Digital regulation must empower people to make the internet better

As COVID-19 spread rapidly across the world in 2020, people everywhere were hungry for reliable information. A global network of volunteers rose to the challenge, consolidating information from scientists, journalists and medical professionals, and making it accessible for everyday people.

Two of them live almost 3,200 kilometers away from one another: Dr. Alaa Najjar is a Wikipedia volunteer and medical doctor who spends breaks during his emergency room shift addressing COVID-19 misinformation on the Arabic version of the site. Sweden-based Dr. Netha Hussain, a clinical neuroscientist and doctor, spent her downtime editing COVID-19 articles in English and Malayalam (a language of southwestern India), later focusing her efforts on improving Wikipedia articles about COVID-19 vaccines.

Thanks to Najjar, Hussain and more than 280,000 volunteers, Wikipedia emerged as one of the most trusted sources for up-to-date, comprehensive knowledge about COVID-19, spanning nearly 7,000 articles in 188 languages. Wikipedia’s reach and ability to support knowledge-sharing on a global scale — from informing the public about a major disease to helping students study for tests — is only made possible by laws that enable its collaborative, volunteer-led model to thrive.

As the European Parliament considers new regulations aimed at holding Big Tech platforms accountable for illegal content amplified on their websites and apps through packages like the Digital Services Act (DSA), it must protect citizens’ ability to collaborate in service of the public interest.

Lawmakers are right to try to stem the spread of content that causes physical or psychological harm, including content that is illegal in many jurisdictions. As they consider a range of provisions for the comprehensive DSA, we welcome some of the proposed elements, including requirements for greater transparency about how platforms’ content moderation works.

But the current draft also includes prescriptive requirements for how terms of service should be enforced. At first glance, these measures may seem necessary to curb the rising power of social media, prevent the spread of illegal content and ensure the safety of online spaces. But what happens to projects like Wikipedia? Some of the proposed requirements could shift power further away from people to platform providers, stifling digital platforms that operate differently from the large commercial platforms.

Big Tech platforms work in fundamentally different ways than nonprofit, collaborative websites like Wikipedia. All of the articles created by Wikipedia volunteers are available for free, without ads and without tracking our readers’ browsing habits. The commercial platforms’ incentive structures maximize profits and time on site, using algorithms that leverage detailed user profiles to target people with content that is most likely to influence them. They deploy more algorithms to moderate content automatically, which results in errors of over- and under-enforcement. For example, computer programs often confuse artwork and satire with illegal content, while failing to understand human nuance and context necessary to enforce platforms’ actual rules.

The Wikimedia Foundation and affiliates based in specific countries, like Wikimedia Deutschland, support Wikipedia volunteers and their autonomy in making decisions about what information should exist on Wikipedia and what shouldn’t. The online encyclopedia’s open editing model is grounded in the belief that people should decide what information stays on Wikipedia, leveraging established volunteer-developed rules for neutrality and reliable sources.

This model ensures that for any given Wikipedia article on any subject, people who know and care about a topic enforce the rules about what content is allowed on its page. What’s more, our content moderation is transparent and accountable: All conversations between editors on the platform are publicly accessible. It is not a perfect system, but it has largely worked to make Wikipedia a global source of neutral and verified information.

Forcing Wikipedia to operate more like a commercial platform with a top-down power structure, lacking accountability to our readers and editors, would arguably subvert the DSA’s actual public interest intentions by leaving our communities out of important decisions about content.

The internet is at an inflection point. Democracy and civic space are under attack in Europe and around the world. Now, more than ever, all of us need to think carefully about how new rules will foster, not hinder, an online environment that allows for new forms of culture, science, participation and knowledge.

Lawmakers can engage with public interest communities such as ours to develop standards and principles that are more inclusive, more enforceable and more effective. But they should not impose rules that are aimed solely at the most powerful commercial internet platforms.

We all deserve a better, safer internet. We call on lawmakers to work with collaborators across sectors, including Wikimedia, to design regulations that empower citizens to improve it, together.

VC has a pivotal role to play in the climate fight, but it can’t do everything

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

The COP26 in Glasgow last week averted disaster but also made clear the private sector’s crucial role in tackling climate change. Besides a few notable political wins to address methane leaks and rekindle frayed cooperation between economies, it was new commitments from the private sector that perhaps hold the most promise.

Back in 2006, Al Gore’s film “An Inconvenient Truth” helped ignited $25 billion of venture investments in clean tech, mostly in the solar and ethanol sectors. Despite investors’ optimism, much of this capital burned out only a few years later, and as a result, many venture investors categorically avoided clean tech for the better part of a decade.

Thanks to our successes in the first clean tech wave, we are naturally optimistic about the role of VC in helping fund and scale game-changing clean tech solutions. Coming out of COP26 and as the world relies on the rapid adoption of clean tech to tackle climate change, it’s important that we understand VC’s further potential — but also its limitations.

VC’s strengths

At its best, the venture model enables young companies to take risks on early technology and pursue innovation in a way that large companies cannot. It might be counterintuitive, but venture-backed startups — beyond the magic created by their highly performing founders and organizations — also often outspend much larger and better-financed companies.

For a decade, Tesla, then an early-stage startup, easily outspent and outthought VW, Ford and the rest of the established car companies on engineering, designing and manufacturing electric vehicles (EVs). Similarly, startups Joby Aviation and Lilium are running circles around Boeing and Airbus on electric vertical takeoff (eVTOL) aircraft and QuantumScape is leading on next generation solid-state batteries.

Read more from the TechCrunch Global Affairs ProjectDue to short-term horizons, CEOs at large companies focus on incremental growth, cost savings and other “market-driven” imperatives and cannot stomach the risks required to develop and commercialize disruptive innovation. Although history is filled with vivid lessons in disruption, big company CEOs still don’t lead. As a result, we continue to find areas where long time horizons, high risks and lack of leadership yield opportunities uniquely tailored to VC. A striking example is that 20 years after Tesla, there are still such opportunities in electrifying the transportation space. For instance, with the EV revolution now underway, the need to recycle EVs and their batteries is becoming critical to sustaining growth; the leadership position in this nascent endeavor to recycle batteries is once more occupied by a startup, Redwood Materials.

Venture investors can push forward climate-friendly disruption in many legacy industries. Take, for instance, the chemical and manufacturing sectors. The incumbent companies in these and other heavy industries are slow to act and culturally inept in reacting to disruption. VC money, on the other hand, is helping to develop technologies that will give them no choice but to adapt, such as sourcing hydrocarbons sustainably by using renewable energy to separate hydrogen from water and carbon from air and combining these elements into all the chemicals that we have until now made from coal, oil and gas. Young companies like Electric Hydrogen and Twelve are doing exactly that.

