It is no secret that governments around the world are reluctant to fully recognize crypto as legal tender. Nevertheless, its growing popularity and the increasing adoption of blockchain technology is a movement that cannot be ignored. This fact has created a quandary for central governments, as they struggle to find a place for decentralized assets within their current financial systems. In the United States, the government regards cryptocurrency as property but is unwilling to take further actions regarding legitimizing it as an asset. However, federal inaction has led to U.S. states taking independent steps to join the crypto revolution, which is likely to have far-reaching ramifications on the legal and regulatory status of blockchain assets.
Earlier this month the state of Wyoming passed five laws related to crypto, the most significant is Bill 70, which defines crypto as an entirely new asset class termed “utility tokens.” As such, persons who develop or sell crypto will be exempt from specific securities laws under certain conditions. The law is designed primarily to better enable crypto to be used for money transmission, such as foreign remissions often used by immigrant laborers. Another bill exempts crypto from property tax.
Tennessee has also taken steps to legitimize crypto, although in an entirely different context. Bill 1662, which has been signed into law by Governor Bill Haslam, gives legal recognition to blockchain-based smart contracts. This law is designed to put Tennessee at the forefront of institutional blockchain adoption and is expected to be emulated by other states.
Other areas where states are taking the lead in crypto recognition involves tax collection. Arizona and Georgia are on the verge of enacting laws that enable crypto to be used for tax payments and other fees. In both instances, the state treasurer would be required to convert it to U.S Dollars within 24 hours of receipt. Illinois is considering similar legislation, as are a number of U.S. cities.
Most crypto advocates applaud moves by governments that will help move cryptocurrency into the mainstream, but these laws are far from perfect. For example, the Wyoming law specifically refers to “blockchain” when defining its cryptocurrency regulations. However, some cryptos, such as Iota, do not use a blockchain. In fact, a specific legal definition of a blockchain has yet to be formalized. Likewise, the Tennessee law fails to address potential jurisdictional conflicts with smart contracts. For example, would a smart contract be valid if every node of the platform existed outside of the state? Also, would a contract remain valid if the platform became inactive or was in some way corrupted?
There are also legal issues that may arise with states becoming involved with cryptocurrency. Notably, U.S. states are constitutionally prohibited from minting any currency other than gold or silver. Thus, if crypto ever gains the status of legal tender, states would be prohibited from any mining, or possibly even holding cryptos that give benefits to the owners. Holders of Neo, for example, receive Gas, which could be interpreted as minting money.
Despite the initial shortcomings, the fact that states are taking the lead in recognizing the importance of crypto is a clear indication that it has become a permanent fixture in the global financial landscape. It is no surprise that states see a benefit in making it easier for their citizens to use. These moves also make it clear that the more action is needed by the U.S. federal government to better define and regulate blockchain assets.