US House Introduces Bipartisan Bill to Protect Crypto Developers From Criminal Liability

A bipartisan group of U.S. House lawmakers introduced the Promoting Innovation in Blockchain Development Act on February 26, 2026, a bill designed to amend federal criminal code Section 1960 to clarify that software developers who do not control customer funds cannot be prosecuted as money transmitters.

The legislation, sponsored by Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA), arrives amid ongoing negotiations over the broader CLARITY Act market structure bill, which faces a March 1 deadline for Senate action and continued disagreements over stablecoin rewards and presidential conflict of interest provisions.

New Bill Amends Section 1960 to Protect Non-Custodial Developers

The Promoting Innovation in Blockchain Development Act targets U.S. Code 1960, which defines and prohibits illegal money transmitting businesses. The legislation would formally amend the statute to ensure it applies only to individuals who “exercise control over currency” belonging to others, rather than developers who write code for decentralized protocols without taking custody of user funds.

According to a blog post from the DeFi Education Fund, an industry advocacy group supporting the bill, the measure aligns with the Treasury Department’s long-standing interpretation of money transmission regulations, which have historically focused on custodial intermediaries rather than software creators.

The bill addresses concerns raised by recent high-profile prosecutions. In 2025, an Ethereum software developer was found guilty by a Manhattan jury of violating Section 1960 for developing the Tornado Cash privacy tool, despite arguments that the decentralized nature of the software meant he did not operate as a money transmitter. Subsequently, the Trump administration secured guilty pleas from two Bitcoin developers associated with Samourai Wallet, who are currently serving federal prison sentences.

The DeFi Education Fund stated that the bill is “critically important for engineers,” making clear that “software developers who do not take custody of or control other people’s money can build neutral technology, here at home, without worrying about being criminally prosecuted as if they are a financial intermediary.”

Relationship to CLARITY Act Market Structure Legislation

The introduction of the standalone developer protection bill comes as lawmakers continue negotiations on the CLARITY Act, the broader crypto market structure legislation that has faced months of delays. Sources familiar with the legislative process indicate that the CLARITY Act is likely to include language addressing Section 1960, but would stop short of rewriting the statute itself.

Instead, the market structure bill would order that “non-controlling developers” not be treated as engaged in money transmitting under Section 1960, providing interpretative guidance without amending the underlying code. The new standalone bill goes further by directly modifying the statutory language.

A source familiar with the thinking behind the new bill emphasized that its introduction should not be interpreted as signaling that the CLARITY Act’s developer protections are insufficient, nor that the broader market structure bill is doomed to fail. The two approaches are viewed as complementary rather than competitive.

DeFi Provisions and Ongoing Negotiations

Language in the CLARITY Act surrounding decentralized finance remains in flux as lawmakers and industry stakeholders work to salvage the legislation after multiple delays. DeFi refers to financial applications built on blockchain networks that operate without traditional intermediaries such as banks.

While DeFi language in the bill is not finalized, sources indicate it is unlikely to be the determining factor in whether the legislation ultimately passes. More contentious issues include disagreements between industry leaders and the banking lobby over stablecoin rewards—yield-bearing token products that banks argue are unregulated deposits threatening traditional savings accounts.

Senate Democrats and the White House remain at an impasse on language addressing conflicts of interest related to President Trump’s various crypto ventures, further complicating the path to passage. Lawmakers have warned that the bill needs to see significant progress in the coming weeks, or it risks stalling as Congress slows ahead of November’s midterm elections.

The White House has urged a March 1 deadline for a Senate vote on market structure legislation, creating time pressure for resolving outstanding disagreements.

Industry Engagement and Advocacy

The Blockchain Association announced that its members are heading to Capitol Hill to discuss DeFi provisions in the draft Senate Banking Committee bill. According to an X post, 21 leaders from 18 companies are meeting with 24 Senate offices on the Banking and Agriculture Committees to discuss Title III and related provisions.

The advocacy group emphasized that open-source developers should not be considered financial intermediaries provided they do not custody or control customer assets, and warned that policy decisions made during CLARITY Act negotiations will determine the outcome for innovation.

Separately, venture capital firm a16z has engaged with lawmakers, with Marc Andreessen and Chris Dixon meeting with Senate Republicans to urge advancement of the CLARITY Act and artificial intelligence legislation.

FAQ: Understanding the New Crypto Developer Protection Bill

Q: What does the Promoting Innovation in Blockchain Development Act do?

A: The bill amends U.S. Code Section 1960 to clarify that only individuals who “exercise control over currency” belonging to others can be prosecuted as money transmitters. This would exclude software developers who write code for decentralized protocols without taking custody of user funds from criminal liability under this statute.

Q: Why is this bill needed now?

A: Recent prosecutions of developers associated with Tornado Cash and Samourai Wallet under Section 1960 have created uncertainty in the crypto development community. Developers argue that writing open-source code for decentralized systems should not subject them to money transmitter regulations, which were designed for custodial financial intermediaries.

Q: How does this bill relate to the CLARITY Act market structure legislation?

A: The CLARITY Act is expected to include language addressing Section 1960, but would provide interpretative guidance rather than amending the statute itself. The new standalone bill directly modifies the statutory language, representing a more comprehensive approach. Both are seen as complementary efforts to provide legal clarity for developers.

Q: What is the current status of the CLARITY Act?

A: The market structure bill faces a March 1 deadline for Senate action urged by the White House. Negotiations remain ongoing over stablecoin rewards provisions and language addressing presidential conflicts of interest. DeFi provisions are still in flux but are not expected to be the determining factor in whether the bill passes.