At least 11 states introduced laws in January to regulate cryptocurrencies and blockchain.
When Nebraska State legislator Carol Blood started thinking about cryptocurrencies and blockchain, she focused on sex trafficking and money laundering. During two significant events held in Omaha — the NCAA College World Series and the Berkshire Hathaway Annual Meeting — law enforcement reported that sex trafficking had increased in the state.
“These are high-profile events that draw a lot of people,” she said.
When she became a legislator, she wrote a law that would punish wrongdoing when using virtual currencies.
Even before the bitcoin value run-up in the fall, states were slowly recognizing that virtual currencies and the cybersecurity potential of blockchain technologies could enhance economic development for states looking to grow. They also recognized that the swift growth of cryptocurrencies might also drive criminality within their states. In January, 11 states introduced bills that would regulate or encourage the growth of financial tech (fintech).
One of those legislators was Sen. Blood, who found herself concerned that crime could grow in her state, but she was also excited about the possibilities for fintech to attract companies and jobs.
You might think Nebraska is a rural state where sex trafficking would be anathema, but you would be wrong. Every month, at least 900 individuals are trafficked, often multiple times — this according to the Nebraska Human Trafficking Initiative.
As a member of the Bellevue City Council and a board member of the Bellevue Public Safety Foundation, Blood says she heard horror stories about the sex trade. “Several people were caught in a sting utilizing bitcoin for sex trafficking," she said. "With this law, we could hold them accountable."
The proposed law would give peace officers enough ammunition to charge and fine those who disguise the nature, location, source or ownership of cryptocurrencies. The same holds true for money laundering. The bill also provides for fines for those who try to avoid transaction reporting as required under state law.
But despite her desire to reinforce laws on the books against illegal gains by crooks, Blood would like to encourage the fintech industry to take advantage of Nebraska’s laws. “I wanted to take care of the dark side of bitcoin,” she said. “We also wanted to create a welcoming atmosphere for” those engaged in legitimate business with cryptocurrencies and blockchain technologies.
She has authored two other laws that would prohibit taxation of cryptocurrencies and define distributed ledgers used for smart contracts. She believes that blockchain technologies will revolutionize financial transactions and government record storage. Over-regulation of these businesses is something she wants to avoid. “Nebraska wants these businesses to know that we are open for business.”
In 10 other states, legislators have introduced bills that would define the use of blockchain and its applications in the fintech space. These include:
Arizona: Republicans Sen. Warren Petersen and Rep. Jeff Weninger introduced SB 1091 to allow Arizonans to pay their taxes with cryptocurrency and directs the Arizona Department of Revenue to convert cryptocurrency payments to U.S. dollars at the prevailing rate within 24 hours. Another bill introduced by the duo would push the Arizona Department of Revenue to tax capital gains made by cryptocurrency traders.
In previous actions, Arizona Gov. Doug Ducey signed HB 2417 into law in 2017. This bill clarifies the use of smart contracts using blockchain.
Colorado: Introduced by a bipartisan group of lawmakers, SB 18-086 proposes utilizing a distributed ledger to keep state data secure. The bill empowers the chief information security officer in the Colorado State Office of Information Technology to look at the benefits and costs of adopting and applying blockchain in all state agencies to secure state records. According to the bill, attempted data breaches to Colorado government records in 2017 reached between 6 million and 8 million per day.
Florida: Buried in a bill on the implementation of digital drivers' licenses, Florida Republican Rep. James Grant has included clarifying language about blockchain and its uses for smart contracts and electronic signatures.
Hawaii: The Hawaiian Senate introduced two bills governing cryptocurrencies in January that would require virtual currency transmission to be licensed and to include a definition of virtual currency in the state's Money Transmitters Act.
Illinois: On Jan. 31, the Illinois Blockchain Task Force released its first report on blockchain technology and its uses for safely storing government documents. The committee concluded that blockchain would enable the state to advance its digital transformation and enhance economic development. The task force was formed in November 2016.
New York: New York Assemblyman Clyde Vanel introduced four bills to secure voting records and government record storage; create a digital currency taskforce to analyze the impact of cryptocurrencies on New York financial markets and amend the state’s technology law to include a definition of blockchain technology; smart contracts and provide a legal understanding for digital signatures stored on a blockchain.
Tennessee: Rep. Jason Powell introduced HB 1507 a measure that would permit the use of distributed ledger smart contracts.
Vermont: Sen. Alison Clarkson introduced a bill that would allow distributed ledger startups to create limited liability companies; allow companies to create personal identity trust companies; allow for the taxation of cryptocurrencies; and explore the creation of an e-residency program.
Virginia: Introduced by Sen. Glen Sturtevant, SB 864 directs the State Corporation Commission to study cryptocurrencies and how they are currently used in Virginia to determine whether the Virginia General Assembly should establish laws to protected citizens from fraud when making transactions using virtual currencies. The commission will issue its report by Dec. 1, 2018.
Wyoming: Legislators led the Wyoming Blockchain Coalition, a grass-roots group seeking to turn the state into a haven for cryptocurrencies and blockchain technology, and have introduced several bills that should see a vote this month. All three bills would create a platform for fintech by allowing LLCs (limited liability companies) to register ownership on blockchain and exempt cryptocurrency token purveyors from security regulation.
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