Category Archives: Blockchain regulation

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South Korea Blockchain Association Presses for Regulation Efforts

The South Korean Blockchain Enterprise Promotion Association (BEPA) is demanding for the government to speed up blockchain and cryptocurrency adoption and regulation efforts.

Time for urgency

A report from a local news outlet, Korea Joongang Daily, has said that the association filed this demand to curb the government’s focus on “negative short-term side effects” and instead urges it to observe the global blockchain race and adopt a means to reap the economic benefits sooner than later.

Yoo Joon-sand, president of BEPA told a press briefing: “Countries around the world are applying blockchain technology to all aspects of society including health care, retail and logistics.”

He adds, “But instead of welcoming the people’s fervor for the technology, the government is focused on controlling it to address negative short-term side effects. This is essentially kicking away the economic opportunities that lie in front of us.”

The blockchain push

The association, formed on 17 July, is comprised of ex-politicians and academics with significant members such as former Prime Minister Lee Soo-sung and Professor Kim Hyoung-joong, head of Korea University’s Cryptocurrency Center at the Graduate School of Information Technology.

Furthermore, with their combined technological and governmental experience, members of the association wish to also push the regulation of blockchain technologies so that they can be applied to “diverse industries”, which is expected to be a catalyst for job creation and reduce financial burdens for small business owners.

According to the report, the members of the association believe that should the nation be ready with a full-body of regulations, then South Korea can witness explosive job creation and “pave the way for Korea to lead the world in the fourth industrial revolution“.

South Korea has already made vows with the United States to collaborate on a multitude challenges and facets of this coming era, with blockchain being one of the technologies in focus.

Embracing the future

This is not the first time that the government in South Korea has been pushed by politicians and prominent organizations to ramp-up the effort to regulate the space. For two weeks in early July, the South Korean National Assembly saw a maelstrom of political parties submit draft bills to create clarifications on initial coin offerings (ICOs), cryptocurrencies and blockchain technology.

In late July, the head of the virtual currency response team for the country’s Financial Services Commission made calls for adequate legal frameworks to be implemented; this would be in order to protect cryptocurrency investors and domestic blockchain enterprises.

Recent changes to tax rules for “new-growth technologies” included tax cuts for companies engaging in blockchain and cryptocurrencies. The new rules were announced in mid-July, however, there is a chance that these benefits will not be extended to cryptocurrency exchanges.

 

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UK FCA Remains Blockchain Bullish with Establishment of International Regulatory Network

The Financial Conduct Authority (FCA) of the United Kingdom has announced the establishment of a collaborative entity, the Global Financial Innovation Network (GFIN).

Regulatory network

The newly-formed GFIN is a result of the FCA’s ongoing effort to create a global sandbox, a proposal that was announced in February. Currently, 11 collaborators are involved in the GFIN, comprised of international financial regulators and organizations such as the United States Bureau of Consumer Financial Protection, Ontario Securities Commission and the Monetary Authority of Singapore.

As written in the press release, the purpose of the network is to generate a reinvigorated concept of the ‘sandbox’, opening up an unprecedented global knowledge-sharing sandbox.

Christopher Woolard, FCA Executive Director of Strategy and Competition said, “The establishment of the GFIN can help share the experiences and knowledge from across different markets, while also providing a platform for innovative firms wishing to scale their propositions via testing in multiple countries.”

Feedback

Prior to the project update, the FCA had received 50 responses to the February paper that were on board for a collaborative regulatory effort. There were four key themes gleaned from the feedback, providing some precedent for how the GFIN should proceed.

Firstly, respondents were in favor of a regulatory safe-zone where regulators could work together to overcome common challenges, as well as addressing varying policy queries across multiple jurisdictions. This is accompanied by a new sense of efficiency, allowing for ideas to hit new international markets in a speedier fashion.

Furthermore, the feedback indicated that it was important for the new alliance to be transparent and fair, providing an equal field for those who desire to conduct cross-border tests.

Finally, disruptive new technologies with cross-border application are going pose challenges, technologies such as Artificial Intelligence (AI) and Distributed Ledger technology (DLT) aka blockchain, will come under the watchful eye of the GFIN.

To nurture these technologies, the alliance is to improve regulations of securities and initial coin offerings (ICOs) as well as address concerns with know your customer (KYC) and data protection, among others.

Primary objectives

In addition to the guidance offered by the feedback, the GFIN has set out three primary functions. To act as a network of regulators that shares innovation knowledge and experiences, establish an open and constant dialogue for joint policy work, and create an environment for firms to pilot cross-border solutions.

