Blockchain & E-Transactions Law

Last October, the Uniform Law Commission released the Uniform Regulation of Virtual-Currency Business Act (VCBA), which sets forth extensive requirements applicable to persons or entities who engage in virtual currency business activity with residents of a state. An overview of the VCBA and its key provisions can be found here.

Since its release, three states-Connecticut, Hawaii, and Nebraska-have introduced bills adopting the VCBA. To date, no state has enacted the proposed legislation.

Connecticut

Representative Patricia Dillon introduced HB No. 5496, which was discussed before the Banking Committee in March 2018. Coin Center, a non-profit research and advocacy center focused on policy issues facing cryptocurrency, and the Chamber of Digital Commerce wrote letters in support of HB No. 5496's enactment. The Connecticut Department of Banking opposed the bill, citing lack of resources and knowledge to implement the regulatory regime contemplated by the Act. The Department of Banking also urged the Banking Committee to delay action on the bill until the Federal Government determined whether virtual currency is a commodity or a security. If virtual currency is deemed a commodity, the Department reasoned, then it would not be within the Department's jurisdiction and the Department could forego making what would otherwise be an unnecessary investment. If virtual currency is considered to be a security, then it would be subject to already-existing regulations, according to the Department.

The Banking Committee failed to report HB No. 5496 favorably to the General Assembly by the deadline on March 22, 2018.

Hawaii

In January 2018, the Hawaii Senate introduced SB2129, which adopts the VCBA. The bill was scheduled for public hearing on February 2, 2018, and several entities expressed support for the bill, while others raised concerns. For example, the Department of Commerce and Consumer Affairs noted that Tier 1 virtual currency businesses are unsupervised and expected to self-report when their business volume reaches the Tier 2 threshold for registration. The Department expressed concern that Tier 1 businesses would not self-report, as Tier 1 status effectively protects them from enforcement activity, and the Department would not have the means to investigate underreporting. Similar to Connecticut's Department of Banking, Hawaii's Department also expressed concern that it lacked the staffing and funding to oversee this new regulatory regime.

The bill was scheduled for hearing on February 2, 2018, and the Committee on Commerce, Consumer Protection, and Health deferred the measure.

Nebraska

On January 11, 2018, Senator Paul Schumacher introduced LB987 to adopt the VCBA. The Banking, Commerce, and Insurance Committee held a public hearing on February 6, 2018, and several voiced support as well as opposition. Senator Schumacher stressed that adopting the VCBA could put Nebraska on the leading edge of regulation, which would encourage participation in the state. Others voiced concern that the VCBA would become dated quickly, as the industry is rapidly changing, and that it would disadvantage entrepreneurs and startups, as the bill was written with larger cryptocurrency companies in mind. The hearing transcript can be found here.

As of April 18, 2018, LB987 was postponed indefinitely.

Conclusion

While there are several proponents of the VCBA's adoption, states that have introduced the bill have yet to enact it. Opposition to the VCBA stems primarily from the concern that state regulatory departments lack the resources to enforce it. Additionally, there appears to be uncertainty as to whether enacting the VCBA would encourage participation in a state's virtual currency market. On the one hand, the VCBA could provide entities with a clear set of rules and regulations, which could lead to significant economic growth for states that adopt it. On the other hand, increased regulation could stymie participation, as the landscape is rapidly changing and such laws could become quickly dated.