Blockchain state policy: The crypto industry’s quest for legitimization

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  Quantumrun Foresight
• December 28, 2022

Insight summary

From Alabama to New York, US states are starting to acknowledge the increasing influence of the blockchain and cryptocurrency industry. These blockchain technologies have enabled some of the most disruptive trends in financial transactions, from non-fungible tokens (NFTs) to virtual real estate. Proponents of cryptocurrency say it’s about time that their interests are protected and nurtured.

Blockchain state policy context

US federal agencies are actively deliberating the best approach to govern the cryptocurrency industry. In 2022, there were at least 18 bills concerning digital assets. In contrast, some states have taken a proactive stance by introducing their own policies and charters tailored to the crypto sector.

For instance, Wyoming and Nebraska have established special-purpose bank charters and regulatory frameworks specifically designed for startups and existing banks keen on offering crypto services. However, New York, while not offering a crypto bank charter, has implemented BitLicense, a regulatory framework allowing virtual currency businesses to operate legally within the state. These developments indicate a growing acceptance of crypto banks, treating them on par with other businesses in the cryptocurrency domain.

The push for these regulatory advancements is significantly influenced by the lobbying efforts of cryptocurrency executives. This represents a strategic alignment between the crypto industry and state lawmakers to forge a legal environment more conducive to their interests, particularly in the absence of federal regulations. Lobbying aims to support the continued expansion of cryptocurrency companies, potentially transforming sectors like banking, e-commerce, and the arts.

States are increasingly responsive to the needs of crypto organizations, hoping to attract new businesses and create job opportunities. However, this eagerness to accommodate the crypto industry raises concerns among some consumer groups. They argue that prioritizing the industry's demands might increase risks for investors and companies, making them more vulnerable to fraud and corruption as the sector continues to grow.

Consumer protection and economic development are critical considerations in this evolving landscape. The enthusiastic adoption of crypto policies by some states, like Wyoming and Nebraska, contrasts with the more cautious approaches of others. This divergence in state-level policies highlights the complex interplay between innovation, regulation, and consumer protection in the emerging crypto sector. 

Disruptive impact

Wyoming is considered the crypto hub and one of the first to pass laws encouraging the growth of blockchain and virtual currency businesses. Since 2018, the state has passed several bills related to cryptocurrency. The first is the Wyoming House Bill 19 (HB19), which states that virtual currency is any digital representation of value that can be used as a form of exchange. The bill exempts virtual currency from the Wyoming Money Transmitter Act, allowing the buying, selling, issuing, and taking custody of virtual currency without government intervention.

To incentivize the purchase of digital currencies, Wyoming Senate File 111 (SF 111) amended the property tax rules of the Wyoming Taxation and Revenue Act. This bill exempts money and cash on hand, including currency, gold, silver, other coins, bank drafts, certified checks, cashier’s checks, and virtual currency from property taxation. Finally, Wyoming’s House Bill 70 (HB 70) created a new section on blockchain token exemption to securities law within the state. 

Meanwhile, in 2022, the Washington State Blockchain Work Group bill was passed by the state legislature and signed. This new work group is responsible for investigating potential uses and policies for blockchain technology across various industries and public sectors. Representatives of 21 industries will form this group, including government officials, privacy and cybersecurity specialists, various trade organizations, environmental protection, and consumer advocacy.

Washington’s decision is the latest in a series of moves by states and other localities to incorporate blockchain technology and cryptocurrencies into their operations. Colorado became the first state to allow crypto assets in payment of taxes, and Texas set up a working group to monitor the industry’s growth. New York City’s Mayor Eric Adams announced his intention to receive his first three paychecks in Bitcoin after his election in 2021.

Implications of blockchain state policy

Wider implications of blockchain state policy may include: 

• Increasing state/provincial charters and laws pressuring federal agencies to create a national cryptocurrency implementation and management standard.
• Increased funding in the sector as more policies enable its growth, including employment across industries.
• Critics insisting that giving too many favors to the industry can result in more instances like the 2022 crypto meltdown, in which millions of dollars were wiped out due to fraud.
• Bitcoin billionaires increasing their funding for lobbyists to further advance the sector’s interest.
• More people willing to convert their money, including salaries and payments, into blockchain currencies and assets, supporting the growth of cryptocurrency financial services.
• Enhanced scrutiny and regulation by federal agencies in response to state-level policies, potentially leading to stricter guidelines for cryptocurrency operations and investor protection.
• Development of specialized educational programs and courses focusing on blockchain technology, resulting in a more knowledgeable workforce and informed consumer base.
• Introduction of new state-level taxes or incentives on cryptocurrency transactions, impacting the cost-effectiveness and attractiveness of digital asset trading and investment.

Questions to consider

• How is your country supporting the cryptocurrency industry?
• How else can legislation encourage the adoption of cryptocurrencies?