Lawmakers from around the country will meet in San Diego from July 14-20, 2017, at the Uniform Law Commission annual meeting. One of the topics that will be discussed is the proposed Uniform Regulation of Virtual Currency Businesses Act.
The draft contains recommendations from legal organizations, though the bill will likely undergo various changes from its current form, as attempts are made to persuade lawmakers to adopt it.
According to the draft, the act's purpose is to "create a statutory structure for regulating the ‘virtual currency business activity’ of person offering services or products to residents of enacting states."
The act is aimed at businesses with services that encompass “the exchange of virtual currencies for cash, bank deposits, or other virtual currencies; the transfer from one customer to another person of virtual currencies; or certain custodial or fiduciary services in which the property or assets under the custodian’s control or under management include property or assets recognized as ‘virtual currency.’”
The draft also allows for a bit of flexibility; provisional registrants are defined as those who register with their states to conduct virtual currency business but do not conduct business in such great volume as to be licensed, nor a low enough volume to be considered exempt. With such a measure, regulation may be possible to encompass more individuals engaged in the practice, which will likely result in a greater degree of consumer protection.
According to section 103, some parties will be exempt from obtaining licensing under the proposed act, such as banks and government entities. It also extends exemption to a party that holds a current money transmission license, as defined by its state; is authorized by the department to engage in virtual currency business; and complies with articles 2, 3, 5, and 6 of the act.
For the purposes of the act, virtual currency is defined as a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and is not legal tender, regardless of being denominated in legal tender. It does not include software, protocol governing transfers of the digital representation of value, transactions which merchants grant as part of a reward or affinity program in which value cannot be exchanged for tender, bank credit, or virtual currency. It also does not include digital representations of value used within online games, game platforms, or a family of games sold by the same publisher under the same platform. How this definition will affect games that utilize blockchain-backed currencies, such as “FirstBlood” and “Nexium,” both of which utilize ERC20 tokens in their platforms, remains to be seen.
The draft sets guidelines which suggest a maximum civil penalty of $50,000 for "a person [who] engages in virtual currency business activity with a resident in violation of this [act]." Material violations of the act could also constitute fines up to $10,000.
At face value, the draft appeals to the sensibilities of lawmakers regarding the necessity to protect consumers and give businesses who deal in virtual currencies access to a clear set of guidelines that can be easily understood by a customer base. Many businesses and attorneys are calling for clearly defined regulatory laws that are uniform across state lines, rather than fearing litigation over a contradictory patchwork of state-by-state legislation. The American public may be better served by companies that choose to operate within the regulatory framework.