Venture is also well positioned to provide funding for experimental technologies, like fusion energy. Outside of government, there are essentially no incumbent companies in this area, and with no adjacent companies bold enough to seize the day, the field is reliant on startups. Several startups have this year attracted more than $500 million each of investment capital, including Helion Energy and Commonwealth Fusion Systems.

VC can’t solve everything

Despite my optimism about our ability to have an impact, we must remember that tech, let alone venture funding, is only one piece of the puzzle in addressing climate change. We must scale clean tech solutions unnaturally fast in order to combat the relentless march of climate change, and VC is not well structured as a sector to address some of those key challenges.

First, we need to see giant sums of capital, dwarfing anything in VC, flow to low-risk, already established solar, wind and storage technology, often in countries with weaker currencies and much higher financing costs than the nearly free money we can access in the United States. By our estimates, more than $30 trillion, and therefore more than 10% of all investable capital in the world, needs to be invested in the coming decade, at rates of return of no more than a few percent; otherwise, clean infrastructure will not proliferate fast enough to combat the relentless tide of climate change.

The good news is that giant sums of capital are currently languishing in bonds at rates of return below those in renewables. One of the challenges of this decade is to incentivize other sectors of the financial markets to reallocate some of that capital, especially in emerging markets where demand for power, transportation, materials and food is growing quickly. VC, with its demand for high returns and mismatched scale of capital, will have little bearing on this giant, but pivotal, infrastructure challenge and opportunity.

Many point to “impact investing” as a way around this problem. And it’s true: During our early years, we were often the only capital available to a new startup, and therefore we had the leverage to demand a high return. We could invest in high-impact initiatives without sacrificing our financial incentives.

But as we have been joined by many new funds in pursuing clean tech opportunities, the balance between impact and return has become harder to strike. We need to recognize the potential incongruence between high returns and high impact, and VCs today need to add singular value to justify a higher cost of capital and also remain disciplined amidst great enthusiasm in the sector. It’s very tempting to chase “hot” opportunities and shift focus to proliferating more mainstream technology. From my perspective, clean tech is still ripe for breakthrough technological innovation and the best and most impactful VCs will maintain a contrarian philosophy and focus on areas that are unpopular and unable to otherwise attract capital at an early stage.

Second, the importance of government intervention cannot be overlooked. The market is not pushing incumbents in the energy and other industrial spaces to transition away from dirty, fossil-based systems fast enough. Despite the promises of net-zero pledges and the growing accountability for results demanded by shareholders, government mandates likely remain necessary to speed up this process.

Finally, philanthropy has an important role to play. I am very proud that I helped launch the nonprofit MethaneSAT, an organization that will police methane leaks from oil and gas operations globally through satellite imaging. Though clearly impactful, the initiative’s role as an open and objective policy enforcement tool does not align properly with a for-profit endeavor. There are numerous other important nonprofit interventions to fund and pursue.

It has been a great privilege to have supported from an early stage some of the most iconic and important companies and technologies in clean tech. But enabling these technologies and the startups around them remains only one ingredient in our fight against climate change. We cannot let the excitement about new technology distract us from the monumental infrastructure tasks needed in the near future. A substantial portion of the world’s financial capital needs to turn its attention to this space, and other forms of capital — social, political, philanthropic — must also be deployed if we are to secure a more stable future for generations to come.

Read more from the TechCrunch Global Affairs Project

Paris asks scooter sharing services to restrict speed to 10km/h

Riding a scooter in Paris will soon feel incredibly… slow. The City of Paris has announced that scooter sharing services should restrict the maximum top speed to 10km/h (that’s 6.2mph). That decision comes following a number of pedestrian injuries that involved a scooter.

Paris has been an important market for scooter sharing companies. It’s a dense city with an important network of bike lanes. There are also a lot of tourists looking for different ways to explore the city.

For those reasons, the situation used to be a bit out of control. At some point, 16 different scooter startups wanted to operate a fleet of scooters in Paris. Paris ended up selecting three companies and implementing a set of rules. Dott, Lime and Tier won permits to operate shared electric scooters for two years.

Since then, things have been going well for those three companies. This year alone, Dott raised $85 million in a mix of equity and asset-backed debt financing, Tier recently raised $200 million in debt and equity, and Lime closed a $523 million raise in convertible debt and term loan financing. Except that scooters became a public safety issues for riders, but also for people just walking down the street. According to the AFP, scooters have been involved in 298 accidents in 2021 alone. 329 people have been injured and two persons died.

In particular, a dramatic event occurred back in June 2021. Two women were riding a scooter near the Seine at night. They hit a pedestrian and left her there. A couple of days later, she passed away at the hospital.

The relationship between the City of Paris and scooter startups never really went back to normal following the accident. On July 1st, Paris listed a dozen areas with a high density of pedestrians, such as the Tuileries and Palais Royal gardens or the Bastille and République squares. Scooter sharing companies agreed to limit the maximum speed to 10km/h in these areas using real-time geolocation.

In September, the City of Paris asked each arrondissement administration to list areas where the top speed of scooters should be limited to 10km/h. The result was a patchwork of 700 slow zones. And scooter startups agreed to implement those zones in their respective service.

But the City of Paris wants to go even further than that. The entire city is now a slow zone for scooter startups, except a couple of streets that have wide lanes for bikes, scooters and other micromobility vehicles. Of couse, if you have your own scooter, those restrictions won’t apply to your personal device. The new restrictions on scooter sharing services will be implemented during the first half of December.

The only good news is that the scooter tender has been extended by six months. Dott, Lime and Tier will keep their scooter permits until February 2023. But today’s new rules could have some significant consequences on usage in Paris.

Regulating mopeds

In other news, the City of Paris is also going to regulate free-floating electric mopeds. There are currently five companies operating in Paris — Cityscoot, Cooltra, Lime, Yego and Troopy. Other companies are also working on a launch in Paris.

Paris wants to regulate mopeds with permits. It’ll work a bit like scooter permits, except that those permits will last five years. Only two or three companies will be able to operate a fleet of mopeds in Paris. The new system will start on September 1st, 2022.

Italy fines Apple and Google for ‘aggressive’ data practices

Apple and Google have been fined €10 million apiece by Italy’s competition and market authority (AGCM) which has found they did not provide their users with clear enough information on commercial uses of their data — in violation of the country’s consumer code.

The regulator also accuses the pair of deploying “aggressive” practices to push users to accept the commercial processing.

Apple and Google were both contacted for a response to the ACGM’s sanction. Both said they will appeal.

Google is accused of omitting relevant information at the account creation phase and as consumers are using its services — information the regulator says should be providing in order for people to decide whether or not to consent to its use of their data for commercial ends.

