CHEYENNE – Wyoming’s recent journey into the world of digital ledgers and cryptocurrency has earned it international publicity in the business world – from trade magazines to well-respected financial publications.
Although the state has yet to see the full implications of loosening regulations on blockchain and bitcoin, some say the scope of the technology seems lost on lawmakers.
Proponents of the push to deregulate blockchain technology in Wyoming suggest it could attract a wealth of new, high-tech companies to the state, ultimately triggering an economic windfall the state greatly needs.
In 2015, state financial regulators ruled that the Wyoming Money Transmitters Act barred the trading of virtual currency, making the state one of the few in the country to take a hard stance on the issue.
During this past legislative session, though, lawmakers reversed that decision, hoping to establish a fertile economic landscape for blockchain companies.
Thanks to the legislation, cryptocurrency can now be freely traded in the state, virtual currency is exempt from property taxes, corporations can use blockchain technology to store company records, and “initial coin offerings” are legal.
Blockchain is a digital ledger that allows for secure online transactions and is used alongside virtual currencies like bitcoin, but is typically used in any capacity where internet security is vital.
The Wyoming Blockchain Coalition spearheaded the effort to deregulate the industry this year, but often clarified that no benefits were guaranteed, a sentiment echoed by local economists and business leaders.
From Jan. 1 to May 18, there were a total of 82 limited liability company initial filings with the terms “blockchain” “crypto” and “currency” in their formation names, according to Wyoming secretary of state. Each initial filer of an LLC pays a $100 fee, which means the state received approximately $8,200 in blockchain-related LLC filing fees during this time, although the bill that specifically provides for the creation of “Series LLCs” did not go into effect until July 1.
During the same period, there were a total of 14,747 LLC initial filings with the office.
“This growth of LLCs corresponds to the historic growth pattern we have seen over the last several years in the Secretary of State’s Office,” Will Dinneen, public information and communications officer for the Wyoming Secretary of State’s Office, said by email.
Perhaps one of the most creative new companies using blockchain technology in Wyoming at this time is BeefChain, founded eight months ago to track beef products farm to table.
The company has already tagged roughly 1,500 cattle on five ranches throughout the state using radio frequency ID tags that are now linked to a digital supply chain ledger.
Co-founder Rob Jennings said the state’s decision to deregulate the technology was directly responsible for his decision to set up shop here, according to previous Wyoming Tribune Eagle reporting.
The benefits of blockchain are clearly outlined, but the risks of the technology are a little less explored.
Rep. Jared Olsen, R-Cheyenne, was one of blockchain’s key proponents this year, but even he reported a “tremendous learning curve” when it came to understanding it.
Critics also warn that passing similar laws too quickly can lead to confusion later.
“What concerned me about the legislative approach to blockchain here is it seemed many of those who moved forward with it did not actually understand what they were getting themselves into,” said David Eckhardt, a retired attorney who now lives in Casper. He said he has worked on fraud cases involving cryptocurrency in other states in the past. “Sure, there is the potential for economic growth, with Series LLCs coming to the state and setting up shop. But with that is the potential for fraud, hacks and illegal activity involving gregarious characters.”
Cryptocurrency does have a foundation in the “dark web,” where criminals use it for anonymous online transactions. This could include anything from drugs to human trafficking. There have also been incidents of fraud in initial coin offerings, which is why regulation of the industry could be considered more important, as cryptocurrencies only exist online and are not backed by any government or central bank.
As more states see the potential risks associated with unregulated cryptocurrency, they are establishing guidelines and cracking down on the more nefarious side of the industry.
For example, New York announced an investigation into 13 cryptocurrency exchanges a few months ago, just one of many recent crackdowns on some types of such trading by the Justice Department and Securities and Exchange Commission. The state was also one of the first to regulate cryptocurrency, requiring anyone operating it to obtain a license and employ a compliance officer to meet capital reserve requirements.
Between 2011 and April 2018, security incidents involving blockchain saw more than $2 billion in losses, according to a report released by Baimaohui.net.
Experts say none of these concerns are a deal breaker for exploring new industries, but that the Legislature may consider refining the laws in the future.
“Before we let the state become a ‘world leader’ in blockchain, we need legislators to work with experts to understand what safeguards should be put in place to keep it a beneficial practice,” Eckhardt said.