State Lawmakers Increasing Their Focus On VC & Blockchain Technology
In early 2017, multiple state legislatures began to recognize the potential impact of virtual currency and blockchain technology. These actions ranged from requests for further information regarding the technology to an active debate regarding a specific use case.
Legislation: House Resolution 120
Sponsor: Representative Michael Zalewski (D)
Introduced on February 8 2017, H.Res. 120 creates a Legislative Blockchain and Distributed Ledger Task Force to “study how and if [s]tate, county, and municipal governments can benefit from a transition to a blockchain based system for recordkeeping and service delivery.” The resolution calls for a report of findings and recommendations to be presented to the General Assembly before January 1, 2018 that includes an analysis of the following:
- Opportunities and risks associated with using blockchain and distributed ledger technology;
- Different types of blockchains, both public and private, and different consensus algorithms;
- Projects and use cases currently under development in other states and nations, and how those cases could be applied in Illinois;
- How current State laws can be modified to support secure, paperless recordkeeping;
- The State Public Key Infrastructure and digital signatures; and
- Official reports and recommendations from the Illinois Blockchain Initiative; and be it further.”
Recognizing that “nations and municipalities across the world are studying and implementing government reforms that bolster trust and reduce bureaucracy through verifiable open source blockchain technology in a variety of use cases from medical records, land records, banking, and property auctions,” Illinois recently created the Illinois Blockchain Initiative, which promotes a “collaborative regulatory exchange with technology firms, software developers, and service providers, so that if regulation is needed, it will be the product of a collaborative and proactive approach, with the goal of encouraging economic development through innovation.” Illinois has been a leader in incorporating blockchain technology into its public sector, and H. Res. 120 is the next step in exploring and hopefully implementing innovative blockchain-based use cases and meaningful legislation.
Legislation: House Bill 436
Sponsors: Representatives Barbara Biggie (R) and Keith Ammon (R)
Introduced on January 5, 2017, HB 436 amends New Hampshire’s Licensing of Money Transmitters statute to specifically address virtual currency issues. The bill defines virtual currency as “a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account, or a store of value but does not have legal tender status as recognized by the United States government.”
The bill also amends the definition of money transmission to cover companies that are in the business of “receiving currency or monetary value for transmission to another location, including maintaining control of virtual currency on behalf of others.” However, it exempts “persons conducting business using transactions conducted in whole or in part in virtual currency” from having to obtain a state money transmitter license. This legislation could particularly benefit virtual currency start-ups and small businesses as they are currently required to fulfill the requirements to obtain a full money transmitter license.
Legislation: House Bill 1481
Sponsors: Representatives Chris Lee (D) and Mark Nakashima (D)
Introduced on January 25, HB 1481 “establish[es] a working group consisting of representation from the public and private sectors to examine, educate, and promote best practices for enabling blockchain technology to benefit local industries, residents, and the State of Hawaii.” Section two of the bill identifies the primary functions of the working group: (1) to study the uses of blockchain technology, and (2) to develop methods of providing education on blockchain technology. If the bill is approved, the working group will compile a report for the legislature.
The bill arose out of a desire to insure that Hawaii’s tourism industry has the ability to serve tourists who prefer to use virtual currency: "A large portion of Hawaii's tourism market comes from Asia where the use of bitcoin as a virtual currency is expanding. Hawaii has the unique opportunity to explore the use of blockchain technology to make it easier for visitors to consume local goods and services and to drive the tourism economy.”
Legislation: Senate Bill 59
Sponsor: Senator Ann Cummings (D), Representative William Frank (D)
Introduced on February 1, 2017, SB 59 focuses on the need “to amend and establish laws pertaining to consumer litigation funding companies; licensed lenders; money servicers; debt adjusters; and loan servicers.” To accomplish that, the bill adds a definition of virtual currency to the state’s money services statute (8 V.S.A. § 2500 et seq.): “stored value that (A) can be a medium of exchange, a unit of account, or a store of value; (B) has an equivalent value in money or acts as a substitute for money; (C) may be centralized or decentralized; and (D) can be exchanged for money or other convertible virtual currency.”