The AGCM has also accused Apple of failing to immediately provide users with clear information on how it uses their information commercially when they create an Apple ID or access its digital stores, such as the App Store.

It’s the rather more surprising sanction — given Apple’s carefully cultivated image as a champion of consumer privacy (not to mention the premium its devices and services tend to command vs cheaper, ad-supported alternatives, such as stuff made by Google).

The Italian regulator lumps both companies’ practices together in a press release announcing the sanctions — accusing each one of being especially aggressive in pushing self-serving commercial terms on their respective users, especially at the account creation phase.

For Google, the ACGM notes that it pre-sets user acceptance of commercial processing — and also notes that the adtech giant fails to provide a clear way for users to revoke consent for these data transfers later or otherwise change their choice after the account step has been completed.

It also takes the view that Apple’s approach denies users the ability to properly exercise choice over its commercial use of their data, with the regulator arguing the iPhone maker’s data acquisition practices and architecture essentially “condition” the consumer to accept its commercial terms.

It’s an awkward accusation for a company that splashes major marketing cash on suggesting its devices and software are superior to alternatives (such as tech made by Google) exactly because it claims to put user privacy at the core of what it does.

In a statement, Apple rejected the ACGM’s finding — writing:

“We believe the Authority’s view is wrong and will be appealing the decision. Apple has a long-standing commitment to the privacy of our users and we work incredibly hard to design products and features that protect customer data. We provide industry-leading transparency and control to all users so they can choose what information to share or not, and how it is used.”

A Google spokeswoman also disagreed with the findings, sending this statement:

“We have transparent and fair practices in order to provide our users with helpful tools and clear information about their usage. We give people simple controls to manage their information and limit the use of personal data, and we work hard to be fully compliant with the consumer protection rules. We disagree with the Authority’s decision and we will appeal.”

The full text of the ACGM’s decisions can be found here: For Apple and Google.

The Italian regulator has had a busy few days slapping big tech: Earlier this week it issued a $230M fine (total) for Apple and Amazon over alleged collusion around the sale of Apple kit on Amazon’s Italian marketplace.

It has also been stepping up investigations of tech giants over a period of years — earlier this year it fined Facebook over similar issues with its commercial use of people’s data, while this summer it hit Google with a $123M fine related to Android Auto. It also has an open probe into Google’s displaying advertising business.

Other fines from the ACGM in recent years include one for Apple related to misleading iPhone users about the device’s water resistance and another for Apple and Samsung for slowing devices.

Europe offers tepid set of political ads transparency rules

It’s been almost a year since the EU’s executive announced it would propose rules for political ads transparency in response to concern about online microtargeting and big data techniques making mincemeat of democratic integrity and accountability.

Today it’s come out with its proposal. But frankly it doesn’t look like the wait was worth it.

The Commission’s PR claims the proposal will introduce “strict conditions for targeting and amplifying” political advertising using digital tools — including what it describes as a ban on targeting and amplification that use or infer “sensitive personal data, such as ethnic origin, religious beliefs or sexual orientation”.

However the claimed ‘ban’ does not apply if “explicit consent” is obtained from the person whose sensitive data is to be exploited to better target them with propaganda — and online ‘consents’ to ad targeting are already a total trashfire of non-compliance in the region.

So it’s not clear why the Commission believes politically vested interests hell-bent on influencing elections are going to play by a privacy rule-book that almost no online advertisers operating in the region currently do, even the ones that are only trying to get people to buy useless plastic trinkets or ‘detox’ teas.

In a Q&A offering further detail on the proposal, the Commission lists a set of requirements that it says anyone making use of political targeting and amplification will need to comply with, which includes having an internal policy on the use of such techniques; maintaining records of the targeting and use of personal data; and recording the source of said personal data — so at best it seems to be hoping to burden propagandists with the need to create and maintain a plausible paper trail.

Because it is also allowing a further carve-out to allow for political targeting — writing: “Targeting could also be allowed in the context of legitimate activities of foundations, associations or not-for-profit bodies with a political, philosophical, religious or trade union aim, when it targets their own members.”

This is incredibly vague. A “foundation” or an “association” with a political “aim” sounds like something any campaign group or vested interest could set up — i.e. to carry on the “legitimate” activity of (behaviorally?) targeting propaganda at voters.

In short, the scope for loopholes for political microtargeting — including via the dissemination of disinformation — looks massive.

On scope, the Commission says it wants the incoming rules to apply to “ads by, for or on behalf of a political actor” as well as “so called” issue-based ads — aka politically charged issues that can be a potent proxy to sway voters — which it notes are “liable to influence the outcome of an election or referendum, a legislative or regulatory process or voting behaviour”.

But how exactly the regulation will define ads that fall in and out of scope remains to be seen.

Perhaps the most substantial measure of a very thin proposal is around transparency — where the Commission has proposed “transparency labels” for paid political ads.

It says these must be “clearly labelled” and provide “a set of key information” — including the name of the sponsor “prominently displayed and an easily retrievable transparency notice”; along with the amount spent on the political advertisement; the sources of the funds used; and a link between the advertisement and the relevant elections or referenda.

However, again, the Commission appears to be hoping that a few transparency requirements will enforce a sea change on an infamously opaque and fraud-filled industry — one that has been fuelled by rampant misuse and unlawful exploitation of people’s data. Rather than cutting off the head of the hydra by actually curbing targeting — such as by limiting political targeting to broad-brush contextual buckets.

Hence it writes: “All political advertising services, from adtech that intermediate the placement of ads, to consultancies and advertising agencies producing the advertising campaigns, will have to retain the information they have access to through the provision of their service about the ad, the sponsor and the dissemination of the ad. They will have to transfer this information to the publisher of the political ad — this can be the website or app where the ad is seen by an individual, a newspaper, a TV broadcaster, a radio station, etc. The publisher will need to make the information available to the individual who sees the ad.”

“Transparency of political advertising will help people understand when they see a paid political advertisement,” the Commission further suggests, adding: “With the proposed rules, every political advertisement – whether on Twitter, Facebook or any other online platform – will have to be clearly marked as political advertisement as well as include the identity of the sponsor and a transparency notice with the wider context of the political advertisement and its aims, or a clear indication of where it can be easily retrieved.”

It’s a nice theory but for one thing plenty of election interference originates from outside a region where the election itself is taking place.

On that the Commission says it will require organisations that provide political advertising services in the EU but do not have a physical presence there to designate a legal representative in a Member States where the services are offered, suggesting: “This will ensure more transparency and accountability of services providers acting from outside the Union.”

How exactly it will require (and enforce) that stipulation isn’t clear.

Another problem is that all these transparency obligations will only apply to “political advertising services”.

Propaganda that gets uploaded to online platforms like Facebook by a mere “user” — aka an entity that does not self-identify as a political advertising service — will apparently escape the need for any transparency accountability at all.

