State Legislature of Wyoming Passes Two New Crypto and Blockchain Related Bills

The bill is titled the Financial Technology Sandbox bill – and in addition to setting up the said safe-space, the bill also looks towards waiving off certain …

Two new house bills have been approved and passed by the State Legislature of Wyoming, which deal with creating a suitable environment to promote innovations and regulations in the cryptocurrency and the blockchain industries. Wyoming has been a blockchain friendly state for quite some time now – and this comes as another major step forward towards this direction.

These two bills are the House Bill 57 and House Bill 62. Caitlin Long, the President of the Wyoming Blockchain Association was among the first ones to announce these two bills being passed via Twitter. House Bill 62 was passed with a majority of 8-1 while House Bill 57 was passed with a unanimous 9-0 majority. Let us take a closer look at each of the two bills that got passed:

House Bill 57 deals with providing a safe-space for startups working in the blockchain and cryptocurrency industries where they can experiment with this gen-next technology. The bill is titled the Financial Technology Sandbox bill – and in addition to setting up the said safe-space, the bill also looks towards waiving off certain rules and regulations which may hinder these efforts towards innovation in the technology.

The second bill, House Bill 62, is titled ‘Wyoming Utility Token Act-Property Amendments Bill’. This bill is aimed more towards the regulation of the industry and brings in some legal clarity into classifications. The bill defines that all blockchain tokens are an ‘intangible personal property’ and that they do not need to be exempted from federal securities laws. Here’s an extract from the bill:

“The open blockchain tokens governed by this act do not constitute securities because a person who is sold a consumptive open blockchain token cannot receive a cash payment or share of profits from a developer or business, but will instead receive a fixed amount of consumable services, content or property.”

Wyoming has become one of the most attractive places in the US when it comes to cryptocurrency and blockchain firms. The state has had many progressive bills and laws being passed over the past few months. The state of Wyoming is also testing getting their land records stored over blockchain systems – a pilot project that has been started off in Teton County.

Last year, IOHK, the parent company of Cardano had announced its decision to move out of Hong Kong and relocate to Wyoming. Cardano is among one of the most successful cryptocurrencies (currently the 11th largest by market cap), and its parent firm moving to Wyoming is another testament to the success of the pro-blockchain regulations of the state.

Progressive regulations like these are making their way into several states in the US. Tulsi Gabbard, who has officially announced her name for the 2020 Presidential Elections is another major names in US politics to support cryptocurrencies. With more and more pro-crypto regulators joining the political system, it appears that the next crypto boom might come from the White House!

Stay tuned with us at Cryptoground for regular news updates and more stories from the world of cryptocurrencies and the blockchain technology.

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US State of Wyoming Passes Two New Blockchain, Crypto-Related Bills

… passed House Bill 70, which relaxed securities regulations and money transmission laws for certain tokens offered via an initial coin offering (ICO) in …

The state legislature of the American state of Wyoming has reportedly passed two new house bills that aim to foster a regulatory environment conducive to cryptocurrency and blockchain innovation. The developments were reported by the president of the Wyoming Blockchain Coalition, Caitlin Long, in two tweets posted Jan. 10 and Jan. 11.

To press time, only the status of one of the bills — House Bill 62 — has been updated on Wyoming’s state legislature page, showing it passed 8-1 and has since been placed on general file. The official status of the second bill — House Bill 57 — has yet to be updated, with the last update on Jan. 8. Long’s tweet today, Jan. 11, reports that Bill 57 passed unanimously.

Entitled “Wyoming Utility Token Act-property amendments,” Bill 62 is significant in establishing a new asset class, defining “open blockchain tokens with specified consumptive characteristics [as] intangible personal property.” The definition notably means that said tokens do not require an exemption from federal securities laws. The bill clarifies that:

“The open blockchain tokens governed by this act do not constitute securities because a person who is sold a consumptive open blockchain token cannot receive a cash payment or share of profits from a developer or business, but will instead receive a fixed amount of consumable services, content or property.”

Bill 57 is entitled “Financial technology sandbox,” and pertains to the creation of a fintech regulatory “sandbox” — a supervised and flexible testing environment that provides waivers for certain statutes and rules that would otherwise hamper innovation. Its establishment reportedly aims to foster a welcoming business environment for the developers of new financial products and services, and thereby attract fintech talent to the state.

