The path toward decentralization is paved with well-intended lawmakers who want to uniformly regulate the emerging crypto and blockchain industry, but may unintentionally introduce layers of centralization and stifle its growth in the process.
A Nevada Senate Committee on Judiciary hearing on March 12 exemplifies that sentiment. State Senator James Ohrenschall (D) presented SB195, a draft law to enact the Uniform Supplemental Commercial Law and the Uniform Regulation of Virtual-Currency Businesses Act.
The two-pronged proposal represents an attempt of the Uniform Law Commission (ULC) to consistently regulate “virtual-currency business activity” throughout the US. Per ULC, such activity ranges from the storage, exchange, and transfer of cryptocurrencies to holding electronic precious metals. Under SB195, businesses that engage in such activities would have to register with the Department of Business and Industry, which would guarantee that Nevada’s registrants adhered to the requirements.
Also presented in the legislatures of Hawaii, California, and Oklahoma, the proposal intends to protect consumers. According to the ULC, it would “afford protections for custodial customers” of digital currencies while providing registrants with a flexible licensing scheme. The commission aims to make these “protections similar to those of customers of regulated banks, broker-dealers, and traditional money transmitters.”
However, several Nevada stakeholders do not see SB195 that way. Nevada Technology Association executive director Elisa Cafferata testified in opposition to the proposed legislation. Cafferata asserted that SB195 was premature and that it was too early to implement a uniform virtual currency law. She added that the requirements included in the bill would stifle the progress of blockchain firms.
Blockchains, LLC vice president of government affairs & strategic initiatives Matt Digesti also testified in opposition. Digesti finds the lack of Nevada stakeholder involvement when the bill was being drafted problematic; no crypto- or blockchain-related startups were invited to give input in SB195. He was also concerned about its potential reach, saying the bill’s policies might extend to any digital token.
Other opponents at Tuesday’s hearing are Nevada blockchain firms Filament, Figure Technologies, and Hosho. Filament director of government affairs Wendy Stolyarov submitted written testimony in opposition to the draft law.
Some groups testified in neutral to SB195. A Nevada Credit Union representative stated that the institution was concerned with whether it would fall under the bill’s registration exemptions. The credit union is cooperating with Senator Ohrenschall to ensure its language would work in its favor.
The proposed act of the ULC has caused a stir among the broader cryptocurrency community in the US. According to Global Kompass Strategies chief innovation officer Andrea Tinianow, its application of securities laws under Article 8 of the UCC to crypto business activities looked strange.
“This classification of virtual currency within the existing securities intermediary framework also is curious because most forms of virtual currency likely are not securities. Why should they be treated like securities then?” she continued.
Per Tinianow, Article 8 of the UCC “sets forth a regime of indirect ownership—the very same regime that governs traditional securities—only virtual currencies that are owned via securities intermediaries in omnibus accounts are likely eligible to participate in the UCC statutory framework.”
In fact, the Wyoming Blockchain Task Force rejected the request of the ULC to enact the uniform virtual currency act over its SF125. Among the reasons cited by the task force is “indirect ownership regime.” Governor Mark Gordon recently signed SF125 into state law.
On Tuesday, the Nevada Senate Committee on Revenue and Economic Development heard SB164, sponsored by Senator Ben Kieckhefer (R). The bill aims to clarify that cryptocurrencies are intangible personal property and are therefore exempt from the state’s property taxation. Similar to Kieckhefer’s other blockchain-related bills, SB162 and SB163, SB164 is more like enabling legislation to promote the growth of Nevada blockchain firms.