Even if they’re — y’know — working out of a Russian trollfarm that’s actively trying to destabilize the European Union… Just so long as they claim to be ‘Hans, 32, Berliner, loves cats, hates the CSU’.

Now if platforms like Facebook were perfectly great at identifying, reporting and purging inauthentic activity, fake accounts and shadey influence ops in their own backyards it might not be such a problem to leave the door open for “a user” to post unaccountable political propaganda. But a whole clutch of whistleblowers have pointed out, in excruciating detail, that Facebook at least is very much not that.

So that looks like another massive loophole — one which underlines why the only genuine way to fix the problem of online disinformation and election interference is to put an end to behavioral targeting period, rather than just fiddling around the edges. Not least because by fiddly with some tepid measures that will offer only a flawed, partial transparency you risk lulling people into a false sense of security — as well as further normalizing exploitative manipulation (just so long as you have a ‘policy’ in place).

Once online ads and content can be targeted at individuals based on tracking their digital activity and harvesting their personal data for profiling, it’s open season for opaque InfluenceOps and malicious interests to workaround whatever political ads transparency rules you try to layer on top of the cheap, highly scalable tools offered by advertising giants like Facebook to keep spreading their propaganda — at the expense of your free and fair elections.

Really what this regulation proposes is to create a large admin burden for advertisers who intend to run genuinely public/above board political campaigns — leaving the underbelly of paid mud slingers, hate spreaders and disinformation peddlers to exploit its plentiful loopholes to run mass manipulation campaigns right through it.

So it will be interesting to see whether the European Parliament takes steps to school the Commission by adding some choice amendments to its draft — as MEPs have been taking a stronger line against microtargeting in recent months.

On penalties, for now, under the Commission proposal, ‘official’ advertising services could be fined for breaking things like the transparency and record-keeping requirements but how much will be determined locally, by Member States — at a level the Commission says should be “effective, proportionate and dissuasive”.

What might that mean? Well under the proposal, national Data Protection Authorities (DPAs) will be responsible for monitoring the use of personal data in political targeting and for imposing fines — so, ultimately, for determining the level of fines that domestic rule-breaking political operators might face.

Which does not exactly inspire a whole lot of confidence. DPAs are, after all, resourced by the same set of political entities — or whichever flavor happens to be in government.

The UK’s ICO carried out an extensive audit of political parties data processing activities following the 2018 Cambridge Analytica Facebook data misuse scandal — and in 2020 it reported finding a laundry list of failures across the political spectrum.

So what did the EU’s (at the time) best resourced DPA do about all these flagrant breaches by UK political parties?

The ICO’s enforcement action at that point consisted of — checks notes — issuing a series of recommendations.

There was also a warning that it might take further action in the future. And this summer the ICO did issue one fine: Slapping the Conservative Party with a £10,000 penalty for spamming voters. Which doesn’t really sound very dissuasive tbh.

Earlier this month another of these UK political data offenders, the Labour Party, was forced to fess up to what it dubbed a “data incident” — involving an unnamed third party data processor. It remains to be seen what sanction it may face for failing to protect supporters’ information in that (post-ICO-audit) instance.

Adtech generally has also faced very little enforcement from EU DPAs — despite scores of complaints against its privacy-eviscerating targeting methods — and despite the ICO saying back in 2019 that its methods are rampantly unlawful under existing data protection law.

Vested interests in Europe have been incredibly successful at stymieing regulatory enforcement against invasive ad targeting.

And, apparently, also derailing progress by defanging incoming EU rules — so they won’t do anything much to stop the big-data ‘sausage-factory’ of (in this case) political microtargeting from keeping on slicing ‘n’ dicing up the eyeballs of the citizenry.

Uber to shutter most of its service in Belgium tomorrow after court ruling

Uber will halt its ride-hailing service in most of Belgium tomorrow following a court ruling Wednesday that extends a 2015 order banning its p2p UberPop service to also cover professional drivers providing its ride-hailing service.

Uber told us that it is studying the detail of the ruling to decide whether to appeal the decision with the country’s Supreme Court.

The move also follows a temporary suspension of Uber’s service in Brussels in September — an action the tech giant called “exceptional and unprecedented”, saying it was only taking the step to protest the lack of reform of rules which prohibit drivers from using smartphones.

Following the ruling by the Brussels Appeal Court this week, private hire vehicle drivers have also been blocking a major tunnel in the Belgian capital.

In a statement on Friday’s looming shutdown, Uber’s country chief, Laurent Slits, once again attacked the Belgian government for not delivering a reform it’s been lobbying for, writing: “This decision was made based on outdated regulations written in a time before smartphones, which the government has promised and failed to reform for the last seven years.”

Per Bloomberg, which reported on Uber’s shutdown earlier, it will not apply to a small number of drivers who are licensed in a Flemish region of the country — and who will therefore still be allowed to use the app.

Uber confirmed the Appeal Court ruling only affects drivers with Brussels licences.

In the statement, Slits added that the tech giant is “deeply concerned” about the 2,000 holders of LVC licenses (aka rental car with driver licences) who he said will “lose their ability to generate earnings [via Uber’s platform] from Friday”.

That phrasing — “generate earnings” — refers to the fact Uber does not employ drivers directly in Belgium; instead it classifies them as independent contractors. So it cannot claim that 2,000 ‘jobs’ are about to be lost since it does not provide employment contracts to the LVC drivers in question in the first place.

“We urge the government to move quickly to reform the taxi and LVC sector once and for all so that drivers can continue working to provide for their families,” Slits added.

Back in March the local government in Brussels banned Uber drivers from picking up rides via smartphones and geolocation.

Since then Uber drivers in the city have been operating in a legal grey zone — where they risk sanctions by continuing to drive using its app. However the company suggests drivers have been given mixed messages, claiming authorities are sometimes telling drivers — in private — that they can continue driving.

A spokesman for Uber called the government’s March order “mistaken” — pointing out that it had promised a reform of the law before the summer. Per Reuters, a draft law to reform the rules was set out by the Belgian government in September. But, according to Uber, the sector as a whole has yet to see the text.

Uber suggested there is widespread backing in Belgium for reforming the 1995 rules — not just from LVC drivers who serve customers via its platform but also from traditional taxi firms.

However local taxi firms in Brussels have their own reform ideas — and have also said they are keen to poach Uber drivers to plug a shortage of taxi drivers.

A sector spokesman recently told TaxiPro there’s a shortfall of 600+ taxi drivers in the capital which could be filled by LVC holders that have been driving for Uber.

“The big advantage is that we offer a solution to these Uber drivers,” Sam Bouchal told the publication in September [translated to English via Google Translate], saying that the Uber drivers could be offered permanent contracts, and adding: “We’re getting them out of illegality.”