As previously reported, in early 2018 both the Wyoming Senate and House of Representatives passed House Bill 70, which relaxed securities regulations and money transmission laws for certain tokens offered via an initial coin offering (ICO) in the state.

A separate house bill regarding the exemption of virtual currencies from the Wyoming Money Transmitter Act was passed by the Wyoming state legislature last March, as well as a house bill exempting virtual currencies from state property taxation in February. A slew of further pro-crypto and blockchain senate and house bills have already been passed into Wyoming law.

Caitlin Long has previously remarked on the unfolding regulation of cryptocurrencies in the U.S. at both a federal and state level. She argues that the definition of utility tokens as a new asset class is significant in bringing them under the purview of state legislators, rather than national agencies such as the Securities and Exchange Commission (SEC), the Commodities and Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN).

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Crypto Startups Are Fleeing The US—This Bill Is Trying To Stop Them

The bill’s primary goal is to define the criteria for when a cryptocurrency initial coin offering (ICO) is a security, in attempt to exempt some of them from …
A new bill in Congress aims to reduce the regulatory uncertainty that characterizes the U.S. crypto market.

A new bill in Congress aims to reduce the regulatory uncertainty that characterizes the U.S. crypto market. Getty

In the fall of 2018, Republican congressman Warren Davidson was meeting with a cryptocurrency entrepreneur in Massachusetts. The CEO was deciding where to locate his startup, and they were discussing the regulatory uncertainties surrounding digital currencies and initial coin offerings (ICOs).

The entrepreneur told Davidson, “Look, it’s nothing personal. We just don’t trust that you guys are gonna get this done right. So we’re feeling kind of Swiss,” implying he might move to Switzerland, a country with an arguably more business-friendly approach to crypto regulation.

Over the past few years, most companies that created digital tokens and sold them through ICOs assumed they wouldn’t be deemed securities. But when regulators think otherwise, startups can face major legal trouble, as we’ve seen recently with the cases of Airfox, Paragon and Basis. In December, Warren Davidson introduced a new digital token bill, aiming to kill the uncertainty and keep innovation inside U.S. borders.

“The SEC’s stance has caused a massive flight of startups to offshore jurisdictions,” says Caitlin Long, a former managing director at Morgan Stanley who helped Wyoming pass new blockchain legislation last year. “Lawyers right and left were telling clients, ‘Don’t issue tokens to U.S. investors and don’t domicile in the U.S.’”

Marco Santori, former head of the financial technology group at law firm Cooly and current president of crypto company Blockchain, says the present regulatory environment has spawned “mostly a state of confusion among entrepreneurs. … That is not a good place for American innovation.” Crypto investors also point to regulatory uncertainty as a cause of the crypto bear market in 2018, a period when bitcoin lost nearly 75% of its value.

In February 2018, Switzerland declared that some ICOs are not securities, drawing applause from industry veterans. Today about 420 crypto and blockchain startups are domiciled there, according to research by PwC and Swiss blockchain investment firm CV VC. Although the U.S. population is 40 times larger, it has just 2,100 such startups, AngelList reports.

In other words, for every 100,000 residents of each country, Switzerland has five crypto startups, while the U.S. has only one.

Nick DeSantis, Forbes Staff

Tezos, a blockchain platform founded in 2016 by two New York-based entrepreneurs, has its governing foundation headquartered in Switzerland. Dfinity, a high-profile crypto startup whose CEO is based in San Francisco, is incorporated in Switzerland.

Media-focused blockchain startup Singular DTV chose Switzerland as its home because “it was the only jurisdiction in the world at that time—early 2016—that was actively working to understand blockchain technology and classify ICOs … within its regulatory framework,” CEO Zach LeBeau says. He adds that, since then, Switzerland has adopted “a more U.S.-centric approach” that has “slowed blockchain development there.”

Warren Davidson is trying to make the U.S. more attractive to crypto startups. Before becoming a congressman in Ohio in 2016, the 48-year-old was an entrepreneur and owned a group of manufacturing companies. After he arrived in D.C., he noticed that ICOs were an often-discussed problem without a solution. A self-described tech geek, Davidson joined forces with Florida Democratic congressman Darren Soto to release a bipartisan bill in December 2018, the Token Taxonomy Act. Just a few weeks earlier, Davidson had created a stir by releasing a bill to fund President Trump’s proposed border wall with public donations.

