The US handles almost a quarter (22.6%) of all bitcoin volumes, according to coin.dance statistics, yet regulators across the country’s 50 states have different rulings on the legality and usage of virtual currencies.
Under the Supremacy Clause (Article VI, Clause 2) of the Unites States Constitution, in the case of conflict between federal law and state law, federal law must be applied.Yet no federal law on cryptocurrency has been passed in the US, leaving applications of law up to individual states. Case law has also played a part in shaping US rulings on virtual currency, where case rulings including the SEC vs Trendon Shavers, and the US vs Ross Ulbricht have helped to define where cryptocurrency fits within US law.
Regulatory bodies at federal level have offered guidance to state legislators in lieu of blanket federal law. The Securities and Exchange Commission (SEC) has previously designated digital currencies as securities, and requires registration of any virtual currency traded in the US if it meets the regulator’s definition of an exchange. The Commodity Futures Trading Commission (CFTC) says that bitcoin is a commodity, and offers regulatory guidance based on that assumption. The Internal Revenue Service (IRS) has ruled in the past that cryptocurrency is not currency at all, instead defining it as property in 2014. The Office for the Comptroller of the Currency, through its new fintech charter initiative, has opened the doors for virtual currency firms to apply for banking licenses. Coinbase, one of the largest exchanges in the world, is exploring the option.
State legislators have signed, or tabled, dozens of laws attempting to define, regulate or codify virtual currencies and the blockchain technology underpinning them. This article details the major pieces of legislation which have passed, or failed to pass, in each US state to date.
The Alabama Monetary Transmission Act – also known as Senate Bill (SB) 173– was signed by Alabama governor Kay Ivey in May 2017. It replaced the former Sale of Checks Act which had been in effect since 1961.
“The Alabama Monetary Transmission Act codifies a broad definition of monetary transmissions to include ‘virtual’ currency such as bitcoin,” the Alabama Securities Commission (ASC) wrote, “and specifies records that licensees are required to maintain.”
The Act grants the ASC administrative authority to audit or review the records of any licensee, including individuals, officers, directors and other persons who may control the actions of the licensee.
In August 2018 the ASC investigated 21 initial coin offerings (ICOs) and issued seven cease and desist orders involving cryptocurrency as part of “Operation Cryptosweep”. “While not every ICO or cryptocurrency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum,” ASC director Joseph Borg said at the time.
Alaska’s House Bill (HB) 180 defines cryptocurrency as “digital units of exchange” which have “a centralized repository”, “are decentralized, distributive, open source, math-based and peer-to-peer”, or “may be created or obtained by computing or manufacturing effort”.
The bill was referred to the House Judiciary Committee in January 2018, and if passed will define firms dealing with cryptocurrency as money transmitters or currency exchange businesses requiring a license.
Arizona passed HB 2417 in March 2017. The bill made signatures, records and contracts secured via the blockchain legally valid. “Smart contracts may exist in commerce,” the bill reads. “A contract relating to a transaction may not be denied legal effect, validity or enforceability solely because that contract contains a smart contract term.”
HB 2216 was passed in April 2017. Though nominally about the electronic tracking of firearms, it refers to both distributed ledger or blockchain technology as methods through which guns could be registered.
The Arizona House also passed HB 2601 and HB 2602 in April 2018. HB 2601 provides a set of frameworks for future “virtual coin offering” regulations, while HB 2602 stipulates that a town or city in the state cannot “prohibit or otherwise restrict an individual from running a node on blockchain technology in a residence”.
SB 1091, which was vetoed by the state governor in May 2018, would have required the Department of Revenue to study whether “a taxpayer may pay their income tax liability using a payment gateway that uses peer-to-peer systems”.
There is currently no cryptocurrency-related legislation pending in Arkansas.
The first piece of Californian legislation to mention bitcoin is SB 843, passed in June 2016 by governor Jerry Brown. It states that “a raffle ticket shall not be sold in exchange for bitcoin or any other cryptocurrency.”