Bouchal also told TaxiPro that the taxi sector wants to avoid what he couched as “a social massacre.”

Concern over gig working conditions has been a fiery topic across Europe for years, leading to scores of legal challenges — and a 2017 ruling by Europe’s top court that Uber is a transport service and so cannot simply dodge local taxi regulations.

In the UK, Uber was also recently been forced to recognize drivers as workers after losing the last of a long line of employment challenges at the country’s Supreme Court.

However, in Belgium — a core centre of power for the European Commission — the ride-hailing giant is continuing to lobby for favorably changes to the law to grease the engines of its platform business.

Uber is also lobbying the Commission to address ride-hailing regulations across the bloc’s single market in an upcoming urban mobility framework — which the EU exec has said it wants to support the development of urban transport systems that are “safe, accessible, inclusive, affordable, smart, resilient and emission-free”. 

Uber’s hope here is that EU lawmakers will seek to apply rules that override city level regulations — setting a pan-EU enabling framework for ride-hailing services which would mean it could just ignore local authority demands.

However the Commission has also said it wants the urban mobility framework to tackle “transport pollution and congestion” — so it’s not clear how removing regulatory barriers to ride-hailing would be anything other than counterproductive on that front.

Cars remain the least efficient way to transport people around dense urban environments given how much space they require and how relatively few people can be moved around in the space occupied by a single car vs a train, bus, cycling, scooting, walking etc. The rise of micromobility has also fuelled the range of available car alternatives — so the arguments in favor of cars in cities are shrinking rapidly.

The coronavirus pandemic has also led to a number of European cities to dial up their focus on transforming street infrastructure to be more pedestrian and locally focused, also leveraging the rise of micromobility to enact policies that deliberately de-emphasize the car. Simply put, cleaner air and more vibrant local streets (and school bike trains) are hard to argue against.

While Brussels has not been at the forefront of those developments the city has been seeking to reduce the number of cars on its infamously congested, pollution-smogged roads in recent years. So Belgium’s government may well have reason to pause and consider the implications of any ride-hailing reforms.

In parallel, the European Commission has been working on another legislation initiative — which it wants to improve conditions for platform workers across the bloc, responding to high levels of concern over factors such as the lack of job security and precarious earnings.

On that front Uber has also been busy lobbying — and stands accused of pushing EU lawmakers to reduce standards for platform workers, with critics saying it’s seeking to replicate its success in overturning a California law that had sought to classify gig workers as employees.

So the street-level battle for Europe’s social contract is very real.

France asks search engines and app stores to remove Wish

Several French ministers have issued a common statement announcing that they have asked the main search engines and mobile app stores operating in France to hide Wish’s website and mobile app altogether. Wish is a popular e-commerce platform that mostly references products from China-based merchants. It doesn’t hold inventory as products are shipped directly from merchants to customers.

Last year, the French administration in charge of consumer rights and fraud started investigating Wish. At the time, the direction générale de la concurrence, de la consommation et de la répression des fraudes (DGCCRF) suspected that it was a bit too easy to mislead consumers and sell counterfeit goods on Wish, such as sneakers and perfumes with images incorrectly showing the logos of famous brands.

The French administration then ordered 140 different goods on Wish — most of them were imported products. This time, they wanted to find out whether those products were safe or not.

95% of toys that they acquired on the platform didn’t comply with European regulation — 45% of them were deemed dangerous. When it comes to electronics goods, 95% of them also shouldn’t be available in Europe, and 90% of them were dangerous in one way or another.

And even cheap costume jewelry sold on the platform presented a risk — 62% of those that they ordered are considered as dangerous. Again, these metrics are based on a very small sample of 140 products.

When Wish is notified that it is selling a dangerous good, those products are removed from the marketplace within 24 hours as expected. And yet, “in most cases, those products remain available under a different name, and sometimes even from the same seller. The company doesn’t keep any log related to transactions of non-compliant and dangerous products,” France’s Ministry of the Economy says in its statement.

According to the same investigation, when Wish notifies customers that they have purchased a dangerous product, it doesn’t mention the reason of the product recall.

In July 2021, the French administration in charge of consumer rights and fraud notified Wish and asked them to comply with European regulation on e-commerce and product safety. The administration gave them a two-month notice before further action.

Four months later, the French government is taking advantage of recent changes in European regulation to dereference or block problematic websites and apps. It’s a convoluted process, but the Ministry of the Economy asked the French administration in charge to ask search engines and app stores to dereference Wish. It’s going to take a bit of time — at the time of writing, Wish is still available in the App Store and you can still find Wish’s website in Google search results.

After that, Wish will be shadowbanned in France. The website will still be available and the app will still work if you already have it on your phone. But you won’t see it in search results in the App Store, the Play Store or Google.

If the French administration thinks Wish has implemented proper changes to comply with French regulation, it could lift the shadowban. With this radical decision, France is setting a precedent and shows once again that the web is becoming more and more fragmented. In that case, it says it is acting in the consumers’ best interests.

It’s also going to be interesting to see whether Europe’s upcoming Digital Services Act will have a bigger impact on drop shipping as a whole. Europe is expected to overhaul the e-commerce directive from 2000 with the Digital Services Act.

European Parliament’s IMCO backs limits on tech giants’ ability to run tracking ads

In what looks like bad news for adtech giants like Facebook and Google, MEPs in the European Parliament have voted for tougher restrictions on how Internet users’ data can be combined for ad targeting purposes — backing a series of amendments to draft legislation that’s set to apply to the most powerful platforms on the web.

The Internal Market and Consumer Protection Committee (IMCO) today voted overwhelmingly to support beefed up consent requirements on the use of personal data for ad targeting within the Digital Markets Act (DMA); and for a complete prohibition on the biggest platforms being able to process the personal data of minors for commercial purposes — such as marketing, profiling or behaviorally targeted ads — to be added to the draft legislation.

The original Commission proposal for the DMA was notably weak in the area of surveillance business models — with the EU’s executive targeting the package of measures at other types of digital market abuse, such as self-preferencing and unfair T&Cs for platform developers, which its central competition authority was more familiar with.

“The text says that a gatekeeper shall, ‘for its own commercial purposes, and the placement of third-party advertising in its own services, refrain from combining personal data for the purpose of delivering targeted or micro-targeted advertising’, except if there is a ‘clear, explicit, renewed, informed consent’, in line with the General Data Protection Regulation,” IMCO writes in a press release. “In particular, personal data of minors shall not be processed for commercial purposes, such as direct marketing, profiling and behaviourally targeted advertising.”

It’s fair to say that adtech giants are masters of manipulating user consent at scale — through the use of techniques like A/B testing and dark pattern design — so beefed up consent requirements (for adults) aren’t likely to offer as much of a barrier against ad-targeting abuse as the committee seems to think they might.