Ohio congressman Warren Davidson (right) speaking at a Financial Services Committee meeting.

Ohio congressman Warren Davidson (right) speaking at a Financial Services Committee meeting.Photo credit: Warren Davidson

With the Token Taxonomy Act, Davidson aims to amend the Securities Act of 1933 and the Securities and Exchange Act of 1934—the laws the government uses to define securities—“to get the regulatory certainty that I feel like the market needs.” The bill’s primary goal is to define the criteria for when a cryptocurrency initial coin offering (ICO) is a security, in an attempt to exempt some of them from the maligned designation.

Under the new bill, some of the criteria for exemption from security status are: the blockchain platform the token runs on has already launched; the token’s supply can’t be controlled by a single person or group of people; once finalized, transactions can’t be altered by a single person or group of people; and the token “is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”

The stipulation about having already launched a product is important. “If you want to raise money to sell oranges, and you don’t own any oranges or an orange grove, that’s a security,” Davidson says, using a business example that served as the basis for the Howey Test, a Supreme Court precedent the government also uses to help define securities. “But if now the oranges have grown and are in barrels, the oranges are no longer securities.” That means, if the bill moves forward, crypto startups would need to pursue traditional funding models like angel or venture investment to support operations before they’ve launched a product.

The Token Taxonomy Act would be “a significant advance if it were to pass,” says blockchain legislation advocate Caitlin Long. She sees defining a digital security as critical and says the proposed bill follows the models set forth in Switzerland and Wyoming. “It would provide a lot of clarity and ensure that blockchain innovation stays in the U.S.,” says Kyle Samani, managing partner of crypto fund Multicoin Capital. “This is designed to precisely help prevent things like Basis shutting down.” Hoboken, New Jersey-based Basis closed its doors in December 2018 due to concerns its product would be deemed a security.

Ari Lewis, a cofounder of crypto fund Grasshopper Capital who also consulted Ohio on its project to let businesses pay taxes in crypto, says, “This bill doesn’t change the fact that many of these tokens don’t have a utility purpose today [outside of speculation] … but one of the problems with the government is that they study everything to death. Kudos to Warren Davidson for trying to make policy change and make a difference.”

At nine pages, Davidson’s bill is short and narrow in scope, focusing primarily on the definition of a security. “This could turn into a bill that would be very long, that would involve three or more committees in Congress,” he says. “By taking slices, not only do we make it easier to create regulatory certainty and go light-touch on the regulation, we make it easier to actually move through Congress.”

The next step is for him to reintroduce the bill, a requirement given that a new Congress started on January 3. He expects to do that in a few weeks or a couple months, and then the bill will go to the Financial Services Committee for review.

What are the chances it will become law, and how long might that take? Davidson expects it to pass but declined to predict when. And Caitlin Long isn’t banking on it. “We’re not holding our breath,” she says. “It could take years.”

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Owner of NYSE Launching New Bitcoin (BTC) Market is a Double Edged Sword, says Wallstreet …

This concept can be applied to the recent news of the owner of the NYSE (Intercontinental Exchange) launching a new Bitcoin (BTC) market through …

The metaphor of something being a double edged sword means that something has the potential for being favorable and also unfavorable. Picture the blade which is sharp on both ends. It is a threat to both the opponent and an inexperienced user. This concept can be applied to the recent news of the owner of the NYSE (Intercontinental Exchange) launching a new Bitcoin (BTC) market through its new company of Bakkt.

Caitlin Long, who is a 22 year Veteran at Wallstreet and has been active in Bitcoin since 2012, thinks that the Bakkt company can have some significant benefits to the crypto ecosystem as well as harming it. She stated the following on Forbes magazine after the ICE announcement on August 3rd:

This is a major step in the mainstreaming of bitcoin and cryptocurrencies. But it’s also a double-edged sword, because it’s likely the beginning of Wall Street creating financial claims to bitcoin out of thin air (and not backed by actual bitcoins), which could offset some of Bitcoin’s algorithmically-enforced scarcity. Perhaps that’s why bitcoin’s price declined slightly after today’s announcement by ICE.

