Most of the regulatory heat on crypto has been coming from the federal level. Not only has the market suffered a series of shocks due to statements put out by SEC officials, but the whole approach has been so haphazard that some in the community would rather have the band-aid pulled off quickly, as it were. But focusing on the grubby fingerprints of federal regulators is to miss a much rosier picture at the state level. With a few exceptions, many states have been passing crypto friendly legislation with a variety of interests in mind, and while some in the industry fear this might lead to a contradictory, patchwork system across the US, at least their hearts are in the right place.
Cash on a Wire
Wyoming is leading the way in supporting blockchain and virtual currency through a spate of recent laws, one of which exempts crypto from existing state regulations on wiring money through services like Western Union. This allows cryptocurrency exchanges to operate freely in the state without having to jump through the hoops necessary to get licensed. Also gone are the heavy transaction fees that typically apply, and any worry about adhering to regulation on how and where currency can be sent. Although Wyoming and others have elected to let crypto move freely, other states, like Nebraska and Hawaii, are heading in the opposite direction, requiring more licensing or more scrutiny under anti-money laundering laws.
A More Perfect Bureaucracy
Other states have recognized the potential that blockchain has for record keeping. Colorado, in particular, is looking to embrace the distributed ledger’s ability to securely create, record, and store government records, introducing a bill to explore how the blockchain can be used to store medical records as well as digital transactions carried out between citizens and the government.
West Virginia is showing more legislative moxie, having unveiled a blockchain-based voting system in the first part of 2018. The pilot program allowed military voters stationed overseas and their families to cast votes in the state primary using only their smartphone (Apple or Android) and their valid state ID. We’re still waiting on the post mortem of whether the program was successful or not, but it could portend seismic changes in American politics to come.
Desperately Seeking Investment
Perhaps the most common state-level reaction to blockchain technology and cryptocurrency is laudable, if transparently desperate – legislation as marketing pitch to a growing industry. Wyoming has passed a bill that exempts ‘utility tokens’ from state security laws, as long as the token is fungible for “goods, services, or content.” Ethereum fits the definition, as it can be used with apps on the network, but whether or not this will attract other ICOs to the state is uncertain. Wyoming can also pass all the exemptions it wants, but once the federal government finally weighs in on the matter, all of them will be moot.
Delaware, already a hotbed of Fortune 500 companies, tried to be the fastest to the finish line by unveiling its “Blockchain Initiative” back in 2016, but its ambitions have foundered as local corporate interests have balked at the dangers of fraud, hacks, and the absence of any federal insurance. Adding insult to injury, the director of the program resigned in January, 2018. Vermont has also encountered a bit of slapstick in its attempt to woo blockchain companies with an idea to “attract with tax.” The state government introduced a bill that would levy a $o.o1 tax on every token mined or otherwise created, as well as any transfer or transaction, while waving all other regulation and taxation. Finally, the trophy for attention seeking goes to Tennessee, which passed a bill that did nothing more than affirm that both records on the blockchain and transactions executed via smart contract are valid. As if there was any doubt.
While it’s certainly encouraging that states are passing laws in favor of crypto and blockchain, it’s hard to get too excited when one considers the federal government’s authority to override such legislation with the stroke of a pen. It’s also unclear whether or not a patchwork approach where laws vary dramatically from state to state is the right atmosphere for the new technology to thrive under. And finally, despite our excitement over the industry’s growth, we shouldn’t lose sight of the fact that neither crypto nor blockchain are supposed to need government laws – positive or negative – in order to function.