The bill also seeks to amend 8 V.S.A. §2540 of the Vermont money services statute, which addresses permissible investments. Currently, the statute requires a licensee to “maintain at all times permissible investments that have a market value computed in accordance with generally accepted accounting principles of not less than the aggregate amount of all of its outstanding payment instruments and stored-value obligations issued or sold and money transmitted by the licensee or its authorized delegates.” SB 59 amends the statute to include virtual currency owned by the licensee as a permissible investment to the “extent of outstanding transmission obligations received by the licensee in identical denomination of virtual currency.”
Legislation: Senate Bill 5264
Sponsors: Senators Steve Conway (D) and Ann Rivers (R)
Introduced on January 18, 2017, SB 5264 seeks to amend Washington’s Uniform Controlled Substances Act to restrict the use of virtual currency for the purposes of marijuana sale and distribution. The bill “prohibits a marijuana producer, processor, or retail outlet from paying with or accepting virtual currency for the purchase or sale of marijuana or marijuana products.”
After being introduced in the Washington Senate, it was referred to the Senate Commerce, Labor, and Sports Committee, which held a public hearing on January 25, 2017. Proponents of the bill worry that permitting the use of an unregulated virtual currency will hinder the state’s goal of financial transparency within the marijuana industry. However, marijuana business owners and others oppose the measure because they believe that virtual currency can offset the increasing number of marijuana shop robberies due to the industry’s current reliance on cash.
Legislation: House Bill 2216
Sponsor: Representative Paul Boyer (R)
Introduced on January 17, 2017, HB 2216 would make it “unlawful to require a person to use or be subject to electronic firearm tracking technology or to disclose any identifiable information about the person or the person's firearm for the purpose of using electronic firearm tracking technology.” Electronic firearm tracking technology is defined as “a platform, system or device or a group of systems or devices that uses a shared ledger, distributed ledger or block chain technology or any other similar form of technology or electronic database for the purpose of storing information in a decentralized or centralized way, that is not owned or controlled by any single person or entity and that is used to locate or control the use of a firearm.” The bill allows for two exceptions to this ban: (1) “a law enforcement officer who obtains a [valid] search warrant and who uses electronic firearm tracking technology to locate a person or a firearm that is the subject of a criminal investigation.” and (2) “if the owner [of a firearm] consents in writing to the use of electronic firearm tracking technology on that owner's firearm.”
In response to the multiple shootings involving law enforcement personnel in 2016, a university professor, project manager, and software developer designed the Glockchain, a new firearm that uses blockchain technology to track when it is fired. The firearm creates a record each time it is drawn or fired on a transparent and unalterable blockchain, so that firearm used by police personnel will be used to make departments more accountable. Proponents of this technology point to the accountability it will create for police officers and other shooters. However, supporters of HB 2216 have raised privacy concerns. The House passed the bill on February 6, 2017, and the Senate is now considering it.
Legislation: House Bill 2417
Sponsor: Representative Jeff Weninger (R)
Introduced on February 7, 2017, HB 2417 provides that smart contracts written on a blockchain are essentially equivalent to all other forms of contracts. The bill defines blockchain technology and smart contracts and then states that transactions based on these self-executing contracts could not be “denied legal effect, validity, or enforceability” because of the smart contract term. Further, any signature recorded on the blockchain would be equated to a legal signature under Arizona law and would be "considered to be in an electronic format and to be an electronic record." Lastly, the bill states individuals who own or have the right to use information they place on the blockchain retain those rights.
While most of the foregoing bills are at an early stage, and do not comprehensively regulate virtual currency or blockchain technology, it is encouraging that legislators on both sides of the aisle are increasing their focus on issues relating to this technology.