According to Ms. Long, the positives of Bakkt include the following:

  • attracting institutional investors to cryptocurrencies
  • solve the custody problem that has kept many institutional investors in the sidelines all along. Now there is a qualified custodian which the SEC requires for investment advisers that manage $150 Million or more
  • help regulators become more comfortable with the sector once they see ICE involved
  • it will attract corporate issuers to raise capital using the Bakkt ecosystem. Cryptocurrencies offer issuers the prospect of covenant-free and preference-free capital at low cost

The negatives of the Bakkt launch according to Ms. Long in her commentary to Forbes can be summarized as follows:

Wall Street’s only shot at controlling cryptocurrencies is to financialize them via leverage—by creating more financial claims to the coins than there are underlying coins and thereby influencing the underlying coin prices via derivatives markets.

Financial institutions [will begin] to create claims against cryptocurrencies that are not fully backed by the underlying coins (which could take the form of margin loans, coin lending / rehypothecation, coin-settled futures contracts, or ETFs that don’t 100% track the underlying coins at any given moment). None of these are happening in the market yet, though.

She continued to explain that:

Bitcoin has algorithmically-enforced scarcity, and that’s a big part of what gives it value. If Wall Street begins to create claims to bitcoin out of thin air, unbacked by actual bitcoin, then Wall Street will succeed in offsetting that scarcity to some degree.

The same pattern happened in commodities markets, such as gold and silver. It also happened in credit derivatives, which, before the 2008 financial crisis, had grown to 10x the size of the underlying corporate bond market and had become the proverbial “tail that wagged the dog” by driving the price of the underlying corporate bonds.

The same institutional investors that the crypto-community have been asking for, might end up being the ruin of the industry as was seen during the 2008 Wallstreat Financial Crisis. But luckily for Bitcoin and according to Ms. Long:

There’s reason to be optimistic, thanks to HODLers, because bitcoin is an equity-based asset that can only be financialized if holders bring their coins into the financial system.

Bitcoin already has trust and transparency precisely because no centralized institution controls it.

Thankfully, for existing bitcoin investors, HODLers are likely to make that difficult by storing most bitcoins outside of the financial system and making it the epitome of “hard to borrow.

[Photo source, Livestrong.com]

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With Wyoming giving chase, blockchain moves forward in Delaware, in part

Delaware, home to more companies than people, appears to be overcoming a reluctance to blockchain, the most hyped financial technology in recent memory. Delaware officials in the coming months will introduce two blockchain-based pilot projects into a sliver of their lucrative corporate franchise …
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The Delaware General Assembly will soon consider amending the state’s corporate law so companies can use blockchain technology to better track stock owners. Wochit

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Delaware, home to more companies than people, appears to be overcoming a reluctance to blockchain, the most hyped financial technology in recent memory.

Delaware officials in the coming months will introduce two blockchain-based pilot projects into a sliver of their lucrative corporate franchise business.

Consultants from IBM are working as advisers after the state’s partnership with blockchain startup, Symbiont, collapsed in recent months with that company’s CEO claiming the state was playing “politics.”

“We decided to partner with (IBM) from a business consulting standpoint, not from an IT standpoint,” Deputy Secretary of State Kristopher Knight said.

In essence, a blockchain is an encrypted system that maintains records of anything from a Bitcoin to a corporate debt agreement that shows who has rights to a piece of collateral.

Proponents say the blockchain keeps information safe from hackers and allows records to be updated and amended without error – a key for Delaware’s company registration documents.

Starting with a “small universe” of corporate filings, the state will use the pilot projects to gauge how the blockchain may benefit Delaware-registered entities, and consequently buttress the state’s dominance in the corporate franchise business, Knight said

“The technology is obviously evolving, so I don’t think we can say today what the true potential is,” he said. “What we’re doing here is setting ourselves up to take advantage of that potential when it makes sense.”

The decision comes just as Wyoming – in its yearslong chase to overtake Delaware’s corporate dominance – is set to adopt a blockchain system into its own corporate registries.

“Delaware collects a lot of ancillary revenues from the businesses that are formed there … Wyoming is going after that,” said Caitlin Long, former-president of Symbiont who left the company before its breakup with the state. She recently has consulted with Wyoming state officials in their blockchain efforts.

In February, when the Wyoming legislature passed blockchain accommodating laws, Long enthusiastically posted on social media, “Theme of the day = GAME ON DELAWARE!!”

“You saw that I was sort of egging Delaware on in my social media,” she said.

Billion dollar business

Delaware’s corporate franchise business brought about $1.4 billion into the state’s treasury in 2017, which includes revenues from filing fees and from businesses’ unclaimed property, such as expired gift cards.

