Wyoming as a blockchain and crypto-friendly state
TLDR
- The US state of Wyoming is famous for higher levels of economic freedom as regarding taxation and businesses.
- Wyoming is in recent years famous as “a new Delaware, crypto-friendly state, blockchain hub”.
- During 2018–2020, Wyoming’s legislators have passed several laws enabling businesses and banks to operate on crypto-currencies like Bitcoin.
Intro
Wyoming is known as one of the “tax-friendly” US states with lower overall taxation levels and higher levels of economic freedom. For example, the Limited Liability Company type (LLC) was established in Wyoming before becoming common in other parts of the USA.
Many cryptocurrency users, investors and enthusiasts who value privacy and anonymity are attracted to Wyoming because of state laws that allow for the formation of an LLC without listing or disclosing the names of the members of the LLC in any public record.
During 2018–2020, Wyoming has passed 13 laws, so-called “blockchain bills”, that have transformed Wyoming into the most “crypto-friendly” state. These laws mean in practice that crypto-currencies and tokens are recognised as money and assets, thus enabling decentralised economic operations and businesses to be conducted.
For example, in 2020, Wyoming passed a law that allows companies to operate on digital assets like Bitcoin since an individual who develops, sells or facilitates the exchange of an open blockchain token is not subject to specified securities and money transmission laws.
A new Delaware
One key reason behind decentralised development in Wyoming is that the state has several politicians in state parliament supporting decentralisation and cryptocurrencies. Wyoming has even a senator (federal upper house), Cynthia Lummis (Republicans), who is personally seeing Bitcoin as a method to improve how the federal government is functioning.
Thereby, due to Wyoming’s political situation regarding decentralisation, blockchain and cryptocurrencies, it has not been a significant challenge for politicians to find compromises and solutions.
For example, the 2020 law defines a digital asset as “a representation of economic, proprietary or access rights that are stored in a computer-readable format, and includes digital consumer assets, digital securities and virtual currency.”
What became the Wyoming Crypto Law means in practice that blockchain-based assets are categorised as three kinds of property assets: digital securities as investment contracts, digital consumer assets as utility tokens and virtual currencies as Bitcoin and other altcoins.
The law enables individuals and companies to own digital instruments without the need for intermediaries as banks. Also, the law allows for securities to be issued in tokenised form, thereby making Wyoming into the new “go-to” jurisdiction similar to, for example, how things are in the state of Delaware.
A Wyoming native and former Wall Streeter, Caitlin Long, the co-founder of the Wyoming Blockchain Coalition and former chairman and president of enterprise blockchain company Symbiont, has been an enthusiastic champion of this blockchain legislation.
Blockchain laws — Wyoming a crypto-hub
Most of Wyoming’s legislators have been supporting the idea of designing”blockchain-friendly” legislation.
In total, 13 bills/laws have been passed in Wyoming regarding blockchain, cryptocurrency and digital entrepreneurship. Laws enable, among other things, a new kind of banking category called the Special Purpose Depository Bank by allowing banking services to blockchain-based businesses.
The SPDB category means the exemption of those utility tokens that are not marketed or promoted as investments and can be exchanged for goods and services.
Thereby, most Wyoming legislators have aimed to create laws that will promote Wyoming as a “blockchain-hub” in the USA and as a “crypto-friendly state”, thereby attracting new investments, businesses and entrepreneurs.
For example, House Bill (H.B.) 70 from 2019 created a framework for token sales in Wyoming to be classified as utility tokens by complying with certain conditions, including but not limited to:
- Registering with the state
- Not classifying tokens as an investment vehicle.
- Tokens having a consumptive purpose, exchangeable for goods or services.
Another example is the H.B. 74 that allowed Kraken Financial, “the first crypto bank”, to receive a state bank charter. Under this law, digital asset companies can apply to become an SPDB type of bank.
One significant difference between SPDBs and traditional banks is the type of lending they engage in since American federally chartered banks must comply with additional federal regulations as they traditionally lend out customer money and hold less in reserve than the customer initially deposited, also known as “fractional reserve banking.”
Thanks to this law, “crypto-banks” can operate as a national money transmitter without obtaining a license from all fifty states separately and can offer banking and qualified custody for digital assets for any company and integrate with federal payment systems. Also, they can create new types of financial products for their customers, like cryptocurrency-backed debit cards, retirement accounts, and wealth management services.
DAO
Wyoming’s legislation also includes “crypto LLC’’ where individuals can set up companies and businesses operating on cryptocurrency and tokens. This also consists of the establishment and operations of DAO — Decentralised Autonomous Organisation.
DAO functions as a more transparent, democratic and dynamic form of business than compared to older types of companies. Basically, DAO does not need a central entity as a medium-sized company or a multinational company. Instead, DAOs most often use a smart contract with hard-coded rules to guide their governing processes, which function by using voting rights instilled in specialised cryptocurrency tokens.
Wyoming’s legislation means that DAOs are recognised as a legal form of business and that digital tokens are excluded from being considered a form of securities, enabling tokens to function as money. The legislation makes it easier for potential investors by providing more clarity on the taxation of cryptocurrencies not involving dollar conversions.
Summary
In practice, the Wyoming “crypto/blockchain-laws” means that:
- Cryptocurrencies are recognised as money
- Companies (DAO) can be owned with tokens
- Blockchain is “embraced” in the whole state regarding legal entities
- Banks in Wyoming can operate as custodians for digital assets
- “Hodlers” and owners of digital assets have property rights of all types
- LLC:s can now operate on crypto
- Fedmaster accounts for banks and companies, meaning operations without intermediaries.
As decentralised technology is developing during the 2020s, it is interesting to follow the development in Wyoming due to this US-state’s more unique, optimistic and forward-looking approaches to regulations and functions cryptocurrencies and other forms of decentralised economic development.
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