Although if Facebook was finally forced to offer an actual opt-out of tracking ads that would still be a major win (as it doesn’t currently give users any choice over being surveilled and profiled for ads).

However the stipulation that children should be totally protected from commercial stuff like profiling and behavioral ads is potentially a lot more problematic for the likes of Facebook and Google — given the general lack of robust age assurance across the entire Internet.

It suggests that if this partial prohibition makes it into EU law, adtech platforms may end up deciding it’s less legally risky to turn off tracking-based ads altogether (in favor of using alternatives that don’t require processing users’ personal data, such as contextual targeting) vs trying to correctly age verify their entire user base in order to firewall only minors’ eyeballs from behavioral ads.

At the very least, such a ban could present big (ad)tech with a compliance headache — and more work for their armies of in-house lawyers — though MEPs have not proposed to torpedo their entire surveillance business model at this juncture.

In recent months a number of parliamentarians have been pushing for just that: An outright ban on tracking-based advertising period to be included, as an amendment, to another pan-EU digital regulation that’s yet to be voted on by the committee (aka the Digital Services Act; DSA).

However IMCO does not look likely to go so far in amending either legislative package — despite a call this week by the European Data Protection Board for the bloc to move towards a total ban on behavioral ads given the risks posed to citizens fundamental rights.

Digital Markets Act

The European Parliament is in the process of finalizing its negotiating mandate on one of the aforementioned digital reforms — aka, the DMA — which is set to apply to Internet platforms that have amassed market power by occupying a so-called ‘gatekeeping’ role as online intermediaries, typically giving them a high degree of market leverage over consumers and other digital businesses.

Critics argue this can lead to abusive behaviors that negatively impact consumers (in areas like privacy) — while also chilling fair competition and impeding genuine innovation (including in business models).

For this subset of powerful platforms, the DMA — which was presented as a legislative proposal at the end of last year — will apply a list of pre-emptive ‘dos and don’ts’ in an attempt to rebalance digital markets that have become dominated by a handful of (largely) US-based giants.

EU lawmakers argue the regulation is necessary to respond to evidence that digital markets are prone to tipping and unfair practices as a result of asymmetrical dynamics such as network effects, big data and ‘winner takes all’ investor strategies.

Under the EU’s co-legislative process, once the Commission proposes legislation the European Parliament (consisting of directly elected MEPs) and the Council (the body that represents Member States’ governments) must adopt their own negotiating mandates — and then attempt to reach consensus — meaning there’s always scope for changes to the original draft, as well as a long period where lobbying pressure can be brought to bear to try to influence the final shape of the law.

The IMCO committee vote this morning will be followed by a plenary vote in the European Parliament next month to confirm MEPs’ negotiating mandate — before the baton passes to the Council next year. There trilogue negotiations, between the Parliament, Commission and Member States’ governments, are slated to start under the French presidency in the first semester of 2022. Which means more jockeying, horse-trading and opportunities for corporate lobbying lie ahead. And (likely) many months before any vote to approve a final DMA text.

Still, MEPs’ push to strengthen the tech giant-targeting package is notable nonetheless.

A second flagship digital update, the DSA, which will apply more broadly to digital services — dealing with issues like illegal content and algorithmic recommendations — is still being debated by MEPs and committee votes like IMCO’s remain outstanding.

So the DMA has passed through parliamentary debate relatively quickly (vs the DSA), suggesting there’s political consensus (and appetite) to rein in tech giants.

In its press release summarizing the DMA amendments, rapporteur Andreas Schwab (of the EPP and DE political grouping) made this point, loud and clear, writing: “The EU stands for competition on the merits, but we do not want bigger companies getting bigger and bigger without getting any better and at the expense of consumers and the European economy. Today, it is clear that competition rules alone cannot address all the problems we are facing with tech giants and their ability to set the rules by engaging in unfair business practices. The Digital Markets Act will rule out these practices, sending a strong signal to all consumers and businesses in the Single Market: rules are set by the co-legislators, not private companies!”

In other interesting tweaks, the committee has voted to expand the scope of the DMA — to cover not just online intermediation services, social networks, search engines, operating systems, online advertising services, cloud computing, and video-sharing services (i.e. where those platforms meet the relevant criteria to be designated “gatekeepers”) — but also add in web browsers (hi Google Chrome!), virtual assistants (Ok Google; hey Siri!) and connected TV (hi, Android TV) too.

On gatekeeper criteria, MEPs backed an increase in the quantitative thresholds for a company to fall under scope — to €8 billion in annual turnover in the European Economic Area; and a market capitalisation of €80 billion.

The sorts of tech giants who would qualify — based on that turnover and market cap alone (NB: other criteria would also apply) — include the usual suspects of Apple, Amazon, Meta (Facebook), Google, Microsoft etc but also — potentially — the European booking platform, Booking.com.

Although the raised threshold may keep another European gatekeeper, music streaming giant Spotify, out of scope.

MEPs supported the additional criteria for a platform to qualify as a gatekeeper and fall under scope of the DMA of: Namely, providing a “core platform service” in at least three EU countries; having at least 45M monthly end users and 10,000+ business users. The committee also noted their support that these thresholds do not prevent the Commission from designating other companies as gatekeepers — “when they meet certain conditions”.

In other changes, the committee backed adding new provisions around the interoperability of services, such as for number-independent interpersonal communication services and social network services.

And — making an intervention on so-called ‘killer acquisitions’ — MEPs voted for the Commission to have powers to impose “structural or behavioural remedies” where gatekeepers have engaged in systematic non-compliance.

“The approved text foresees in particular the possibility for the Commission to restrict gatekeepers from making acquisitions in areas relevant to the DMA in order to remedy or prevent further damage to the internal market. Gatekeepers would also be obliged to inform the Commission of any intended concentration,” they note on that.

The committee backed a centralized enforcement role for the Commission — while adding some clarifications around the role of national competition authorities.

Failures of enforcement have been a major bone of contention around the EU’s flagship data protection regime, the GDPR, which allows for enforcement to be devolved to Member States but also for forum shopping and gaming of the system — as a couple of EU countries have outsized concentrations of tech giants on their soil and have been critized as bottlenecks to effective GDPR enforcement.

(Only today, for example, Ireland’s Data Protection Commission has been hit with a criminal complaint accusing it of procedural blackmail in an attempt to gag complainants in a way that benefits tech giants like Facebook… )

On sanctions for gatekeepers which break the DMA rules, MEPs want the Commission to impose fines of “not less than 4% and not exceeding 20%” of total worldwide turnover in the preceding financial year — which, in the case of adtech giants Facebook’s and Google’s full year 2020 revenue would allow for theoretical sanctions in the $3.4BN-$17.2BN and $7.2BN-$36.3BN range, respectively.