Assembly Bill (AB) 2658 was introduced in February 2018, and made amendments to the California Civil Code, section 1624.5. It finds updates the legal term “contracts” to include “smart contracts”. It also states that a person storing personal information on a blockchain when carrying out interstate commerce would retain their rights to that information.
California AB 1326 and AB 1123 both failed to repeal section 107 of the state’s Corporations Code relating to digital currency, in November 2016 and February 2018, respectively. AB 1326 aimed to create a “Digital Currency Enrolment Program”, akin to a digital license. The license would have required applicants to pay a non-refundable $5,000 fee.
Colorado lawmakers had six pieces of cryptocurrency legislation to deal with in 2018: SB 240, which included virtual currency rulings in unclaimed property; HB 1220, subjecting cryptocurrency wallet holders, buyers, and exchanges to regulation under the state’s Money Transmitters Act; SB 277 and HB 1426, exempting virtual currency transmission from regulation under the Money Transmitters Act; and SB 86, enabling the state’s chief information security officer to assess state databases and how blockchain might help or hinder them.
Of the six, only SB 86 was passed. SB 240 and HB 1220 were postponed indefinitely, while SB 277 and HB 1426 failed to pass through the senate in the same week.
June 2015 saw HB 6800 signed into law in the Nutmeg State. The bill amended the state’s Money Transmission Act, requiring any businesses that transmit cryptocurrency to obtain a license from the Department of Banking.
Governor Dannel Malloy also passed HB 7141 in July 2017, which states that license holders “maintaining custody or control of virtual currency on behalf of another person shall at all times hold virtual currency of the same type and amount owed or obligated to such persons.”
HB 5001, which would have imposed fees on transactions involving virtual currency, and HB 5496, aiming to standardise regulation of businesses involving cryptocurrency, both failed to pass in 2018. SB 513, which has been referred to the state’s Joint Committee on Labour and Public Employees, set in place a study of the impact that digital currency might have on state law and small businesses.
In April 2017, governor John C Carney Jr signed SB 69 into law in Delaware. The bill amended the state’s General Corporation Law, enabling firms to use blockchain for stock trading and record keeping.
District of Columbia
Tthe District of Columbia has passed Bill 22-654, amending the state’s Unclaimed Property Act, to classify the cryptocurrency owned by a person, but held in cold storage, as unclaimed property.
Florida set down its definitions of cryptocurrency in June 2017 via HB 1379, which also prohibits the laundering of virtual currency. The bill has been called a legislative response to a criminal decision which dismissed a case of money laundering due to bitcoin and other cryptocurrencies not being defined as “money” by the state’s legislation.
HB 1379 defines crypto as "a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country."
HB 1357, which died in the Florida House of Representatives in January 2018, would have explored the technological implications of storing motor vehicle information on a distributed ledger.
HB 811, signed into law in April 2016, gave state regulators in Georgia the power "to enact rules and regulations that apply solely to persons engaged in money transmission or the sale of payment instruments involving virtual currency.”
SB 464, drafted in January 2018 and currently passing through the senate, would require the revenue commissioner to accept and convert cryptocurrency as payment for taxes and license fee.
In February 2014, Hawaii’s commissioner of financial institutions issued a memo claiming that “no company is licensed to transmit bitcoin in Hawaii” and “if companies are offering to transmit bitcoins, they are doing so in violation of Hawaii’s money transmitter laws.”
Five years later, and cryptocurrency has yet to be defined under Hawaiian laws. SB 2853 and SB 3082, introduced in January 2018, would have defined crypto and adopted a “Uniform Regulation of Virtual Currency Act”, respectively. The former died in committee the day it was first read; the latter fell short in March after file representatives excused themselves from committee voting.
Though no laws focused on virtual currencies are currently in place or pending in Idaho, the state’s Department of Finance has posted 20 “no action and opinion letters” aimed at addressing issues relating to cryptocurrency and the state’s money transmission laws.
Illinois’s Department of Financial and Professional Regulation issued guidance in June 2017,stating that “a person or entity engaged in the transmission of solely digital currencies” would need a Transmitters of Money Act license.
