As the federal government debates the regulatory framework for blockchain technology and other cryptocurrencies, such as Bitcoin, the Colorado state legislature recently debated two pieces of legislation that would make the Rocky Mountain State a leader in both.
On May 9, the Colorado State legislature passed Senate Bill 86, which directs the Colorado Department of State to study various coding techniques, including blockchain technology, and provide guidelines for their use. Advocates say the law would allow state officials to use blockchain technology to help reduce costs by eliminating redundancies and preventing fraud, all while making Colorado a leader in this cutting-edge technology.
However, after SB 86 passed with overwhelming bipartisan support, House Bill 1426 was narrowly defeated in the State Senate after passing with vast support in the house. The bill would have made virtual currency a classified security.
Lawmakers initially passed the measure by one vote, but when the senate took a final vote, some senators switched sides and the bill failed 18-17. The two Democrats, who previously voted for the legislation, cited push back from the Colorado Department of Regulatory Affairs and the Colorado Attorney General’s office.
Colorado Attorney General Cynthia Coffman issued a statement shortly after.
“The language in HB 1426 that would have carved out open blockchain tokens from the definition of a security under the Colorado Securities Act was overly broad and vague. The language would have created immunity from criminal liability for someone who commits securities fraud in that context, putting Colorado consumers at risk. That is why my office opposed the bill.”
The rise of cryptocurrencies has stemmed largely from blockchain technology, which provides a decentralized online platform to help facilitate transactions while maintaining anonymity for both parties. Whereas traditional transactions often involve a bank or financial exchange to verify and validate, blockchain technology allows users to account for all transactions. Using a number of complicated mathematical permutations and algorithms, a shared group of servers helps verify and validate transactions in a process called mining.
Essentially, Colorado’s law is good for supporters of blockchain technology, while bad for virtual currencies. Meanwhile, in lieu of little federal guidance on virtual currency, the Wyoming legislature passed a set of a bills in March allowing businesses in the Cowboy State to transact in virtual currency without penalty. A couple weeks later, the Tennessee state legislature approved a bill making contracts based on cryptocurrencies enforceable by law.
All three states are the first to begin establishing a regulatory framework, with many more expected to follow suit.