by Jemayel Khawaja, Editorial Director at ConsenSys

Despite the techno-libertarian ideology that inspired the creation of blockchain and cryptocurrency, a reckoning between decentralized networks, digital assets, and state apparatus has been a long time coming.

The last year has plainly laid out the effect that government intervention — or the lack thereof — can cause. An absence of meaningful guidance on the part of regulatory bodies in the US has played a part in stymying the explosive growth of the token economy stateside, while more lithe city-state, parliamentarian, or authoritarian governments dotted around the globe have sprinted to the front in establishing the early Web3 order.

As regulatory agencies who may lay claim to the jurisdiction of digital assets like the SEC and CFTC are taking a measured approach in taking input from the public and the likes of The Brooklyn Project, proactive legislators from around the spectrum of American politics on the local, state, and federal level have taken the charge of advocating for blockchain technology, together forming a formidable nexus of action that is making remarkable progress all over the country.

A study by the Brookings Institution from 2018 shows over 30 states already legislating pro-blockchain policy.

Nowhere in the US is moving as fast as Wyoming, which has led the charge on the state level with a veritable smorgasbord of pro-blockchain laws, driven by the likes of State Rep Tyler Lindholm with overwhelming support from both sides of the aisle. States like Arizona, led by Governor Doug Ducey, and agencies like the Consumer Financial Protection Bureau have initiated regulatory sandboxes to facilitate growth of blockchain-related startups.

In Washington, the Congressional Blockchain Caucus, launched in 2016 by now-White House Chief of Staff Mick Mulvaney and now-Colorado Governor Jared Polis, is populated by a bipartisan assemblage of vocal proponents of blockchain tech in the House with a powerful base for action. Scores of campaigns, including those of Governors Greg Abbott of Texas and Gavin Newsom of California, accepted cryptocurrency donations on their way to victory. SEC Commissioner Hester Pierce is a noted enthusiast. Even presidential candidate Tulsi Gabbard is a HODLer. The list goes on…

Changing Attitudes in Washington, D.C.

The good news is that the force of blockchain and decentralization is strong amongst many in Washington. “I look at distributed ledger technology as about individual freedoms,” says Minnesota Congressman and Blockchain Caucus member Tom Emmer. “I see this technology as having the greatest potential to take us into the fully fledged technological age. An issue we have in society at the moment: you always have to have somebody in the middle, a facilitator, whether that’s in the private sector, banking services, or when you’re working with governments. This stuff has the potential to completely decentralize the way we live, and make the individual central to the way they live their life.”

Congressman Emmer’s enthusiasm for decentralization seems genuine and palpable: “Think about what blockchain could mean to finance,” he goes on, “the individual’s control of their own data, the protection and dissemination of healthcare records, what it might mean for our elections — this could be the solution to our cybersecurity issues.”

Forays in the House towards blockchain legislation began as early as 2014, but increased in both frequency and urgency in the latter half of 2018. In September, Emmer introduced three bills, including the Blockchain Regulatory Certainty Act (re-introduced in 2019), which “protects blockchain developers and service providers from the regulatory burdens of registering as money transmitters,” and the Safe Harbor for Taxpayers with Forked Assets Act, which Emmer explains as stating that “a taxpayer can only comply with a law when the law is clear. If you act in good faith now, when a tax or regulation is determined to applicable to digital assets or a particular innovation, it will apply going forward and not retroactively. That means innovators can move forward until laws catch up without fear of penalties.”

After some encouraging words from Ohio Rep Warren Davidson that same month, he and Florida Congressman Darren Soto introduced the Token Taxonomy Act on December 20th, 2018. “We introduced the Token Taxonomy Act late last year to start our journey into a taxonomy and jurisdiction regime for digital assets,” explains Rep. Darren Soto, who co-authored the bill. “That was an important piece to see where Congress is moving, particularly in regards to keeping very narrow jurisdiction for the SEC. We’re now working on completing the package over the next six months, which will be probably two bills to determine both the jurisdiction and define the three major digital assets for cryptocurrency: security, digital token, and commodity.”

Both Soto and Emmer are members of the Congressional Blockchain Caucus. In this new session, the Caucus has grown to 17 members with near even representation from both parties, and Soto has taken on Co-Chairmanship alongside Tom Emmer, David Schweikert of Arizona, and Bill Foster of Illinois.

“With the Blockchain Caucus, the idea is to increase awareness here in Washington, to get a lot of our members to look beyond the application of blockchain technology in just financial services,” Emmer explains. “Unfortunately, most members of Congress think cryptocurrency is blockchain. They’re starting to understand that they’re two separate things, and we have to get them understanding that government is not the alpha and omega in this matter.”