HB 5335 was introduced in February 2018, aiming to amend the Department of Revenue Law of the Civil Administrative Code of Illinois. It stipulated that the department would accept payment in cryptocurrency for any tax imposed by the state, and that such funds would be converted to dollars within 24 hours of receipt. It died at its last reading in the Illinois House of Representatives, in January this year.
Indiana Secretary of State Connie Lawson issued a 2014 bulletin entitled “Are You an Informed Investor?”, warning against the risks of cryptocurrency investment.
In May 2018 Lawson announced Indiana’s part in Operation Cryptosweep. “ICOs and cryptocurrency-related investment products are a significant threat to Main Street investors in Indiana,” she said in a statement. Despite this, no major cryptocurrency legislation has been tabled or passed in the state.
Iowa’s state regulator, the Iowa Insurance Division, issued a statement cautioning investors about getting involved with cryptocurrency in January 2018. “Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and carry a high risk of fraud,” wrote Iowa Insurance Commissioner Doug Ommen. There has been no cryptocurrency-related legislation passed in the state.
Kansas’s Office of the State Bank Commissioner released guidance in June 2014, specifying that “an entity engaged solely in the transmission of such [virtual] currency would not be required to obtain a license in the State of Kansas.”
There is currently no cryptocurrency-related legislation in place, or pending, in Kentucky.
In August 2014 the Louisiana Office of Financial Institutions issued a set of guidelines for cryptocurrency consumers and investors. Louisiana’s state law for money transmission has not been updated to include a definition for virtual currencies, though a statement in the 2014 guidance reads: “an exchanger is the only party who may be subject to licensure as a money transmitter by this Office at this time.”
SB 950 was an attempt by Maine legislators to investigate the uses of blockchain in elections and ballets. It failed to pass in April 2017.
In April 2014, the Office of the Commissioner of Financial Regulation posted an advisory which states that “an administrator or exchanger that accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency for any reason is a money transmitter under federal regulations and therefore should be registered as a money services business (MSB).
In May 2018, Maryland passed HB 1634, which compels the Maryland Financial Consumer Protection Commissioner to “conduct certain studies” into cryptocurrencies, initial coin offerings, exchanges and “other blockchain technologies”.
The earliest legislative mention of bitcoin in Massachusetts is “Selected Opinion 14-004”, released by the Division of Banks. It states that bitcoin ATMs should not be considered a part of a branch network, and that the cryptocurrency is exempt from foreign currency transmission regulations.
In December 2017, Secretary of the Commonwealth William Galvin issued a warning about what he termed “bitcoin mania”. “Bitcoin is just the latest in a history of speculative bubbles that most often burst, leaving the average investors with a worthless product,” he wrote.
HB 1608, which died in committee in February 2017, would have amended the Minnesota Unclaimed Property Act to explicitly include virtual currency as property.
In May 2018, the Minnesota Commerce Department announced that it would be participating in a crackdown on fraudulent initial coin offerings and cryptocurrency scams.
There is currently no known cryptocurrency-related legislation in place, or pending, in Mississippi. The state’s money transmission law makes no mention of cryptocurrency or blockchain.
Missouri State Representative Nicholas Schroer introduced HB 1256 in January 2018. Notable as the only piece of Missouri legislation to mention blockchain, it tried to make the storage of gun ownership on electronic databases illegal. It died in the Missouri House of Representatives in March.
Montana has no enacted laws regarding money transmission, and no known cryptocurrency-related laws in the pipeline either. The state did amend its Electronic Contributions Act to require the reporting of political contributions made through a payment gateway, including cryptocurrency like bitcoin.
Nebraska tabled three bills in January 2018 regarding cryptocurrency. Legislature Bill 691 (LB 691) would have seen the creation of a “Nebraska Virtual Currency Money Laundering Act” under the Nebraska Money Transmitters Act. LB 695 would have authorized and defined smart contracts and the use of distributed ledger technology for digital signatures. LB 694 would have prohibited “countries from taxing or regulating distributed ledger technology”. LB 987 planned to create a regulatory framework for “virtual currency business activity”. All four pieces of legislation died in the Nebraska State Legislature and have been indefinitely postponed.
