The Colorado Digital Token Act was recently passed by the state legislature and is awaiting governor’s signature, which is expected by March 8. The Act will be effective on August 2 this year, allowing businesses to allow sale and transfer of digital tokens using a decentralized database or ledger.

What Does the Act Bring to the Table?

The Act focuses mostly on the distribution, consumption, and production of goods, making them exempt from the Colorado Securities Act (CSA). This means that persons dealing in digital currencies will be free from the securities broker-dealer and salesperson license mandate.

The exemptions under the rule will not be self-executing. Businesses or persons interested in the offer, sale or transfer of a qualifying digital token will have to file a notice with the Colorado Securities Commissioner to ensure that they satisfy the exemption. The tokens must also be used for consumptive purposes.

The Act also defines the “digital token” in Section 11-51-308.7(4) as a digital unit that can be deployed on the blockchain network, recorded in a digital ledger through a consensus-based, decentralized and mathematically verified method and has the capability of being traded or transferred between persons without a custodian or intermediary.

What is the Consumptive Purpose?

The Act states that the offer and sale of a “digital token” must primarily have a “consumptive purpose” at the time of issuance or within 180 days after the sale. The token cannot be sold for investment or speculative purposes. Consumptive purposes include “providing or receiving goods, services, or content, including access to such goods, services, or content.”

Colorado now makes digital tokens more independent in regulations, instead of depending on the Securities Act of 1933 (Securities Act). However, the transactions will still remain subject to the antifraud provisions of the state.

The Act further suggests that there will not be a presumption that digital token offerings will be integrated.

Colorado and Wyoming are two of the states that have taken more initiatives to bring cryptocurrencies under the purview of the state law.