United States of Crypto

United States of Crypto is a weekly series on US state level rules and regulations relating to blockchain and cryptocurrencies.

Colorado SB68
The Bill: Senate Bill 18–086 titled “Cyber Coding Cryptology for State Records,” is a bipartisan bill introduced in the Colorado Senate this week. The bill requires some specific state agencies examine state cyber security weaknesses and assess the cost of implementing “distributed ledger technology such as blockchain.” The bill specifically suggests using blockchain for business licensing, preserving the integrity and security of state data, and encourages the university system to adopt blockchain curriculum.

Deep Dive: The bill was amended to, among other things, ensure that no county or municipal government could levy a tax or fee to use blockchain and that the state couldn’t require someone to have a permit to use blockchain technology. This was adopted unanimously. The final bill was referred to Appropriations with 2 no votes, Republican Senators Smallwood and Neville.

Take Away: Concerns about the security of personal information in state record systems is a major issue in legislative bodies across the country. Republican legislators, especially, are concerned with state data about individual citizens falling into the hands of federal regulators. I’ll be keeping an eye on how this bill performs in committee as it was just assigned from the committee on Business, Labor & Technology to Appropriations with a fiscal note estimating the cost to be $250,000. This means the Appropriations committee will need to find a way to fit a quarter million dollars in to explore blockchain technology.

See the bill here: http://leg.colorado.gov/bills/sb18-086

Securities in South Carolina
Enforcement: The South Carolina Attorney General filed a cease and desist order to against Genesis Mining and Swiss Gold Global, two cloud mining enterprises. The companies were offering “mining contracts,” which would essentially let individuals buy-in to a piece of the mining profits. AG Alan Wilson has ordered the companies to cease operations in South Carolina, on the grounds that mining contracts are a security. He has also barred both companies from ever offering securities in South Carolina again.

Take Away: The AG’s office said that it had been monitoring cryptocurrencies for several years. South Carolina is not the only state to have gone after crypto companies in recent weeks. Texas and New Jersey have also served cease and desists to separate cryptocurrency related companies. This tells us that states are starting to pay attention to possible abuses in the crypto industry and that blockchain companies would do well to 1. Pay attention to the innovation environment in their state and 2. Start communicating with local politicians early. I’ve found that “all politics is local,” is truer than you might imagine and state politicians are especially sensitive to constituent issues.

See: https://cointelegraph.com/news/south-carolina-wants-to-ban-genesis-mining-over-unregistered-securities
https://www.postandcourier.com/business/south-carolina-cracks-down-on-cryptocurrency-mining-investment-scheme/article_714e9e24-287a-11e8-b553-638ea33cc9c5.html

Wyoming HB70
The Bills: The State of Wyoming took decisive steps last week to become a welcoming haven for cryptocurrency and blockchain companies. The Wyoming legislature passed 5 bills related to blockchain in an effort to lure businesses to the state. The most exciting of the bills, HB70 defines utility tokens as an entirely new class of assets, different from securities or commodities. This is particularly interesting as larger national and international governments have attempted to define cryptocurrencies as existing asset classes but have generally failed to agree on which is correct. Wyoming, however, defines utility tokens as property which is typically governed by state law.

Deep Dive: Four other bills signed in Wyoming also directly aim to incentivise new cryptocurrency and blockchain businesses. HB19 exempts cryptocurrencies from Wyoming’s money transmitter laws. This was in direct response to Coinbase and two other exchanges ceasing operations in Wyoming after the original money transmitter laws were passed. HB101 allows Wyoming businesses to use blockchain to store records and manage shareholders. HB126 doesn’t specifically reference token sales but would likely limit liability for companies wishing to develop decentralized governance protocols or distribute tokens. SF111 creates a property tax exemption for cryptocurrencies. All five bills have been signed into law by the governor.

See: https://www.ethnews.com/wyoming-legislature-goes-all-in-on-blockchain-cryptocurrency-bills
https://www.forbes.com/sites/rachelwolfson/2018/03/13/u-s-state-of-wyoming-defines-cryptocurrency-utility-tokens-as-new-asset-class/2/#471f0edc6d45
http://legisweb.state.wy.us/2018/billreference/BillReference.aspx?type=ALL

Arizona HB2601, 2602, 2603
The Bills: Three bills in Arizona all introduced by Republican State Rep. Jeff Weninger are moving to make it easier on blockchain companies. HB2601 changes Arizona’s securities laws relating to virtual coin offerings, and creates exemptions for intrastate crowdfunding. HB2602 would prohibit any city, town or county for making rules against individuals running nodes on a blockchain. HB2603 preemptively allows companies to use blockchain for financial recording.

Deep Dive: By my reading of the HB2601, it seems to state that “virtual coins,” presumably cryptocurrencies themselves are not necessarily securities. Virtual coin offerings, however, might be if they have been marketed and do not have utility within 90 days. Essentially, it makes the distinction between security tokens and utility tokens. HB2601 was reported do pass from the senate committee on finance on 3/14 and will need to pass rules committee, pass a third read on the senate floor and receive the governor’s signature.

HB2602 doesn’t seem to prohibit the state legislature from making rules regarding running blockchain nodes, but prohibits local governments from doing so by labeling running a blockchain node a, “statewide concern.” On 3/15 this bill was voted do pass from the senate committee of the whole, which means it must still pass a vote of the full senate and be signed by the governor. The bill is not yet on the third read calendar.

HB2603 has passed the house, and is waiting to pass third read on the senate floor and the governor’s signature.

Take Away: Interestingly, in Arizona the partisan leaning of the issue is different than in Colorado. 8 House Democrats and one Senate Democrat voted no on HB2601. I imagine the argument has to do with local control and consumer protection, but that it’s largely a vote against a Republican Rep’s bill.

See: https://www.coindesk.com/arizonas-blockchain-node-rights-law-nearing-passage/
https://www.ethnews.com/arizona-bill-aims-to-prevent-regulation-of-blockchain-nodes
https://www.azleg.gov/press/house/53LEG/2R/180206WENINGERBLOCKCHAIN2.pdf
http://arizonasonoranewsservice.com/arizona-to-regulate-cryptocurrency-offerings-crowdfunding-and-blockchains/