Nevada was the first US state to ban local governments from taxing blockchain use, in SB 398. Signed in June 207, SB 398 defines blockchain as an electronic record, transaction, or piece of data which is uniformly ordered, redundantly maintained or processed by multiple computers, and validated by the use of cryptography.
In December 2015, HB 552, requiring the state treasurer to develop an implementation plan for the state to accept bitcoin as payment for taxes and fees, died in the chamber.
Via HB 436, signed in June 2017, New Hampshire amended its Money Transmitter statute to exempt “person who engage in the business of selling or issuing payment instruments or stored value in the form of convertible virtual currency”.
In a July 2015 memo, the New Jersey Division of Taxation advised that a “seller and/or retailer of taxable goods or services that accept convertible virtual currency as payment must determine the fair market value of the currency in US dollars as of the date of payment and charge the purchaser sales tax on the underlying transaction.”
Introduced in January 2018, AB 1906 plans the establishment of a “Digital Currencies Jobs Creation Act”, and is currently progressing through the senate. AB 3613, introduced and passed in the New Jersey General Assembly in March, has led to the tabling of SB 2297 in the state senate in December 2018. The bills would establish a “New Jersey Blockchain Initiative Task Force”. The task force would “study whether state, county, and municipal governments can benefit from a transition to a blockchain-based system for record keeping and service delivery."
The first bitcoin ATM in the US was installed in a cigar bar in Albuquerque, New Mexico, in February 2014. It was removed less than a month later. New Mexico was one of few states to not have enacted a money transmitter statute and was an appealing destination for crypto companies. That changed with HB 250 in January 2017, a bill which requires transmitters to gain a license.
In August 2015 the New York State Department of Financial Services set down a framework which required any business dealing in a virtual currency to apply for a BitLicense, or 23 NYCRR 200. The License requires a $5,000 application fee, as well, and comes with 44 pages of compliance requirements.
New York’s strict requirements for virtual currency firms led to what has been labelled “The Great Bitcoin Exodus” – the movement of many cryptocurrency firms from New York State in an attempt to escape its regulatory requirements. However, the New York Cryptocurrency Exchange Act was introduced in February 2018 to create a regulatory sandbox in the state.
No less than six other cryptocurrency-related bills are working their way through New York’s legislature. AB 8780 will allow signatures “secured through blockchain technology to be considered an electronic signature”. AB 8792 relates to the study of the use of blockchain technology in elections. AB 8783 would “create a digital currency task force to provide the governor and the legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state.” AB 11018 would launch 10 pilot programs “to incentivize consumers to buy locally” by creating community currencies.
HB 289, enacted in June 2016 by then-governor Pat McCrory, amended North Carolina’s Money Transmitter Act to include those who transmit virtual currency, requiring those already operating in the cryptocurrency space to apply for a license to do so. The law does provide some exemptions, including for virtual currency miners and software firms implementing smart contracts.
SB 2100, North Dakota’s only attempt at cryptocurrency legislation, failed to pass through the state senate in 2017. It would have created a “management study” of bitcoin and other virtual currencies. It suffered a strong rejection, with 84 of 94 lawmakers voting against it.
Ohio has not clarified its stance on virtual currencies, but did make changes to its Liquor Control Law in 2014, banning the purchase of alcohol with bitcoin.
SB 300, introduced in May 2018, aims to “amend the Uniform Electronic Transactions Act to define records and contracts secured by blockchain technology as electronic records and to allow the use of smart contract terms.”
In 2014, the state legislature of Oklahoma added an official comment to a statute to address the transfer of bitcoin, and its impact on secured transactions. Oklahoma Statute 12A now specifies that those who transfer virtual currency will not be given the same rights as those who transfer fiat currency.
Oregon passed SB 277 in May 2015. The bill requires cryptocurrency exchanges to register as money transmitters, as well as obtain a license from the state’s Department of Consumer and Business Services.
