How a new crypto bill relates to normal people

Two U.S. senators introduced their first stabs at legislation to catch U.S. law up to a blockchain world on Tuesday. The first thing to keep in mind about legislation is this: the first draft is always just a starting point (if it's even that).

Driving the news: Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) co-sponsored the legislation, though Lummis is widely understood as having been the driving force to get something moved.

• As of this writing, the legislation does not have a bill number or a committee assignment.

Why it matters: Cryptocurrency's critics often describe it as lawless, but its proponents counter that there are no clear laws that apply to this new technology. Entrepreneurs and investors have been asking for updates to U.S. law that reflect the realities of this new way of doing business.

Zooming out: The legislation has been widely covered from the perspective of what it could mean to the industry and how it relates to the many dramas engendered by bitcoin and its progeny.

• Here are broad write-ups from Decrypt, Bloomberg and CNBC.

What they're saying: "Big picture: This is a great view into what a few people on the Hill think the rules should be for crypto but it is unlikely this legislation moves forward in the foreseeable future," Tony Tuths, an alternative investment tax principal at KPMG, said in a statement.

Details: Here are the parts of the bill most relevant to people who might invest a little in this new asset class:

• Exemption for small payments: Any expenditure of cryptocurrency is a taxable event right now. If passed, purchases of goods and services of less than $200 would not incur a tax obligation (well below the $600 proposed by Rep. Schweikert in 2017).
• Homework for the IRS: It directs the IRS to take on a lot of the weird new sorts of income that crypto has created and clarify how they should be treated. For example, if a person gets an unexpected airdrop they didn't ask for, does that go on their tax bill if they don't sell?
• Mining and staking: Lots of hobbyists earn crypto through various activities, and the law clarifies that those earnings won't be taxed until they are exchanged for dollars (the legislation comes down on the side of the complainant in a live court case against the IRS).
• Crypto retirement: The bill directs the General Accounting Office to look into rules around adding crypto to retirement portfolios, an issue that has been spicy ever since Fidelity moved to allow some cryptocurrency in its customers 401(k) accounts.
• Cybersecurity standards: As you probably know, companies that hold other people's crypto for them often get robbed. This legislation starts the process to create better security practices at these firms, which should help, but it also probably means fees for users will go up.

• User protection in exchange bankruptcy: The legislation would protect users' digital assets if the company storing them went bankrupt.
• Lots more transparency. In various ways the legislation requires issuers to be more clear about what they are selling, what a token is, what it does and how it might change.

Many of these rules are likely to make the space much less fraught, but they are also likely to make it much more expensive to use, as companies increase fees to keep up with compliance costs.

Background: It's worth understanding a little about the context each senator is legislating from.

• Gillibrand's state has been earning low marks from the industry. New York's BitLicense regulation that has led multiple firms to firewall out New Yorkers, to its recent restrictions on new proof-of-work mining operations, it's not exactly embracing the industry.
• Lummis comes from Wyoming, which has moved in the opposite direction, leading the trend for states to pass their own bespoke crypto laws, starting in 2019.

The Wyoming senator also owns (or has owned) more than six figures in bitcoin.

What we're watching: All the fighting around this bill is going to be around the definitions that decide which agency gets to have power over which kinds of digital assets, particularly the remit of the SEC and its smaller cousin, the CFTC, that is, court intrigue.