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Crypto cowboys: Wyoming’s blockchain bills blaze new trails

The Cowboy State recently became the “Bitcoin State” with a new, first-of-its-kind in the U.S. blockchain law. Now, as federal policy makers grapple with blockchain’s potential, can any lessons be learned from Wyoming’s experiences?

matthew headshot 400x500“It became quickly apparent that Wyoming really was the first jurisdiction, maybe in the world, to look at these types of legislation,” said Matthew D. Kaufman, a partner with law firm Hathaway & Kunz, LLP, and a governor-appointed member of the Wyoming Blockchain Task Force. “They’ve created a path forward to test [blockchain business models] and try them out, and that’s something I think federal regulators could do really well.”

Prior to the new blockchain laws, Wyoming residents were not allowed to buy and sell cryptocurrencies legally due to a set of antiquated money transfer laws. The recently passed bills exempt cryptocurrencies from property taxes, establish a utility token exemption from securities laws, and create a new type of bank to handle cryptocurrency and blockchain firms’ need for bank access, something Kaufman described as an “industry wide problem.”

The Wyoming bill stops at the state line, however, and national policy makers have yet to settle a number of questions surrounding blockchain’s legal status. And while Congress and the administration take small steps regarding blockchain, other localities such as Switzerland, Malta, and others have adopted liberal frameworks that have succeeded, to some extent, in attracting startups.

emmer quote550x400The national blockchain conversation recently shifted to reflect that creeping fear that other countries – Switzerland and Malta, in particular – will develop more welcoming business climates for the technology. Rep. Todd Emmer (R-Minn.) recently reintroduced a set of three bills to clarify federal blockchain rules with that in mind. The most ambitious of the three, the Blockchain Regulatory Certainty Act, co-sponsored by Rep. Darren Soto (D-Fla.), aims to protect blockchain services from being treated as “money transmitters” or being penalized as unlicensed money transfer platforms. All three bills, however, appear to be in response to the sense that America needs to maintain an advantage that is slipping away.

"The United States should prioritize accelerating the development of blockchain technology and create an environment that enables the American private sector to lead on innovation and further growth," Emmer said in a news release when the bills were reintroduced.

Blockchain advocacy groups and some entrepreneurs also regularly describe the U.S. as falling behind. Regulatory confusion often takes the blame for the implosion of a number of cryptocurrency and blockchain startups. One firm, Hoboken-based Basis, shuttered in December last year over concerns that its product would be deemed a security and subject to stringent Securities and Exchange Commission regulations. The Basis closure was one of the incidents that prompted Rep. Warren Davidson (R-Ohio) to introduce the Token Taxonomy Act to clarify how tokens will be treated.

“Forbes” reported earlier this year that Davidson had met with a cryptocurrency entrepreneur in Boston who was skipping the U.S. for Switzerland due to its more relaxed, and clearer, regulations. The Token Taxonomy Act is aimed at keeping those entrepreneurs in the U.S., Davidson said via news release at the time.

“It would provide a lot of clarity and ensure that blockchain innovation stays in the U.S. This is designed to precisely help prevent things like Basis shutting down,” Kyle Samani, managing partner of crypto fund Multicoin Capital, told “Forbes.”

The flight of blockchain firms overseas may be overstated by advocacy groups, however. Switzerland, after all, does not boast the depth of talent or venture capital that blockchain startups in the U.S. can access.

B 300x200“There’s no doubt that Malta and Switzerland and some of these places have pretty libertarian viewpoints on some of these financial products and technology offerings … But I don’t know if that necessarily makes them a better place to do business,” Kaufman said. “There’s still a tremendous advantage to doing business in the United States.”

Regardless of the particulars, blockchain groups have called repeatedly on the government to develop a coherent national strategy for how the technology will be regulated.

"We are calling on the United States to implement a national action plan for blockchain. This call for action extends beyond the U.S. Congress to the administration to ensure that we realize the commercial and economic benefit of this technology,” said Perianne Boring, president and founder of the Digital Chamber of Commerce. “To maintain our technological and economic leadership, the U.S. government must set out a roadmap to facilitate the development and innovation of blockchain technology or risk falling behind to countries whose respective governments are embracing the technology and exploring its benefits."

matthew quote550x400Other advocates warn that government efforts to regulate blockchain use could amount to overreach. Blockchain does open doors to bad actors, they say, but government needs to approach regulation carefully so as not to stifle the technology’s development.

“Attempts to highly regulate and restrict blockchain technology could hinder legitimate uses or harm law-abiding users. Well-designed regulations can help mitigate hacks and scams that are rampant in the blockchain industry and protect users, thus enabling adoption in a safe, growth-enabling environment,” said Chris Smith, vice president of business development for Civic Technologies, Inc., a blockchain startup. “Effective blockchain policy will strike this balance, incentivizing technology that can have a positive impact while creating barriers for deceitful or illicit behavior. Effective blockchain policy will also provide clarity and support, creating a framework for how new technologies are treated and enabling good actors to build and develop technology with confidence.”

The main lesson from Wyoming’s experience, however, could be that government needs to start somewhere in grappling with blockchain. Wyoming’s new law was created out of necessity, but that does not mean state lawmakers tried to solve every problem in one go, Kaufman said. Instead, they sought to create a framework that could be improved later.

“I’m not advocating that the government just runs out and tries to regulate new technology but sometimes I think you have to start somewhere, even if it’s small,” Kaufamn said. “So, the players in that space know that here are a couple of rules and these are the rules we need to play within.”

 

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