Pennsylvania signed HB 850 into law in November 2016, amending its money transmission laws to include cryptocurrencies.
There is currently no cryptocurrency-related legislation in place, or pending, in Rhode Island.
Until June 2016 and the passage of AB 266, South Carolina didn’t have a monet transmission law. However, the statute’s applicability to virtual currencies isn’t stated.
There is currently no cryptocurrency-related legislation in place, or pending, in South Dakota. The state’s money transmission law does not mention cryptocurrency or blockchain, nor define rules for their use.
In a December 2015 memo, the Tennessee Department of Financial Institutions exempted cryptocurrency from the state’s money transmission laws: “The exchange of cryptocurrency for sovereign currency between two parties is not money transmission.”
HB 1507, passed in March 2018, “recognizes the legal authority to use distributed ledger technology and smart contracts in conducting electronic transactions” and protects the ownership rights of information stored in a blockchain.
HB 2093, passed in April 2018, prohibits “trustees of any defined contribution plan or related investment vehicle established as a health benefit by the state insurance company from investing in cryptocurrency.”
The Lone Star State was the first in the US to issue guidance on bitcoin. In an April 2014 memo, it stated that no money transmitter’s license would be required to sell cryptocurrency. House Joint Resolution (HJR) 89 attempted to create a constitutional amendment on the ownership and use of any mutually agreed upon medium of exchange, but died in committee in 2017.
Utah proposed House Concurrent Resolution (HCR) 0006 in 2015, which would have allowed residents in the state to pay their taxes in bitcoin. It failed to pass. In March 2017 it passed SB 175, which modifies the state’s Uniform Unclaimed Property Act to include cryptocurrencies.
The earliest cryptocurrency legislation signed in Vermont regards the usage of blockchain. HB 868, passed in June 2016, which allows a fact or record verified through blockchain technology to be used in court proceedings. The state signed HB 182 in May 2017, updating its money transmission rules with a definition for virtual currency.
Governor Phil Scott signed SB 135 in June 2017, which set up a working group for the study of blockchain technology. In May 2018, Scott passed SB 269, which allowed for the creation of "blockchain-based limited liability companies.” To set up the companies, firms must specific whether their model will be fully decentralized, public or private.
The Virginia Bureau of Financial Institutions requires cryptocurrency firms to obtain a money transmission license. HJR 153, introduced in January 2018, would have established a subcommittee to study the implementation of blockchain technology. It died in committee a month later.
Under SB 5031, signed in April 2017, Washington includes virtual currency within its definition of money transmission, and requires exchanges to comply with the same licensing requirements as traditional money transmitters.
HB 1045, introduced in February 2017, would have addressed “licensing and enforcement provisions applicable to money transmitters and currency exchanges under the Uniform Money Services Act.” It died in committee in January 2018.
West Virginia passed HB 2585 in May 2017, legally defining cryptocurrency as a monetary instrument.
Though there are no blockchain or cryptocurrency legislative measures in place in Wisconsin, the state has refused licenses to exchanges, and requires any firm working with cryptocurrency to agree not to transmit money with it.
Wyoming flew in the face of the SEC’s ruling of cryptocurrencies as securities in May 2018, when it passed HB 70. The SEC’s stance on virtual currency is that they are classed as securities, so crypto operations must be registered with the regulator. HB 70, also known as the “Utility Token Bill”, exempts cryptocurrecies from state money transmission laws, removing the need for exchanges to register with the SEC if they meet a set of requirements. To meet these requirements, the token must not be offered as an investment and must be a vehicle for exchange.
HB 19 would have amended the Wyoming Money Transmitter Act to provide an exemption for virtual currency but died in the state senate. Three more bills were submitted in early 2018. HB 101 planned to update the state’s Business Corporations Act to allow the use of distributed ledgers for record keeping, but also failed to pass. HB 126 would have enabled the founding of “series LLCs”, which enable compartmentalised series of members, favourable to the use of distributed ledger technology. It too failed to pass. SB 111, which passed in March 2018, exempts cryptocurrency from Wyoming’s state property taxes.