A (Block)chain Reaction: Legislative Update On Blockchain-Related State Law

By Allisyn E. Monteleone, Dinsmore & Shohl LLP

Over the past year or so, public curiosity in blockchain-related technology grew beyond the question, “What’s Bitcoin?” and into broader conversations with more advanced questions like, “How can I invest in other cryptocurrencies?” and “What else can blockchain technology do?” The intrigue has found its way into statehouses, where politicians across the country have begun to introduce legislation related to the regulation of cryptocurrencies, smart contracts, and blockchain technology.

Historically, whenever new technologies — like the Internet — begin to disrupt everyday life, the federal government may be slow to establish a regulatory scheme. The regulatory efforts surrounding blockchain technology are no different. Since Bitcoin’s first appearances in national news, most of the federal regulatory debate has revolved around definitional questions, like whether cryptocurrencies should be defined as investment property (like stocks) or as currency. Now, new use cases for blockchain technology have come up in national news stories, teaching people that blockchain technology goes far beyond Bitcoin. As this understanding grows, so do the issues in the regulatory debate.

The federal government is taking a somewhat cautious approach in regulating blockchain technology. Rather than hastily throwing laws together before fully understanding what the laws will be governing, Congress and federal agencies are attempting to understand the technology first. Accordingly, tasks forces have been organized and hearings have been held. During a congressional hearing in February, CFTC Chairman J. Christopher Giancarlo said, “We owe it to this new generation to respect their interest in this new technology with a thoughtful regulatory approach.” Although it may take time, the federal government appears to be working on thoughtful, deliberate regulation.

In the meantime, some state governments have taken a more aggressive approach. Just this year, approximately 50 blockchain- and cryptocurrency-related bills and legislative resolutions have been introduced across the United States. While some bills failed or died in committee, a few others passed. A review of these bills indicates that certain trends are starting to emerge.

The following table provides a summary of the blockchain-related bills and resolutions that were introduced in 2018. The columns are broken up according to what aspect of blockchain technology the bill relates to: (1) the underlying technology itself, (2) cryptocurrency/virtual currency (i.e. Bitcoin); or (3) smart contracts. In some cases, a bill may fall into more than one category.

This table is current as of May 25, 2018 and is intended to be a comprehensive summary. However, there may be some legislation introduced in 2018 that was left off, most likely because it is only tangentially related to blockchain technology or cryptocurrencies. For more information, please contact the author.

After studying the legislation provided in the table above, a few trends appear to have emerged in the first half of 2018. Some of these trends are highlighted below.

First, in the blockchain technology and smart contracts categories, most of the introduced legislation appears to relate to using blockchain technology for maintaining business records or public records. For example, the Tennessee General Assembly passed SB1662, which recognizes the legality of using distributed ledger (blockchain) technology and smart contracts in conducting electronic transactions. Additionally, SB1662 protects ownership rights of certain information secured by distributed ledger technology. Similarly, S0269 passed by both houses of Vermont’s legislature, proposes to implement strategies relating to blockchain, cryptocurrency, and financial technology to promote regulatory efficiency and enable business organizational and governance structures. S0269 was delivered to the governor on May 24 and as of May 25, is still awaiting signature. In Maine, one bill (LD950) was introduced to address the utilization of blockchain technology in state elections.

Second, in the cryptocurrency category, the majority of legislation introduced in 2018 relates to money transmitter laws — a trend that actually is continuing from last year. Additionally, a new trend in the cryptocurrency category involves the use of cryptocurrencies as payment for taxes. For example, although Arizona passed three blockchain-related bills (HB2601, HB2602, and HB2603) this year, one bill — SB1091 — was vetoed by Governor Doug Ducey on May 16. SB1091 would have made Arizona the first state to accept cryptocurrencies payments for sales taxes, but Governor Ducey expressed concerns about the unintended consequences on private industries. Although the money transmitter bills appear somewhat likely to pass in most jurisdictions, state governments do not appear ready to accept cryptocurrencies payments just yet.

Third, a number of legislative resolutions have been introduced in states like West Virginia (HCR29), Virginia (HJR153), and North Dakota (2100). Here, these state legislatures, like the federal government, chose a more reactive than proactive approach. The resolutions introduced in these states organize strategies for designating special committees to conduct research on blockchain technology and report back with findings for the next legislative session. In some cases, the resolutions also discuss allocations of money to these committees and towards efforts that further education and research in the field.

In light of these trends, a few states appear to stand out from the others as being the most “blockchain friendly.” For example, Wyoming is one state at the head of the pack. In just the first few months of this year, the Wyoming Blockchain Coalition introduced five bills to the Wyoming legislature—all of which passed. The collection of new laws define initial coin offerings as not being a “security,” exempt certain blockchain tokens from securities regulations and money transmission laws, exempt virtual currencies from state property taxes, enable the Secretary of State to collect registrations on a blockchain and promulgate regulations, and modify the state’s corporate code to permit the formation of “Series LLCs.”

In sum, a study of the legislation introduced in 2018 makes clear which states have realized the importance of blockchain technology and how those states are attempting to effectively regulate this industry. Some states appear to be following the federal government’s example—by creating committees, conducting studies, and writing reports for next year’s sessions. However, in the blockchain world, time moves especially fast. Therefore, as the use cases for blockchain technology continue to develop, the laws passed in blockchain-friendly states can serve as an example for other states and even the federal government. As some states begin to regulate blockchain technology, hopefully their actions start a (block)chain that encourages others to get involved and pass legislation to further education and innovation in this industry.

About The Author

Allisyn Monteleone is a registered U.S. patent attorney and an associate in Dinsmore & Shohl LLP’s intellectual property department. Beginning in the summer of 2015, Allisyn began researching and writing on cryptocurrencies and blockchain technology. Prior to joining Dinsmore, Allisyn worked for Mylan Pharmaceuticals in the company’s Chemistry, Product Development and Global Policy departments, where she gained experience in tracking and reporting regulatory efforts around the world.