Congress Targets Legal Gray Zone Around Crypto Code

A bipartisan group of House lawmakers rolled out new legislation last week that could fundamentally change how federal law treats the people who build cryptocurrency software – a move that’s drawing praise from the crypto industry and raising eyebrows among those who’ve watched recent high-profile prosecutions unfold.

The Promoting Innovation in Blockchain Development Act of 2026, introduced by Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA), takes direct aim at a legal ambiguity that has quietly terrified developers working on decentralized finance tools for years. At its core, the bill does one fairly specific thing: it narrows who can actually be prosecuted under a federal money transmission statute. But the implications, depending on who you ask, are anything but small.

The Law at the Center of It All

The legislation targets 18 U.S.C. Section 1960, a statute originally written to go after illegal money transmitting operations — think underground wire transfer shops, currency smugglers, that sort of thing. Prosecutors have increasingly stretched that law in recent years to reach software developers whose code facilitates the movement of digital assets, even when those developers never touched a single dollar of user funds.

The new bill would establish a cleaner line: Section 1960 applies to entities that actually hold or control assets on behalf of customers. Writing code, maintaining an open-source repository, deploying a smart contract — none of that, under the proposed language, would be enough to land a developer in federal court.

Supporters say this isn’t a new idea so much as a correction. The Financial Crimes Enforcement Network has long distinguished between custodial service providers — businesses that hold your money — and developers who simply build the infrastructure others use. The argument is that Congress never intended for the law to reach the latter group, and that recent enforcement actions have wandered far outside those original boundaries.

What Spooked the Industry

It would be hard to overstate how much two specific cases rattled the developer community over the past couple of years.

The prosecution of Tornado Cash’s Roman Storm — and separately, the charges brought against the founders of Samourai Wallet — sent a chill through a corner of the tech world that had previously assumed writing privacy-preserving software was, at minimum, legally defensible. Both Tornado Cash and Samourai Wallet were non-custodial tools, meaning users retained control of their own funds throughout. The developers never held anything.

That distinction didn’t stop federal prosecutors from pursuing charges. And for developers watching from the sidelines, the message landed loud and clear: building certain kinds of financial software in the United States might come with criminal exposure, regardless of your actual relationship to the money moving through it.

This bill is, in many ways, a direct legislative response to that moment.

What the Sponsors Are Saying

Representative Cline framed the bill in fairly pragmatic terms, arguing it “restores needed clarity by protecting developers who don’t control customer funds, while ensuring law enforcement can continue to target real criminals.” That last part is worth noting — the legislation isn’t trying to create a blanket immunity for anyone who calls themselves a coder. Entities that do exercise control over customer assets would remain squarely within the reach of Section 1960.

The involvement of Zoe Lofgren, a Democrat from California’s Silicon Valley district, signals that this isn’t purely a libertarian-flavored crypto bill. Lofgren has a long history on technology and civil liberties issues, and her co-sponsorship lends the measure a credibility that purely partisan crypto legislation often lacks.

Industry Reaction

Organized crypto advocacy has lined up behind the bill quickly. The Blockchain Association and the DeFi Education Fund have both publicly endorsed it, with the latter calling it a critical step toward keeping American blockchain developers from decamping to friendlier regulatory environments abroad.

That brain drain concern isn’t hypothetical. Several prominent development teams have already relocated to Europe or Southeast Asia in recent years, citing legal uncertainty in the United States as a deciding factor. Whether a bill like this would reverse that trend is an open question, but proponents argue it removes at least one significant deterrent.

The legislation sits alongside, but is separate from, the larger digital asset market structure debates currently working their way through Congress. It’s narrower in scope — deliberately so – which some observers think gives it a better chance of actually moving.

Whether that optimism is warranted remains to be seen. But for developers who’ve spent the last few years wondering whether their GitHub commits could someday be read back to them in a courtroom, the bill’s introduction is at least something to watch.

The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.

The post Congress Targets Legal Gray Zone Around Crypto Code appeared first on Coindoo.