Bitcoin watches U.S. bill to narrow Section 1960 liability

• Lyla Velez
• February 27, 2026
• News
• 0 Comments

Key Points:

• Bill clarifies money-transmitter laws for software, protecting noncustodial crypto developers.
• Liability hinges on custody or control, not merely publishing or maintaining code.
• Aimed to retain U.S. talent amid enforcement uncertainty, preserving custodial rules.

The bipartisan Promoting Innovation in Blockchain Development Act of 2026 seeks to clarify how U.S. criminal money-transmitter law applies to software. According to Decrypt, lawmakers introduced a bill aimed at protecting crypto software developers from criminal prosecution under Section 1960.

In substance, the bill narrows when code authors can be treated as running an “unlicensed money transmitting business.” The stated focus is on whether a developer actually has custody of, or control over, other people’s funds; absent control, noncustodial developers would not face criminal exposure as money transmitters.

The timing reflects persistent uncertainty following recent digital-asset enforcement actions and a broader push to keep core software talent in the United States. The proposal is framed as legal clarity for neutral, noncustodial tooling, while leaving intact rules for entities that intermediate or control customer assets.

Section 1960 clarified: custodial vs. noncustodial control

Section 1960 is the federal criminal statute used to charge unlicensed money transmitting businesses. The bill draws a brighter line between custodial intermediaries and noncustodial developers by centering liability on “control of funds,” not on the mere act of publishing or maintaining code.

In practice, “control” generally turns on unilateral power over user assets. If a party can move, stop, or reclaim customer funds, via private keys, account recovery, or admin privileges, that model trends custodial. By contrast, software that lets users keep their own keys and broadcasts user-signed transactions without any developer override is noncustodial.

That distinction matters across common scenarios. Self-custody wallets, open-source libraries, and client software that never takes possession of keys fit the noncustodial side. Hosted wallets, pooled accounts, or interfaces with back-end controls over user balances fit the custodial side and remain within money-transmission risk.

Some lawmakers have framed this as ending the practice of treating code authors like financial intermediaries when they lack control of customer assets. “It’s time to stop treating software developers like banks simply because they write code,” said Sen. Cynthia Lummis, who chairs the Senate Banking Digital Assets Subcommittee.

Enforcement context: Tornado Cash and DOJ posture

The enforcement backdrop includes high-profile cases that sparked coder-liability concerns. The DeFi Education Fund has argued the bill would likely forestall prosecutions akin to those involving Tornado Cash developer Roman Storm and the creators of Samourai Wallet, underscoring the need to clarify when neutral, noncustodial development crosses into money transmission.

Federal prosecutors have recently articulated a narrower charging approach for truly decentralized software. “Merely writing code, without ill intent, is not a crime,” said Acting Assistant Attorney General Matthew G. Galeotti of the U.S. Department of Justice’s Criminal Division, noting the Department would decline Section 1960(b)(1)(C) charges where no one has control over user assets.

The bill would codify guardrails beyond policy speeches or guidance. It targets criminal liability under Section 1960; it does not alter sanctions obligations, state money-transmitter regimes, or civil enforcement standards, and it would not retroactively erase prior conduct.

At the time of this writing, Ethereum (ETH) traded near $2,046.21, with a neutral 14-day RSI around 45 and roughly 13.63% recent volatility. Market conditions do not change the legal analysis, but they contextualize how regulatory clarity could affect developer activity and jurisdictional choices.