Wyoming Blockchain
Photo by Kenneth Vetter

While Bitcoin initially paved the way for the introduction of blockchain and distributed ledger technology in the mainstream, most would agree that the potential applications of this relatively new technology goes far beyond just cryptocurrencies.

Blockchain technology, at its core, is merely a set of linked records that form an immutable ledger. Information is added in “blocks” which are linked to the prior information on the block by a cryptographic hash of all of the prior information. The information on the blockchain is secure because any attempts to change information in an earlier block would result in a different “hash” that would be easily detected by the network, which would reject that version of the blockchain as being unauthentic (there are several articles about how cryptographic hash functions work, but at the most basic letter, these functions take an input of any size and convert it to an alphanumeric output of a specified length). Furthermore, because the blockchain is distributed among multiple computers, each operating as a node running the underlying software, there is no single centralized entity or system responsible for maintaining the blockchain. Rather, the collective nodes maintain the blockchain pursuant to the underlying software code.

The potential applications of blockchain technology are seemingly endless. For example, digital representations of shares of stock of a corporation could be tokenized and traded on a blockchain, which would allow companies to maintain a corporate stock ledger without the need for a transfer agent. These shares of stock could also be traded on a decentralized exchange that would provide liquidity to shareholders without the burden of applying to be listed on a national securities exchange.

Several states have taken steps to facilitate these kinds of applications for blockchain technology. For example, Delaware recently enacted legislation to allow companies to issue shares of stock through the use of blockchain technology. However, Wyoming has been far and away the most aggressive state in enacting legislation to facilitate the use of cryptocurrencies and blockchain technology. Several bills are making their way through the state legislature that would create a crypto-friendly environment in that state. For example, H.B. 0019 specifically exempts persons dealing in cryptocurrencies from state money transmitter laws (which generally require licensure if a company transmits money electronically from one person to another, like Western Union). There has been much debate as to whether money transmitter and money service business laws apply to companies who transmit value through cryptocurrencies. Many states have passed legislation to regulate virtual currencies. New York, for example, requires virtual currency exchanges to obtain money transmitter licenses to operate within the state. If enacted, H.B. 0019 would exempt cryptocurrency exchanges from having to obtain a money transmitter license in Wyoming. Unfortunately, for companies seeking to enter this space, licensure as a money transmitter can be both a federal and state-by-state issue. Thus, a cryptocurrency exchange operating in Wyoming may still have to register with FinCEN, as well as states in which it has customers (unless those states have a similar exemption). These registration requirement are typically costly and burdensome as the licensee must implement and maintain a robust BSA/AML program to prevent money laundering and similar activities.

H.B. 0070 and H.B. 0101 would impact companies seeking to tokenize their stock and raise capital through the issuance of so-called “utility tokens.” The latter would, like Delaware, permit corporate records to be maintained on a blockchain. H.B. 0070 would exempt utility tokens from state securities law registration requirements. Utility tokens are digital tokens that have value independent of a speculative potential increase in price. For example, several companies have issued tokens that can be redeemed for future services from the issuing company, often times at a discount to the normal price (essentially, these could be viewed as digital or tokenized gift cards). There has been debate as to whether utility tokens could constitute a security for the purposes of state and federal securities laws. This legislation would remove all doubt, at least as far as Wyoming’s securities laws are concerned (federal and other state securities laws could still apply, however).

Whatever the future of this technology may be, it’s clear that Wyoming wants to be on the cutting edge of creating an environment that is friendly to businesses seeking to leverage blockchain.