On February 19th in the USA, the State of Wyoming House of Representatives unanimously passed (60-0) two blockchain bills as a way to incentivize the industry to invest in the mountain state’s economy. These bills now head to the Senate for approval. The first bill, HB 70, focuses on utility tokens, offered in the form of Initial Coin Offerings (ICOs) being exempt from state security regulations and the second, HB 19, excludes virtual currencies from the state’s money transmitter act.
HB 70 focuses on utility tokens which typically provide access to a service. Balaji S. Srinivasan, CEO of Earn.com, classifies them in the following way:
Tokens are not equity, but are more similar to paid API keys [when accessing cloud services]. The purchase of a token like ether is similar, in that you can redeem ETH for compute time on the decentralized Ethereum compute network.
The state of Wyoming has specific requirements regarding what determines whether or not a virtual currency is deemed a utility token. More specifically, the state requires:
A developer or seller of an open blockchain token shall not be deemed the issuer of a security [...] if all of the following are met:
- The token has not been marketed by the developer or seller as an investment.
- The token is exchangeable for goods or services; and
- The developer or seller of the token has not entered into a repurchase agreement of any kind or entered into an agreement to locate a buyer for the token.
A person who facilitates the exchange of an open blockchain token shall not be deemed a broker-dealer or a person who otherwise deals in securities under this chapter [...] if all of the following are met:
- The person has a reasonable and good faith belief that a token subject to exchange:
- [Conforms to the above paragraph bullet points]
- Is not the subject of a repurchase agreement of any kind or the subject of an agreement to locate a buyer for the token.
- Is not the subject of a repurchase agreement of any kind or the subject of an agreement to locate a buyer for the token.
- The person takes reasonably prompt action to terminate the exchange of a token that does not conform to the requirements of this subsection
The other bill passed, HB 19, focuses on providing exemptions to the Money Transmitter Act for virtual currencies. In this specific act, virtual currencies are defined as:
Any type of digital representation of value that:
- Is used as a medium of exchange, unit of account or store of value.
- Is not recognized as legal tender by the United States government.
However, the state has also issued exemptions that prevent HB 19 from applying to traditional financial institutions, including banks, bank holding companies, credit unions, building and loan associations.
Under HB 19, it is anticipated this bill will create opportunities for virtual currency exchanges and mining operations to legally operate in the state of Wyoming. Wyoming State Representative Tyler Lindholm expects more industry investments being made by passing these bills and embracing blockchain technology:
Our LLC laws are some of the finest in the nation and we have no corporate income tax. We have specifically worked with the blockchain industry on the types of legislation that they need to work within a regulatory framework.
In addition to a friendly regulatory environment, blockchain companies need access to abundant power sources and internet connectivity. Lindholm confirms that Wyoming is capable of meeting both of these demands:
In Wyoming we only use about 10% of the power we generate, so we have a surplus of cheap, diversified power. In terms of broadband, the Wyoming legislature is taking a stance that we are going to continue to expand on broadband.
Introducing bills HB 70 and HB 19 is just the beginning for Wyoming. There are three other bills moving through the state legislature, including:
- HB 101 which would amend the state’s business corporations act to permit companies to use blockchains for the purpose of storing records and facilitating business transactions.
- HB 126 provides protections for limited liability companies (LLC) and allows for creating company structures that can be compartmentalized.
- SF 111 provides exemptions for virtual currencies from property taxation.