“The biggest issue we face is that a lot of members of Congress are not familiar with technology,” asserts Congressman Soto. “Look no further than when Facebook CEO Mark Zuckerberg was brought in to Washington to testify. That’s exhibit A of the learning curve for many members of Congress.”

What’s evident amongst those who do get it is a remarkably bipartisan appeal for blockchain. Disintermediating industries ranging from banking to bookkeeping, healthcare, and IP are attractive to small government conservatives, who prefer minimal intervention in the lives and pockets of constituents, and liberals, who are equally wary of legacy institutions and are drawn to the equalizing potential of blockchain tech. In divisive political times, blockchain is proving to be a rare issue that shares growing support across the political spectrum. “I believe it is a bipartisan issue,” says Soto. “Or even a non-partisan issue.”

But is it moving fast enough? Although many on Capitol Hill have clearly gotten the blockchain bug, they share the growing Web3 industry’s anxieties about inaction. “My biggest concern right now is that because of the lack of understanding, because of ignorance on the part of elected officials who have not grown up with technology, we’re going to allow the bureaucratic institutions of government to institute controls and restrictions that will drive the creators and innovators away from the greatest economy on the planet,” says Emmer. “We’re already seeing some of that. That’s not what we want.”

As yet, none of the bills proposed have progressed to a vote in a Congress that’s been distracted by presidential politics and hampered by technological skepticism, a fact that rankles when held in contrast to definitive legislation being passed elsewhere across the globe. “We are in danger of being left behind,” Emmer admits. “A lot of it has to do with uncertainty. It’s a big potential investment for a lot of organizations and companies, but the uncertainty over what our government may or may not do is causing hesitation instead of innovation. But in the meetings I’ve been having back in my state, there are some very big players looking to begin internally applying blockchain technology, so I’m optimistic for the future.”

Action on the State Level…

While developments in Washington are in danger of languishing in an exploratory phase, some state bodies are racing ahead to obtain first mover advantage. Last year, the Wyoming state legislature passed a swath of pro-blockchain bills — some unanimously — that addressed issues ranging from money transmitter laws to securities regulation and taxation of digital assets, making it the most blockchain-friendly state in the US. Wyoming followed up this year with multiple slates of bills — and the plan to attract businesses is already bearing fruit.

“We were successful in attracting blockchain businesses to our state,” says Wyoming State Representative Tyler Lindholm. “In less than a year, we’ve seen over 250 businesses domiciled in Wyoming — and we’re capitalizing on that.” Although those populating the libertarian-leaning halls in Cheyenne may be forging assuredly forward, legislation is often at odds with established federal and bureaucratic norms. Some guile and creativity has been required to move the needle.

Lindholm explains: “Whether it’s blockchain or any kind of innovation, it really depends on state policymakers being willing to think outside of the box. One of the biggest issues we saw was banking, being able to hold checking accounts — simple, basic things that most companies take for granted. It turns out the FDIC is pretty discriminatory. I don’t think anyone at the FDIC can differentiate between cryptocurrency and blockchain. While taking that into consideration, we drafted House Bill 74, which charters a new type of bank that’s 100% reserved, a depository, non-lending institution that also does not have to carry FDIC insurance. The fascinating aspect is that this premise of a 100% reserve hasn’t been done in the United States since 1790!”

States like Wyoming offer a litmus test for potential federal legislation. The state’s turnaround from regulatory backwater to becoming a benchmark of proactive blockchain legislation may portend the way forward for the US. Lindholm admits it took some convincing to get his Cowboy State colleagues on board, but — much like the a ha moment many of us experienced in regards to blockchain — when it happened, it happened fast.

“We started out with a lot of trust being extended by my colleagues, but now they’re seeing the fruits of their labor,” Lindholm explains. “Folks that were a little wary before are seeing companies come into their communities, calling them about bringing their business to Wyoming. That’s jobs, that’s tax revenue, all from setting up a regulatory structure didn’t cost the taxpayers a thing.”

That kind of upside is what has most states around the country following in Wyoming’s wake. In fact, Lindholm notes that a sense of competition has emerged amongst state legislatures aiming to get ahead of the pack. So far, 39 state bodies have introduced laws that in some way relate to cryptocurrency or blockchain. Many address money transmitter laws, and a 2018 report from the Brookings Institute identified over 32 states that have introduced or enacted pro-blockchain laws.