Which would be a significant step up on the sorts of regulatory sanctions tech giants have faced to date in the EU.

Facebook has yet to face any fines under GDPR, for example — over three years since it came into application, despite facing numerous complaints. (Although Facebook-owned WhatsApp was recently fined $267M for transparency failures.)

While Google received an early $57M GDPR from France before it moved users to fall under Ireland’s legal jurisdiction — where its adtech has been under formal investigation since 2019 (without any decisions/sanctions as yet).

Mountain View has also faced a number of penalties elsewhere in Europe, though — with France again leading the charge and slapping Google with a $120M fine for dropping tracking cookies without consent (under the EU ePrivacy Directive) last year.

Its competition watchdog has also gone after Google — issuing a $268M penalty this summer for adtech abuses and a $592M sanction (also this summer) related to requirements to negotiate licensing fees with news publishers over content reuse.

It’s interesting to imagine such stings as a mere amuse-bouche compared to the sanctions EU lawmakers want to be able to hand out under the DMA.

European Parliament’s IMCO backs limits on tech giants’ ability to run tracking ads

In what looks like bad news for adtech giants like Facebook and Google, MEPs in the European Parliament have voted for tougher restrictions on how Internet users’ data can be combined for ad targeting purposes — backing a series of amendments to draft legislation that’s set to apply to the most powerful platforms on the web.

The Internal Market and Consumer Protection Committee (IMCO) today voted overwhelmingly to support beefed up consent requirements on the use of personal data for ad targeting within the Digital Markets Act (DMA); and for a complete prohibition on the biggest platforms being able to process the personal data of minors for commercial purposes — such as marketing, profiling or behaviorally targeted ads — to be added to the draft legislation.

The original Commission proposal for the DMA was notably weak in the area of surveillance business models — with the EU’s executive targeting the package of measures at other types of digital market abuse, such as self-preferencing and unfair T&Cs for platform developers, which its central competition authority was more familiar with.

“The text says that a gatekeeper shall, ‘for its own commercial purposes, and the placement of third-party advertising in its own services, refrain from combining personal data for the purpose of delivering targeted or micro-targeted advertising’, except if there is a ‘clear, explicit, renewed, informed consent’, in line with the General Data Protection Regulation,” IMCO writes in a press release. “In particular, personal data of minors shall not be processed for commercial purposes, such as direct marketing, profiling and behaviourally targeted advertising.”

It’s fair to say that adtech giants are masters of manipulating user consent at scale — through the use of techniques like A/B testing and dark pattern design — so beefed up consent requirements (for adults) aren’t likely to offer as much of a barrier against ad-targeting abuse as the committee seems to think they might.

Although if Facebook was finally forced to offer an actual opt-out of tracking ads that would still be a major win (as it doesn’t currently give users any choice over being surveilled and profiled for ads).

However the stipulation that children should be totally protected from commercial stuff like profiling and behavioral ads is potentially a lot more problematic for the likes of Facebook and Google — given the general lack of robust age assurance across the entire Internet.

It suggests that if this partial prohibition makes it into EU law, adtech platforms may end up deciding it’s less legally risky to turn off tracking-based ads altogether (in favor of using alternatives that don’t require processing users’ personal data, such as contextual targeting) vs trying to correctly age verify their entire user base in order to firewall only minors’ eyeballs from behavioral ads.

At the very least, such a ban could present big (ad)tech with a compliance headache — and more work for their armies of in-house lawyers — though MEPs have not proposed to torpedo their entire surveillance business model at this juncture.

In recent months a number of parliamentarians have been pushing for just that: An outright ban on tracking-based advertising period to be included, as an amendment, to another pan-EU digital regulation that’s yet to be voted on by the committee (aka the Digital Services Act; DSA).

However IMCO does not look likely to go so far in amending either legislative package — despite a call this week by the European Data Protection Board for the bloc to move towards a total ban on behavioral ads given the risks posed to citizens fundamental rights.

Digital Markets Act

The European Parliament is in the process of finalizing its negotiating mandate on one of the aforementioned digital reforms — aka, the DMA — which is set to apply to Internet platforms that have amassed market power by occupying a so-called ‘gatekeeping’ role as online intermediaries, typically giving them a high degree of market leverage over consumers and other digital businesses.

Critics argue this can lead to abusive behaviors that negatively impact consumers (in areas like privacy) — while also chilling fair competition and impeding genuine innovation (including in business models).

For this subset of powerful platforms, the DMA — which was presented as a legislative proposal at the end of last year — will apply a list of pre-emptive ‘dos and don’ts’ in an attempt to rebalance digital markets that have become dominated by a handful of (largely) US-based giants.

EU lawmakers argue the regulation is necessary to respond to evidence that digital markets are prone to tipping and unfair practices as a result of asymmetrical dynamics such as network effects, big data and ‘winner takes all’ investor strategies.

Under the EU’s co-legislative process, once the Commission proposes legislation the European Parliament (consisting of directly elected MEPs) and the Council (the body that represents Member States’ governments) must adopt their own negotiating mandates — and then attempt to reach consensus — meaning there’s always scope for changes to the original draft, as well as a long period where lobbying pressure can be brought to bear to try to influence the final shape of the law.

The IMCO committee vote this morning will be followed by a plenary vote in the European Parliament next month to confirm MEPs’ negotiating mandate — before the baton passes to the Council next year. There trilogue negotiations, between the Parliament, Commission and Member States’ governments, are slated to start under the French presidency in the first semester of 2022. Which means more jockeying, horse-trading and opportunities for corporate lobbying lie ahead. And (likely) many months before any vote to approve a final DMA text.

Still, MEPs’ push to strengthen the tech giant-targeting package is notable nonetheless.

A second flagship digital update, the DSA, which will apply more broadly to digital services — dealing with issues like illegal content and algorithmic recommendations — is still being debated by MEPs and committee votes like IMCO’s remain outstanding.

So the DMA has passed through parliamentary debate relatively quickly (vs the DSA), suggesting there’s political consensus (and appetite) to rein in tech giants.

In its press release summarizing the DMA amendments, rapporteur Andreas Schwab (of the EPP and DE political grouping) made this point, loud and clear, writing: “The EU stands for competition on the merits, but we do not want bigger companies getting bigger and bigger without getting any better and at the expense of consumers and the European economy. Today, it is clear that competition rules alone cannot address all the problems we are facing with tech giants and their ability to set the rules by engaging in unfair business practices. The Digital Markets Act will rule out these practices, sending a strong signal to all consumers and businesses in the Single Market: rules are set by the co-legislators, not private companies!”