The relatively low taxes rates in the small state are, in part, due to its stature in the corporate world.

Delaware’s state department is the administrator of registration records, and its courts are the arbiter of legal disputes for more than 1 million entities, including about two-thirds of all Fortune 500 companies.

Already, the blockchain has sparked a flow of hundreds of billions of dollar into new companies and cryptocurrencies in recent years. Many investors predict that the blockchain will bring innumerable efficiencies into the economy – including doing away with a cumbersome process of manually filing legal records with the state of Delaware.

Yet, in January, Knight questioned whether blockchain technology could harm the existing business of the Delaware companies working in the state’s corporate franchise industry. He expressed similar concerns in September to a gathering of corporate attorneys in New York, according to participants.

The comments disappointed many blockchain enthusiasts at the time and came in stark contrast to an initial zeal for the technology pushed in 2016 by then-Gov. Jack Markell.

Chuck Thompson, founder of Blockchain Consulting LLC, wrote an open letter to the state last fall imploring officials to not “be held captive to old ways of doing business.”

Long argues that while a blockchain system of corporate records could cut into the revenues of Delaware’s registered agents and law firms, it would actually boost the state government’s income.

“It will result in more fees to the state,” she said. “Businesses are willing to pay those fees because integrating them in with the blockchain ultimately saves them money that they’re currently spending in other places.”

If Delaware’s corporate filings were placed onto a blockchain, fewer documents would be marred by costly litigation-causing errors, say proponents who claim that cases abound of law firms, banks, or registered agents making mistakes while filing critical financial documents.

In 2008, for example, an attorney mistakenly terminated a debt agreement between J.P. Morgan Chase and General Motors by filing the wrong document with Delaware’s Department of State. The error led to contentious litigation last year between creditors battling over the auto company’s assets.

In a column published in Forbes, blockchain attorney Joshua Ashley Klayman called the fiasco “a 1.5 billion mistake,” – and one that could be avoided in the future if Delaware were to implement a blockchain system for its corporate secured finance filings.

“Many opportunities for human error may be eliminated, and decreased risk may make lenders willing to make more loans available to entities and individuals or decrease the interest rate charged,” said Klayman, who works for the New York-based law firm, Morrison Foerster.

‘We have those services’

Yet, not everyone in Delaware is sold on the potential of the blockchain.

Some in the state’s powerful registered agent community have told Delaware officials that they already provide services a blockchain system would offer, such as automatically notifying clients when they need to amend a corporate loan document.

“A lot of the registered agents when you talk to them said, ‘we have those services … so if you pay more for it on a blockchain, or you pay more for your registered agent to do it as an additional service, you’re still paying more for it, so what’s the sense of putting it on a blockchain?'” Knight said.

CSC Global, one of the largest registered agents in the state declined to comment for this story.

In an emailed statement, a CSC governmental affairs director Ian McConnel said, “We continue to have constructive conversations with the Delaware Secretary of State regarding the possibility of integrating blockchain-related technology into their government service offering, and we remain fully supportive of any state-sponsored initiative.”

McConnel in February gathered with state officials, corporate attorneys and IBM to brainstorm ways for the state to accommodate the blockchain.

With input from that group, the state’s blockchain demonstration project for corporate loan documents will be limited to a small slice of companies, called special purpose vehicles. The companies are used during structured finance deals to shield assets from the potential bankruptcy of a parent company.

“We’re only rolling it out with special purpose vehicles to see if there’s going to be value there,” Knight said.

The state will also test a blockchain system for private company shareholder lists, Knight said.

Doneene Keemer Damon, a Delaware finance attorney who also attended the state’s blockchain brainstorming meeting, said participants suggested starting with special purpose vehicles in order to keep the scope the trial blockchain system manageable.

Damon said the blockchain shouldn’t disrupt revenues for registered agents and other existing Delaware businesses if they learn to evolve their operations.

Registered agents, with their expertise of Delaware law, should always be critically involved in the filing of corporate legal documents, she said.

Still, some of her collegues in Delaware’s legal and registered agent communities are skeptical and ” for that reason there are some folks who are in a wait and see mode,” she said.

“Absolutely blockchain can be disruptive but we all need to figure out how to use that disruption positively so that it can enhance our businesses,” she said.

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.

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