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From Banking and Finance Law Daily, April 10, 2019

House bills seek to settle uncertainty in blockchain economy

By Colleen M. Svelnis, J.D.

Legislation introduced in the House would clarify legal and regulatory issues for users of blockchain technology.

Two bills were introduced in the House of Representatives intended to provide jurisdiction and regulatory certainty for both businesses and regulators in the United States’ blockchain economy. The Token Taxonomy Act of 2019 (H.R. 2144) was introduced by Rep. Warren Davidson (R-Ohio) and the Digital Taxonomy Act (H.R. 2154) was introduced by Rep. Darren Soto (D-Fla). "It is time for the United States to step up and lead in blockchain technology," stated Soto. The bills are intended to clarify the numerous conflicting state initiatives and regulatory rulings, and patchwork of judicial decisions, that have clouded certainty for entrepreneurs and businesses that use blockchain technology.

According to Soto, the Token Taxonomy Act and the Digital Taxonomy Act "add critical definition and jurisdiction to create certainty for a strong digital asset market in the United States," which he called an important first-step to promoting innovation and maximizing the potential of virtual currencies for the U.S. economy, all while protecting customers and the financial well-being of investors. The strong support for this bipartisan legislation from U.S. businesses and stakeholders is clear indication that our friendly, light-regulatory proposal will propel the United States to be at the forefront of this industry."

Representative Ted Budd (R-NC), a cosponsor of the Token Taxonomy Act, expressed his desire that the bill "will make sure the development of this technology stays in the United States all while promoting better investor protections, capital formation, and innovation." Davidson stated that the legislation is the "key to unlocking blockchain technology in America." Davidson cited the lack of regulatory certainty and guidance and "an inconsistent patchwork of court decisions," for causing capital and innovation to leave the U.S. market for other jurisdictions. Davidson compared the bill to legislation passed in the early days of the Internet and would keep Congress from over-regulating the market.

Details of the bills. The Digital Taxonomy Act would authorize an additional $25 million in funding annually to prevent deceptive practices for cryptocurrency and blockchain projects. It would also mandate that the Federal Trade Commission prepare an annual report outlining the plan to protect consumers and ensure the United States remains a global leader in these technologies.

The Token Taxonomy Act of 2019 would amend Section 4(a) of the Securities Act of 1933 by adding information about digital tokens. The bill would clarify the definition of a digital token to be more inclusive of changing technology. Additionally, digital tokens would be excluded from the definition of a security, and the Securities and Exchange Commission would be directed to enact regulatory changes related to digital units secured through public key cryptography; to adjust taxation of virtual currencies held in individual retirement accounts; to create a tax exemption for exchanges of one virtual currency for another; and to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash. A preemption provision was also included to encourage innovation.

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