In other interesting tweaks, the committee has voted to expand the scope of the DMA — to cover not just online intermediation services, social networks, search engines, operating systems, online advertising services, cloud computing, and video-sharing services (i.e. where those platforms meet the relevant criteria to be designated “gatekeepers”) — but also add in web browsers (hi Google Chrome!), virtual assistants (Ok Google; hey Siri!) and connected TV (hi, Android TV) too.

On gatekeeper criteria, MEPs backed an increase in the quantitative thresholds for a company to fall under scope — to €8 billion in annual turnover in the European Economic Area; and a market capitalisation of €80 billion.

The sorts of tech giants who would qualify — based on that turnover and market cap alone (NB: other criteria would also apply) — include the usual suspects of Apple, Amazon, Meta (Facebook), Google, Microsoft etc but also — potentially — the European booking platform, Booking.com.

Although the raised threshold may keep another European gatekeeper, music streaming giant Spotify, out of scope.

MEPs supported the additional criteria for a platform to qualify as a gatekeeper and fall under scope of the DMA of: Namely, providing a “core platform service” in at least three EU countries; having at least 45M monthly end users and 10,000+ business users. The committee also noted their support that these thresholds do not prevent the Commission from designating other companies as gatekeepers — “when they meet certain conditions”.

In other changes, the committee backed adding new provisions around the interoperability of services, such as for number-independent interpersonal communication services and social network services.

And — making an intervention on so-called ‘killer acquisitions’ — MEPs voted for the Commission to have powers to impose “structural or behavioural remedies” where gatekeepers have engaged in systematic non-compliance.

“The approved text foresees in particular the possibility for the Commission to restrict gatekeepers from making acquisitions in areas relevant to the DMA in order to remedy or prevent further damage to the internal market. Gatekeepers would also be obliged to inform the Commission of any intended concentration,” they note on that.

The committee backed a centralized enforcement role for the Commission — while adding some clarifications around the role of national competition authorities.

Failures of enforcement have been a major bone of contention around the EU’s flagship data protection regime, the GDPR, which allows for enforcement to be devolved to Member States but also for forum shopping and gaming of the system — as a couple of EU countries have outsized concentrations of tech giants on their soil and have been critized as bottlenecks to effective GDPR enforcement.

(Only today, for example, Ireland’s Data Protection Commission has been hit with a criminal complaint accusing it of procedural blackmail in an attempt to gag complainants in a way that benefits tech giants like Facebook… )

On sanctions for gatekeepers which break the DMA rules, MEPs want the Commission to impose fines of “not less than 4% and not exceeding 20%” of total worldwide turnover in the preceding financial year — which, in the case of adtech giants Facebook’s and Google’s full year 2020 revenue would allow for theoretical sanctions in the $3.4BN-$17.2BN and $7.2BN-$36.3BN range, respectively.

Which would be a significant step up on the sorts of regulatory sanctions tech giants have faced to date in the EU.

Facebook has yet to face any fines under GDPR, for example — over three years since it came into application, despite facing numerous complaints. (Although Facebook-owned WhatsApp was recently fined $267M for transparency failures.)

While Google received an early $57M GDPR from France before it moved users to fall under Ireland’s legal jurisdiction — where its adtech has been under formal investigation since 2019 (without any decisions/sanctions as yet).

Mountain View has also faced a number of penalties elsewhere in Europe, though — with France again leading the charge and slapping Google with a $120M fine for dropping tracking cookies without consent (under the EU ePrivacy Directive) last year.

Its competition watchdog has also gone after Google — issuing a $268M penalty this summer for adtech abuses and a $592M sanction (also this summer) related to requirements to negotiate licensing fees with news publishers over content reuse.

It’s interesting to imagine such stings as a mere amuse-bouche compared to the sanctions EU lawmakers want to be able to hand out under the DMA.

Congress must clarify how the infrastructure bill will impact cryptocurrency

The $1 trillion U.S. infrastructure bill, signed into law by President Joe Biden last week, contains provisions that would tax cryptocurrency trades and yield the U.S. government some $2.8 billion a year.

That is, frankly, not a lot of money.

The issue is that the crypto tax element of the law is not clearly written, and the government risks squashing a burgeoning part of the economy.

The infrastructure bill says “a brokerage” needs to keep track of these things. But you can enter into a smart contract without a brokerage, so who is responsible for reporting in that case? Would a miner be considered a brokerage?

There’s no question that, on some level, the government is due taxes earned from cryptocurrency trading like any other investment gain — typically at the time a person liquidates, or like a transfer of property. But the vagueness of the law risks either trading platforms eliminating access for U.S. citizens or simply preventing smaller cryptocurrency investors from joining or remaining in the market.

We’ve seen this before. FATCA, the Foreign Account Tax Compliance Act, caused some financial institutions to block U.S. citizens from using their services because the compliance rules were too burdensome relative to the risk and potential benefit.

Here are a few scenarios — some simple and some complex — that need to be thought through:

  • If you buy a car using bitcoin, the time you use the bitcoin to buy a car would be when you’re taxed. That’s easy enough.
  • If you go to a crypto exchange and use dollars to buy Ether, it should be easy to figure out how to tax. That’s also a straightforward transaction.
  • If you transfer your crypto into a smart contract you’re using to hold an NFT that other people buy, things get messy quickly, running the risk of individuals dealing with taxes that have the complexity of a corporate transaction.

The minimum is $10,000 — a carryover from the Bank Secrecy Act. Transactions below that amount are not taxed, but $10,000 is a fairly low amount of money to have to deal with a complex tax situation.

The tax reporting for trading platforms and investors may be onerous enough to discourage further investment, which ultimately may make the tax worthless, or at least generate far less revenue than estimated.

And for the IRS, this could be a complex tax to audit. They will need a way to tie identities to these transactions. This is already done on trading platforms like Coinbase, but individual miners typically do not.

What’s somewhat noteworthy about this particular bill is that while tax laws will almost always be problematic initially, they usually get clarified over time. This infrastructure bill seemed to go the opposite direction. Congress started with the impact number ($1.1 trillion) — and then tried to find ways to generate enough taxes to match the number.

This is unusual in a few ways, but perhaps indicative of our current political climate. Politicians used to start with the specific programs they wanted to fund, then tried to make the cost as small as possible. This time, both parties were fighting to promise a larger number when their party was in power. (Trump, after all, worked on a $2 trillion infrastructure bill, though it was never signed into law.)

It’s a bit of a strange time in the U.S. politically, with mayors from Miami to New York and across the political spectrum offering to take their paychecks in cryptocurrency. Meanwhile, on the national level, there’s no clear guidance on the federal government’s long-term plans.

Ultimately, cryptocurrency is here to stay in one form or another, and the federal government needs to get serious about an approach by talking to experts like economists, academics and cryptocurrency platform developers.