The United Kingdom has been somewhat a pioneer in the blockchain regulation space, with the Bank of England making significant strides having recently completed a DLT Proof-of-Concept. The UK is being touted as a nation with the capacity to lead the blockchain industry, which was a conclusion of a 960-page analysis from DAG Global, Deep Knowledge Analytics and the Big Innovation Center.

 

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Chamber of Digital Commerce Publishes ‘Understanding Digital Tokens’ for Policymakers

The world’s largest trade association representing the blockchain industry has released a white paper called ‘Understanding Digital Tokens: Market Overviews & Guidelines for Policymakers and Practitioners‘.

A guide to digital tokens

The Chamber of Digital Commerce (CDC) is based in Washington DC and is a prominent blockchain advocacy group. It is comprised of a number of initiatives that are working to promote multiple facets of the blockchain industry. This includes but is not limited to the Blockchain Intellectual Property Council, the Smart Contracts Alliance and the Token Alliance.

The latter initiative is responsible for publishing the first edition of its collaborative report; the paper offers guidance on how to nurture “responsible growth” of the digital tokens and the initial coin offering (ICO) facets of the nascent industry.

The Token Alliance has over 350 global contributors across multiple sectors, economists, former regulators, blockchain and token experts as well as law practitioners.

The three-part report covers the regulatory environment across five counties including the United Kingdom, with special regards to securities law, which is an especially debated topic in the United States. It also covers utility tokens and the “token economic landscape”.

In the report’s accompanying press release, Paul Atkins, CEO of Patomak Global Partners and former SEC Commissioner said, “These industry-developed principles are an important tool for responsible growth and smart regulation that strikes the right balance between protecting investors while allowing for innovation in this new technological frontier.”

Global acknowledgment

In the paper’s introduction, the exponential growth of industry growth over the past two years has seen blockchain technologies become recognized as a transformative and disruptive force. It must be noted that globally, banks and major financial institutions have begun adopting the technology,

Across these multiple jurisdictions, there is no entirely unified set of regulatory frameworks. Countries such as Malta and Switzerland have already established their own set of laws and legislation offering a crypto-friendly environment for blockchain entrepreneurs.

However, nations such as the US and South Korea appear to be struggling to reach consensus on how to approach virtual tokens and ICOs. The report from the Token Alliance sets out to “open the doors to creative thinking and understanding in the token ecosystem”.

A compendium of legal clarification

Perianne Boring, founder and president of the CDC said to Bitcoin Magazine, “The Chamber of Digital Commerce is advocating for regulatory clarity… “Up until now, there has been an absence of clarity on the regulatory landscape for ICOs and utility tokens.”

She describes the report as containing principles developed by the industry to be the “first set of guidelines for the token industry”. According to her, the purpose of this report is to provide clarity on a “full spectrum of laws” to businesses worldwide who are either already involved with or seeking to enter the industry.

This is the first installment from the CDC and the Token Alliance. The report concludes that in subsequent works, issues such as “utility token” concept promotion, cybersecurity and hybrid tokens could be addressed.

Other entities are also publishing documents pertaining to blockchain information and education. As recently reported, a US-based world-leading IT industry trade association released its guidebook on ‘Harnessing the Blockchain Revolution: CompTIA’s Practical Guide for the Public Sector‘.

 

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“Dream City” International Blockchain Collaboration Between China and ConsenSys

In a world first, the Chinese City of Xiong’an will be home to a blockchain deployment program, transforming the newly-established ‘number-one urban project‘ into a “dream city”, backed by President Xi Jinping.

Mega-cities

Over the past three decades, urban development in China has been exploding; major cities have been receiving record levels of funding, and areas such as Shenzhen and Shanghai’s Pudong have been placed on a special list for development throughout the past 40 years.

Xiong’an is one of the most recent additions to the list of “mega-cities” and has been a largely underdeveloped area. In April, plans for the Xiong’an New Area were revealed as well as documents guiding the cities development through to 2035.

Bolstered by blockchain

These ambitious developments have received a rocket-fueled boost as a significant partnership between Xiong’an and blockchain development company ConsenSys.

On 23 July, ConsenSys and the Xiong’an government signed a memorandum of understanding (MoU) for the “dream city” project, marking the first time that Xiong’an has publicly recruited a foreign development studio to aid in its blockchain efforts.

Blockchain is high up on the city’s technological agenda, it is one of several technological fields that the government has listed as part of cutting-edge and can transform Xiongan into a leading tech hub for the country.

