Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA) introduced the Promoting Innovation in Blockchain Development Act of 2026 on February 26, a bipartisan bill that would amend 18 U.S.C. Section 1960 to clarify that writing non-custodial software is not a federal crime. The bill responds directly to a string of prosecutions that sent crypto developers to prison for building tools they never controlled.
The Bill Draws a Line Between Code and Custody
Section 1960 was written decades ago to regulate traditional financial intermediaries. It criminalizes operating an unlicensed money transmitting business. The problem: enforcement agencies under both the Biden and Trump administrations have stretched the statute to cover developers who wrote open-source, non-custodial software.
The Promoting Innovation in Blockchain Development Act narrows the statute's scope by inserting language that limits criminal liability to individuals who "exercise control over currency." Developers who build neutral, non-custodial tools would no longer be exposed to federal prosecution under the money transmission framework, provided they do not custody or control user funds.
The bill is bipartisan by design. Fitzgerald and Cline bring the Republican side, while Lofgren, a senior Democrat from California's tech corridor, adds cross-aisle credibility. The DeFi Education Fund endorsed the legislation, stating it clarifies that developers "can build neutral technology without worrying about being criminally prosecuted."
Tornado Cash and Samourai Wallet Forced the Issue
This bill did not appear in a vacuum. It is a direct legislative response to some of the most controversial crypto prosecutions in US history.
Roman Storm, one of the developers behind the Tornado Cash privacy mixer, was convicted in August 2025 on one count of conspiracy to operate an unlicensed money transmitting business. His defense argued that the decentralized smart contracts meant he never controlled user funds. The jury disagreed. His co-founder Roman Semenov was also charged. In a parallel case, Dutch authorities convicted Tornado Cash developer Alexey Pertsev in May 2024, sentencing him to over five years for money laundering offenses.
The Samourai Wallet case followed a similar trajectory. The project's creators were arrested by the DOJ in April 2024, entered guilty pleas in August 2025, and received federal prison sentences by November 2025. The developers built a Bitcoin privacy wallet. They did not hold customer funds. They went to prison anyway.
These cases created what legal observers have called a chilling effect across the US developer ecosystem. If writing open-source code that users deploy independently can result in criminal prosecution, developers have a rational incentive to build offshore or not build at all.
Section 1960 Was Never Meant for Software
The original intent of Section 1960 was straightforward: punish people who run unlicensed money transmission operations. Think of check cashers, wire transfer businesses, and underground hawala networks that move funds without proper licensing.
Applying the same statute to a developer who publishes a smart contract on GitHub requires a legal leap that even some prosecutors have struggled to articulate clearly. The developer does not hold funds. The developer does not process transactions. The developer writes instructions that a decentralized network executes autonomously.
The counterargument from enforcement agencies is that developers who knowingly build tools used for money laundering bear criminal responsibility. The Tornado Cash case, in particular, involved billions in total transaction volume, including funds linked to North Korea's Lazarus Group. Prosecutors argued that Storm and Semenov designed Tornado Cash to evade sanctions and anti-money laundering controls.
The bill's sponsors are not arguing that money laundering should go unpunished. They are arguing that the tool's creator should not be treated as the tool's operator when the creator never touches user funds.
What This Means for DeFi Builders in the US
If the bill passes, the practical impact is significant. Non-custodial protocol developers, wallet builders, and open-source contributors would have an explicit statutory carve-out from Section 1960. Building a self-custody wallet, a decentralized exchange frontend, or a privacy tool would no longer carry the implicit threat of federal criminal charges.
The timing matters. The broader crypto market structure bill, sometimes called the CLARITY Act, includes similar developer protections but has stalled over disagreements about stablecoin yield rules and presidential conflicts of interest. The Promoting Innovation in Blockchain Development Act takes a narrower approach: fix Section 1960 specifically, without waiting for the entire market structure debate to resolve.
For crypto card issuers and self-custody wallet providers like MetaMask, Gnosis Pay, and Ready, the bill would reduce legal uncertainty around their developer teams. These products bridge on-chain wallets to traditional payment networks, and their developers could benefit from a clear statutory distinction between building non-custodial infrastructure and operating a money transmission business.
The Bigger Picture: Can America Keep Its Developers?
The Solana ecosystem grew 84% year-over-year in 2024, but much of that growth happened despite regulatory uncertainty, not because of clarity. Multiple DeFi teams have relocated to jurisdictions with clearer legal frameworks: Singapore, Switzerland, Dubai. Every developer who leaves the US takes jobs, tax revenue, and innovation with them.
The bill's sponsors are framing this as a competitiveness issue. The argument: regulation should follow innovation, not criminalize it preemptively. The internet itself grew under a similar framework, where Congress actively chose not to impose liability on service providers for user behavior through Section 230 of the Communications Decency Act.
Whether Section 1960 reform gets the same bipartisan support that internet safe harbors received in the 1990s remains an open question. The bill faces a Congress that is simultaneously debating stablecoin regulation through the GENIUS Act, crypto market structure through the CLARITY Act, and the political complications of a sitting president with significant crypto holdings.
But the direction is clear. When developers go to prison for writing code that someone else used to break the law, the legislative response was always going to arrive. The only question was how long it would take.
FAQ
What is Section 1960? Section 1960 of Title 18 of the US Code criminalizes operating an unlicensed money transmitting business. It was originally written for traditional financial intermediaries but has been applied to crypto developers who build non-custodial tools.
Who sponsored the bill? Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA) introduced the bipartisan Promoting Innovation in Blockchain Development Act of 2026 on February 26.
Does this bill legalize money laundering? No. The bill narrows Section 1960 to target individuals who exercise control over currency. Money laundering remains a federal crime under separate statutes. The bill only clarifies that writing non-custodial software is not money transmission.
How does this relate to Tornado Cash? Tornado Cash developer Roman Storm was convicted in 2025 under Section 1960 despite arguing he never controlled user funds. This prosecution, along with the Samourai Wallet case, directly motivated the legislation.
When could this bill become law? The bill has been introduced in the House. It would need to pass committee, clear both chambers, and be signed by the president. Similar protections are also being discussed within the broader CLARITY Act market structure bill.
Overview
Three US lawmakers introduced the Promoting Innovation in Blockchain Development Act of 2026 to amend Section 1960, the federal statute used to convict Tornado Cash and Samourai Wallet developers. The bill would limit criminal liability to entities that exercise control over user funds, creating a statutory shield for non-custodial software developers. Backed by Representatives Fitzgerald, Cline, and Lofgren, the bipartisan legislation addresses what many in the crypto industry consider the most urgent legal threat facing DeFi builders in the United States.
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