A number of states have jumped into the FinTech fray by enacting legislation or issuing guidance regarding new technologies and digital currencies. The latest of these technology-forward states is Nevada. Following the example set by Arizona, Nevada recently passed a bill clarifying blockchain’s legal status under state law. The law, Senate Bill 398, was signed by the governor June 5 and prohibits local governments from imposing taxes or fees on the use of a blockchain; requiring a certificate, license, or permit to use a blockchain; or imposing any other requirement relating to the use of blockchain. Additionally, the Nevada law states that “if a law requires a record to be in writing, submission of a blockchain which electronically contains the record satisfies the law.” Arizona passed a similar law, House Bill 2417, in March 2017, also requiring that smart contracts and blockchain signatures be given legal binding status.

Blockchain is a distributed digital ledger technology (DLT) originally devised for Bitcoin, but which is now being experimented with for numerous other use cases. Blockchain is catching the attention of states presumably because there has been limited federal action on blockchain or digital currencies, mostly consisting of guidance regarding anti-money-laundering requirements and consumer protection notices. State regulators recently have made statements regarding gaps in digital currency and FinTech regulations and blockchain certainty. To close these perceived gaps, states are using their authorities to, so far, clarify state money transmission applicability to digital currencies, and to provide consumer protection within their states. Venture capitalists and other investors also are increasingly interested in blockchain technology and its applications. Experts in the blockchain research field estimate that investments in blockchain startups in 2016 exceeded $1.5 billion. With this significant and continuing growth in investment, we expect that the application of DLT and smart contracts will continue to increase.

Other states are considering additional potential issues related to DLT and digital currencies that may prompt further state legislation or regulation. States such as North Carolina and Connecticut have passed legislation relating to virtual currencies, generally focused on the regulatory and supervisory issues pertaining to the transmission of virtual currency under the states’ respective money transmission statutes. Delaware’s legislature currently is considering a law that would make stock registries and other business records legal if they are recorded in blockchain format, which would be helpful for Delaware registrants’ corporate interests.

Arizona’s and Nevada’s laws are unique in specifically addressing contract enforcement and taxes with regard to blockchain transactions. While the federal government has addressed the uncertainty of moving contracts to electronic format with the federal E-Sign Act, which provides that electronic signatures shall have the same legal effect as signatures on paper, these state laws have addressed broader enforcement issues by clarifying that the enforcement of software code will be equal to the written word in contracts.

In crafting their legislation, Nevada and Arizona worked closely with industry groups and experts. As a result, the bills are simple and brief, and neither is strikingly out of step with industry’s positions on these issues and the state of the technology.

Federal Efforts on Blockchain

There generally has been limited federal guidance on blockchain thus far. Representatives Jard Polis (D-Colo.) and David Schweikert (R-Ariz.) formed a Congressional Blockchain Caucus in February 2017. The bipartisan group is dedicated to the advancement of sound public policy toward blockchain-based technologies and digital currencies. The Financial Crimes Enforcement Network and Securities and Exchange Commission, as well as the Commodity Futures Trading Commission, have engaged in enforcement actions and have issued guidance addressing digital currencies, but have focused on digital currency products (and their transmission), investments, or derivatives, as applicable to each agency’s jurisdiction, as opposed to blockchain technology itself.

However, the federal government may be becoming more interested in being pro-active with regard to blockchain and digital currency policies. Senator Chuck Grassley of Iowa and Senator Dianne Feinstein of California recently filed a new anti-money-laundering bill aimed at increasing oversight of digital currency activities. The bill proposes to incorporate bitcoin and other digital currencies under the definition of “monetary instrument” in certain U.S. anti-money-laundering statutes, as it includes “funds stored in a digital format” in the requirements. In addition, Representative Kathleen Rice recently called for a study by Homeland Security into the threat of digital currency use in terrorism financing.

The Internal Revenue Service also has explored this area, issuing guidance in 2014 explaining that digital currencies should be taxed as intangible property. The IRS seems to be looking at digital currency transactions anew, however, as indicated by its recent demand that virtual currency exchange Coinbase provide records of all of its customer transactions over the past several years. Earlier this month, members of the Blockchain Caucus sent a letter to the IRS asking the agency to provide additional guidance on the tax consequences and basic tax reporting requirements for digital currency transactions.

States Respond to Perceived Federal Inaction

States appear to be more than willing to be the legislative first-movers in this space and are taking matters into their own hands. In particular, states often assert that money transmission and related customer protections most appropriately fall within their purview, as evidenced by strong state opposition to proposals by the Office of the Comptroller of the Currency to grant special-purpose national bank charters to FinTech companies. If the passage of these two recent bills is indicative of further state action in this area, companies can tentatively expect more predictability regarding the use of blockchain technology, with the caveat that future bills may impose varying or conflicting standards. This balance is always a tightrope walk, with certain regulations necessary and welcomed, as they can provide the certainty necessary for emerging industries to have confidence to invest and grow. However, overregulation, overreaching regulation or conflicting regulations in multiple jurisdictions can dramatically inhibit growth. For example, New York state passed the first “BitLicense” regulations, which industry had hoped would be helpful by providing regulatory clarity. However, many in the industry view the final regulations as onerous and burdensome, and as having effectively halted digital currency and digital ledger technology innovation in the state of New York. Numerous companies have relocated and/or will not offer their products to customers located in New York as a result.

Industry consistently advocates for clear, fair, and proportionate regulations that will protect customers and facilitate business and transactions, regardless of the form of currency or technology. FinTech industry participants often encourage lawmakers and regulators to adopt a “do no harm” approach to regulation and legislation by allowing technologies to develop freely, and for companies to innovate prior to enacting any technology-specific laws. Rather than rewarding or penalizing certain technologies, regulations should focus on regulating functions and behavior, such as how the Nevada law confirms the enforceability of contracts, whether they are in electronic (blockchain) or other format.


States and the federal government increasingly are becoming informed regarding and engaging with blockchain. Numerous regulators already have requested information from industry participants in fact-gathering efforts, but industry should be ready for the possibility of more aggressive regulatory efforts, as regulators become more educated and as the industry becomes more mainstream. Regulators hopefully will continue to engage with industry participants regarding emerging technologies in order to produce appropriate and proportionate rules that do not cripple technologies that have the potential to provide new efficiencies and revolutionary technology solutions.