How should cryptos be treated under United States commercial law? Regarding Blockchain Law, a split has sprouted. The rift has revealed a foundational disagreement. The debate follows: should commercial law provide the best individual owned digital asset protections or only those indirectly owned through intermediaries? The resolution of this disagreement will likely have a major implication on Blockchain development and the expansion of the financial sector.
Wyoming’s Direct Approach Vs The Supplemental Act
Wyoming’s direct approach was enacted into law last week. Now Missouri is proposing to enact this direct ownership approach as well. When compared, the indirect approach was drafted into the proposed law just last year. The Uniform Law Commission called it the “Supplemental Act.” The Uniform Law Commission’s mission is to keep state laws as uniform as possible. As of March 2019, four U.S states have introduced the indirect approach (Supplemental Act). Although no state has enacted the approach yet. The states include California, Nevada, Oklahoma and Hawaii.
The split between both approaches has incited strong reactions from both sides. The Wyoming Legislature’s Blockchain Task Force, last week, released a letter in response to a second request made one month ago to Wyoming legislators by the Uniform Law Commission. They requested that the legislatures withdraw their proposal in favor of what the Uniform Law Commission has proposed. Wyoming declined this request. The state passed its bill to law overwhelmingly. It was signed into law last week by Governor Mark Gordon of Wyoming.
Understanding Wyoming’s Approach
Wyoming’s bill SF 125, which was signed into law last week by Governor Gordon, proposes a mandatory indirect ownership model. This makes it optional instead and allows digital asset owners to hold on to their direct property rights under UCC’s regulatory framework without having to sacrifice lender protections. The legislation applies super-negotiability to virtual currency and securities, as well as intermediary owned virtual currencies.
Bill SF 125 proposes a statutory regime for virtual assets that harmonizes its laws in the UCC legislative framework. It does this by mapping digital assets to the already existing UCC categories. This keeps Wyoming’s UCC uniform and intact. It also offers a host of advantages to the parties interacting with virtual assets in commercial transactions.
Bringing Both Approaches Together
Blockchain law is now in cross-roads. Traditionally, the commercial laws of the 50 states in the land would treat cryptos uniformly to encourage commerce in the United States. However, there’s a split. Only the state of Wyoming has enacted any legislation in this area to this day. The question is, will other states join Missouri and adopt Wyoming’s approach?
The Uniform Law Commission’s usage of the indirect ownership model of Article 8 renders their Model Acts unworkable. The reason for this is that it perpetuates an already flawed system for cryptos which makes things much worse.
Deciding between both statutory regimes will have real consequences. Everyone must know what’s at stake here. This is because it’s up to you to understand these issues so that you will be able to guide your state’s legislators toward making the right choice. Putting both approaches together, we can only reach one conclusion. There’s a better way. This approach is the direct ownership model cited in Wyoming’s SF 125.