Wyoming remains one of the few states in the US to recognize the legitimacy of cryptocurrency business and transactions. Recently, the state passed a series of thirteen (13) blockchain-related laws that create a regulatory framework for the new technology. The aim was to create jobs and introduce new capital into the state which had suffered when the country started moving away from coal as a resource.
Wyoming, historically known for cattle, ranches, and coal, has now become one of the country’s leading centers for blockchain innovation. As recent as last year, it was impossible for locals to access accounts on sites like Coinbase, according to The Hustle. Wyoming’s politics tend to rely more on the division between conservatives and libertarians than between democrats and republicans. Blockchain technology is among the most libertarian-minded innovations in human society, so it’s no wonder that the state has moved to formalize legalities for it.
Understanding Wyoming Blockchain Laws
Forbes mentions that Wyoming has taken the lead when it comes to blockchain laws, much like Delaware has led from the front regarding corporate law [https://www.forbes.com/sites/caitlinlong/2019/03/04/what-do-wyomings-new-blockchain-laws-mean/#63db232d5fde]. However, the legal connotations are still widely misunderstood. The legalese that the rules are couched in seems to make it difficult for non-specialists to grasp what the laws actually state. Luckily, we can break the laws regarding Wyoming’s cryptocurrency framework as follows:
1. Legal Definition of Cryptocurrency
According to Business Law Today, the legislature of the state passed the Senate File SF0125 to amend the Wyoming Uniform Commercial Code (WY-UCC) by adding a new definition for blockchain assets, aptly titles ‘digital assets.’ These digital assets are further broken down into:
- Digital Securities (investment contracts, for example)
- Virtual Currencies (blockchain-based crypto coins)
- Digital Consumer Assets (Token-Based assets produced by private companies)
2. Legal Classification of Crypto
There are four main innovations that Wyoming’s crypto laws introduce to the world through legislation. Among these innovations are:
- The consideration of digital assets as property under the WY-UCC. Direct ownership of digital assets makes it easier for consumers to have control over their valued assets and makes for more comfortable transfer between individuals and companies.
- Securities can now be distributed as tokens. The use of tokens for security is revolutionary as it doesn’t only refer to blockchain or digital crypto businesses. Even brick-and-mortar businesses that want to utilize blockchain can do so for an ICO, distributing securities via tokens generated by their proprietary blockchain.
- The development of blockchain-specific depository institutions. The state’s legislation also notes that typically, blockchain-based businesses aren’t able to access traditional banking services. To deal with this issue, they have created a new type of financial institution to deal specifically with the needs of those businesses.
- Flexible custodial regimes. These are a direct result of the blockchain-specific depository institutions. The custodial systems offer a neutral ground for investors to meet and deal with any potential disputes within the framework of the law.
Legal Financialization of Crypto
Wyoming is probably the only state that allows for legal financialization which has helped many businesses such as laser hair removal clinics. Wyoming already has an existing felony law that covers rehypothecation – the pledging of cryptocurrency as security when one doesn’t own it outright. As a result, crypto institutions can’t engage in fractional banking but need to have access to 100% of their funds at all points in time. It’s a clear victory for blockchain enthusiasts who see fractional reserve banking as underhanded and criminal.
The removal of fractional reserve banking is likely to lead to broader adoption of cryptocurrency overall. Since everyone is aware of who owns what and there isn’t any questionable lending going on behind the scenes, people are likely to have more faith in cryptocurrency as an accurate representation of value. Even though the law prescribes an end to rehypothecation, it also has allowances for common law consent as well as constitutional freedom for contract principles. It’s unclear whether these areas of legislation will overlap and lead to an untenable situation. It’s likely the courts will clear up any ambiguity if and when they arise.
Experimentation with Blockchain
Arguably the most impressive part of Wyoming’s legislation is the acceptance and encouragement for experimenting with blockchain. The state’s legislators crafted the laws to allow leeway in experimentation and innovation of blockchain technology. As long as Wyoming can keep the system free of the legislatory oversight that could bog down the system and reign in the aspirations of innovators, this may be the most disruptive part of Wyoming’s new crypto laws.
The Dawn of a New Economic Boom?
Wyoming has seen a significant downturn in its economy ever since the environmental movement starts cutting into the dominance of coal-fired power stations. While the state still sees a considerable amount of revenue, these new laws are likely to encourage firms that are contemplating blockchain experimentation to settle within the state. If that’s the case, we could see a definite uptick in the amount of money the state can generate. The new industry reflects the values of a lot of the state’s residents. There’s little question that the inclusion of blockchain is a natural fit for Wyoming.