Joseph Lubin, Ethereum co-founder and ConsenSys founder said in a statement, “As one of our first major projects in the People’s Republic of China, we are excited to help define the many “use cases” that could benefit from the trust infrastructure enabled by Ethereum technology.”

According to the South China Morning Post, the full MoU has not been published, though in a statement ConsenSys wrote, it would “… follow with agreements addressing different aspects of this innovative multi-faceted initiative, and establish Xiongan as a next-generation smart city and a leading blockchain innovation hub”.

ConsenSys has several global partnerships on the go; Ireland is in partnership with the studio to develop and deploy Ethereum-based blockchain platforms and products, and the Philippines, for example, are working with the studio to bridge gaps between the unbanked and traditional financial services.

Billions upon billions

China is pumping extraordinary amounts of money into domestic blockchain developments. In April, one of the specially designated mega-cities Shenzhen was reported to be investing CNY 500 million (USD 80 million) into blockchain startups in the city in a public-private partnership.

Before that, the city of Hangzhou received USD 1.6 billion to invest in blockchain effort. The funding project has already opened a Blockchain Industrial Park with ten blockchain projects from around the world being “successfully contracted” into it.

Most recently, Nanjing City is set to receive CNY 10 billion (USD 1.48 billion) worth of investment to support public blockchain projects in another public-private fund that will support academic innovations, blockchain startups as well as established companies seeking to adopt blockchain technology.

 

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Berlin Bullish on Blockchain; Ethereum Co-Founder Bullish on Berlin

Joseph Lubin, co-founder of Ethereum, has dubbed Berlin as “the most important city in the blockchain cosmos” and also made comments on old internet practices that need to be forgotten as a means for it to evolve into “Web 3.0”.

Blockchain prowess in Berlin

Lubin has firm beliefs that the German capital of Berlin has the capacity to be a world leader in all things blockchain. Speaking to a local news outlet, he said, “Berlin has the infrastructure, Berlin has the talent, the really good programmers are here… the government needs to set up more programs to promote blockchain.”

The latter comments arrived in a timely fashion as the first ever Blockchain Visionnaire Summit (BVS) took place on 23 July, where a panel of speakers including software engineer Artiona Bogo (SAP) and Cindicator CTO and co-founder Yuri Lobyntsev.

The panel had discussions on Berlin’s geographic prominence in the cryptocurrency and blockchain space. New York-based conference co-founder Anastasia Cherinkova said, “It’s much more about developing companies and less about raising capital. Meetups and conferences in Berlin are mostly for developers, less for entrepreneurs or investors.”

Lubin also acknowledged that blockchain and the industry were within their earliest stages, however, to move forward he admitted that Bitcoin hype brings more money into the space, enabling the tech to move onward.

In regards to Web 3.0, Lubin thinks the “old web” was wrought with mistakes, especially given the conventions of centralized data silos that collect and store user data, saying, “We have to get away from silos, from companies that collect data and make money, and people should have that back in their hands.”

German progress

The chief of the German Financial Supervisory Authority (BaFin), Felix Hufeld, is a blockchain bull, describing it as a technology that can turn the financial sector “upside down”, though he holds a skeptical stance on the volatile cryptocurrency markets and initial coin offerings (ICO).

Furthermore, in early July 2018, Solarisbank, a Banking-as-a-Platform institution launched a blockchain-focused banking service for clients in the blockchain and digital currency industry called the Blockchain Factory. It facilitates the banking needs of companies whose businesses are “directly or indirectly” based on cryptocurrencies and blockchain technology.

Phillip Blankenagel, head of communications at SolarisBank, said, “We… see it as a chance to work with innovative companies on the future of the financial industry. We believe in the future of blockchain technology and the future of companies that rely on this technology. At the same time, as a bank licensed company, we place great value on legal and regulatory permissibility and scrutinize possible partnerships.”

The European Union has admitted that it faces some serious challenges in the advent of blockchain technologies and as of yet, there are very few financial institutions offering corporate accounts for blockchain companies, which will surely lure fintech companies from across the globe to Berlin.

 

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CFTC Chair: Blockchain Innovation Stifled by Lack of US Regulations

At a United States Congressional hearing on Wednesday, 25 July, Christopher Giancarlo, Chairman of the Commodity Futures Trading Commission (CTFC), elaborated on the need for CFTC participation in blockchain innovation in the US.

