In yet another blockchain-friendly bill signed into law by the governor of Wyoming in February 2019, the state granted certain virtual currencies “super-negotiability” status similar to money under the framework of existing laws.
Under the U.S. Uniform Commercial Code, which applies to virtually all commercial transactions, money is entitled to a special status known as “super-negotiability,” which means that someone who accepts a dollar bill in good faith need not worry whether a previous holder of the bill has encumbered the dollar bill, such as by granting a lien or security interest on a dollar to a third party. This is unlike other assets, where once it is encumbered by a security interest, a lien holder can continue to seek legal remedies against future holders of the asset even if the future holder is not aware of the lien. Prior to the enactment of the Wyoming bill, the treatment of bitcoin under the Uniform Commercial Code was unclear, leaving bitcoin buyers at risk of remaining subject to claims by prior owners.
The Wyoming bill, known as SF125, makes clear that certain virtual currencies such as bitcoin will enjoy the same “super-negotiable” status as money under existing laws. This bill contrasts with the Uniform Regulation of Virtual Currency Businesses Act previously proposed in many states, which only recognizes such status when the virtual currencies are owned via regulated intermediaries.
Not surprisingly, the move was cheered by blockchain enthusiasts, who feared that a lack of “super-negotiability” would destroy the direct, peer-to-peer nature of virtual currencies envisioned by blockchain technology. In addition, the bill allows a security interest in virtual currencies to be recognized by taking control of the virtual currency, such as by holding the private key, entering into a multi-signature arrangement, or by using a smart contract, etc., which could pave the way for legally enforceable, decentralized peer-to-peer lending of digital assets.
Originally published May 16, 2019, on PAI News. Created by ObEN, the PAI News app features content channels from Fenwick and other blockchain and cryptocurrency industry leaders.