Blockchain Legal Resource

Interest in the crypto economy continues to grow in Congress. On September 25, 2018, Representative Warren Davidson (R-OH) hosted a roundtable, “Legislating Certainty for Cryptocurrencies,” with more than 50 financial institutions and crypto start-ups invited to attend. Additionally, the House Financial Services Committee has scheduled a hearing on financial innovation on September 28, 2018, entitled Examining Opportunities for Financial Markets in the Digital Era.

Last week, Representative Tom Emmer (R-MN), co-chair of the Congressional Blockchain Caucus, announced his intention to introduce three separate pieces of legislation regarding distributed ledger technology. While the future of these measures in Congress is uncertain, they represent a welcome development in lawmakers’ understanding of digital assets and related issues.

First, a Resolution Supporting Digital Currencies and Blockchain Technology expresses support for the industry and its development in the United States. The resolution states, among other things, that (1) the United States should prioritize accelerating the development of blockchain technology to support transparency, security and authentication; (2) the United States government should create an environment that enables the American private sector to lead on blockchain innovation; (3) and federal agencies should work toward a coordinated framework to support digital currencies and blockchain technology.

The Blockchain Regulatory Certainty Act provides that blockchain developers and blockchain service providers who, in the regular course of business do not have control over users’ digital currency, do not need to register with the federal government as a money transmitter, money services business or financial institution. Perhaps attempting to address the issue of state regulation of blockchain businesses, the bill would also preempt “any other State or Federal legal designation requiring licensing or registration as a condition to acting as a blockchain developer or provider of a blockchain service, unless the developer or provider has, in the regular course of business, control over digital currency to which a user is entitled.” But a subsequent provision provides, somewhat confusingly, that “[n]othing in this section shall be construed to prevent any State from enforcing any State law that is consistent with this section. No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.”

Finally, the Safe Harbor for Taxpayers with Forked Assets Act attempts to provide a safe harbor for taxpayers with forked digital assets until the Treasury Department or Congress provides further guidance on the federal income tax treatment of receiving forked convertible virtual currency, including rules for calculating and allocating the basis of forked convertible virtual currency, rules for calculating the fair market value of forked convertible virtual currency, and rules for determining the holding period of forked convertible virtual currency. The bill defines “forked convertible virtual currency” as any convertible virtual currency to which the taxpayer becomes entitled by reason of a hard fork. It in turn defines “convertible virtual currency” as any digital representation of value that functions as a medium or exchange, unit of account, or store of value; does not have legal tender status; and has an ascertainable equivalent value in legal tender or is used as a substitute for legal tender. Finally, the bill defines “hard fork” by reference to any material change in the shared digital ledger that is used to verify consensus transactions in such currency if the change results in the maintenance of independent shared digital ledgers in respect of such currency.