 1996. It took Congress more than 20 years, and one of the most contested legislative fights in tech policy, to carve out even a narrow exception to try to address abuses such as sex trafficking.
The lesson from Section 230 is that a law built around what you are, instead of what you do, is slow and difficult to recalibrate once the underlying risk changes, and Congress needs to design the CLARITY Act to avoid that same trap.
These core functions of administering digital money transmission systems should not be carved out of a bill regulating cryptocurrency. And unfortunately, the bill doesn’t just create exemptions — it creates them without reassigning the obligations it removes. When you relieve one part of a system of accountability, then it’s necessary to assign that accountability to another part of the system. The CLARITY Act doesn’t do that, though. It simply drops the accountability altogether.
What makes this legislation stand out is that elsewhere in tech policy, Washington is mostly moving in the opposite direction. The Trump and Biden administrations pushed for stricter identity and accountability requirements for certain companies that control digital infrastructure, such as cloud providers, AI chip manufacturers and telecommunications networks. Both administrations have made demands that include those companies fight fraud, establish age assurance systems and fight cybercrime exploits. The principle has been consistent across both administrations: Find where the leverage is and attach obligations there. The CLARITY Act contains provisions, like widely carving out administrators of software-based systems that move massive amounts of value, that directly contradict that principle.
When the internet was new, Congress didn’t wait to see what problems would emerge. It wrote the rules in real time. Mobile phone carriers, for example, were required to build wiretap capability directly into their networks, not because they were the bad actors, but because that’s where the system gave them the most control. The logic was straightforward: If you have leverage over the infrastructure, you have responsibility for what runs on it.
It’s imperative that Congress close these gaps before the CLARITY Act becomes law. Not because crypto doesn’t need regulation (it does), but because this bill doesn’t just affect crypto. It sets a precedent for how accountability works in an age of autonomous software, and it sets that precedent in the wrong direction. American law has usually tried to keep power and responsibility in the same hands. The CLARITY Act tests whether that instinct survives once the thing exercising power relies upon code to wield its influence. Congress should get the answer right — before autonomous systems make it harder to find out who to blame when things go wrong.
The post Crypto needs clarity, not the CLARITY Act appeared first on MS NOW.