“Because we’re falling behind”

At the “Examining the Upcoming Agenda for the CFTC” public hearing, Giancarlo explained the frustrations of the CFTC not being able to participate in Proof-of-Concept (PoC) or beta tests of new blockchain innovations, that of which can be boiled down to bureaucracy.

He says that the CFTC would love to take part and create a regulatory node in the blockchain to observe these developments. However, Giancarlo noted that the CFTC was unable to do so, owing to present laws which stifle efforts to appropriately regulate the blockchain with full understanding.

The issue is that the CFTC can’t freely exchange information between itself and a private startup as it is considered a “gift”, which is something that the agency is strictly prohibited from doing, or even a bank, even if it was by invitation.

Giancarlo also points out that paying a private company for information is redundant as it will need to go through a time-consuming appropriations process, by which time he says “this thing is already launched”.

Catching up

His words come in response to Representative Austin Scott’s question of how the CFTC Modernization Act would allow them to do their job better, a bill that was also proposed by the representative.

He noted that the Bank of England had recently managed to finalize a Distributed Ledger Technology (DLT) project through their four-year-long Project Innovate that allowed them to participate in blockchain beta tests, from which they created a new “bank-to-bank payment system” and that it is going to be “blockchain compliant”.

Giancarlo was also asked earlier by the representative to explain the future intentions of the CFTC’s hub for “engagement with the fintech innovation community” called LabCFTC. To which he responded, “LabCFTC is our front door into these new regulatory fintech developments in the marketplace, and it’s so important to us to be able to understand these innovations that are coming down the pike so fast.”

US developments

The commissioner of the CFTC Rostin Benham called cryptocurrency a “modern miracle” in early June, also believing that blockchain was a remedy to globally-recognized problems such as poverty, corruption, food and healthcare.

In July, the Chamber of Commerce created a Fintech Innovation Initiative that is urging the government to establish clearer regulations on cryptocurrencies and related activities. Furthermore, it sent a report to US financial regulators also relaying the message that the US could fall behind the rest of the world.

It appears as though the cogs are finally turning in the US, though the nation will have to certainly set a high pace should it wish to be in league with countries such as South Korea, Malta, or the United Kingdom.

 

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G20 Counseled on Appropriate Monitoring of Crypto and Blockchain Impact

The Financial Stability Board (FSC) has published and submitted a report to the financial ministers and central bank governors of the G20, offering counsel on frameworks for the supervision of crypto-assets as well as the impacts of blockchain.

Challenges and complications

The G20 financial watchdog notes in the report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

Due to the “fragmented nature” of crypto-asset markets, classification across multiple jurisdictions also imposes other challenges. Furthermore, the publication draws attention to the metrics on prices, trading volumes and volatility, speculating that there may be foul play and “prohibited practices” such as “wash trading”, “spoofing”, and “pump and dump”.

Prior to the G20 summit, the FSB had released a letter to the G20 outlining its priorities with “vigilant monitoring” of emerging risks posed by the nascent technology appearing first on the list. However, it noted that the FSB’s “initial assessment is that crypto-assets do not pose risks to global financial stability at this time”.

After the G20 summit in Buenos Ares in March 2018, the FSB was called upon by the G20 ministers of finance and central bank governors to provide a report of its work on crypto-assets as well as those of other standard-setting bodies which includes the Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS).

Report summary in brief

Summarily, the FSB has now developed a means to monitor the “financial stability implications of crypto-assets” which it believes will be more reliable and complementary to data from public sources, which at present is the primary source.

The IOSCO reports to have created an ICO Consultation Network, opening up channels for dialogue regarding experiences and concerns. It is working on a support framework with the intention of developing a means to protect investors by examining domestic and cross-border risks posed by ICOs.

The CPMI reports that it has conducted “significant work” regarding the applications of distributed ledger technology (DLT) and at present is also working in “outreach, monitoring, and analysis of payment innovations”.

On the side of banking, the BCBS has been analyzing the “materiality” of banks to direct and indirect crypto-asset exposure and clarifies how to treat it, and monitor these developments in relation to crypto-assets and fintech.

The report comes as 2018 continues to be a year of global government and institutional blockchain and cryptocurrency recognition. Efforts to regulate, tax and innovate the nascent industry are being made worldwide at a feverish pace. In due time, these findings could have a profoundly positive impact on the future of the tech.

 

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South Korea Introduces New Crypto and Blockchain Classification Guidelines

The South Korean Financial Services Commission (FSC) has revealed new guidelines for cryptocurrency regulations, just as the nation’s central bank, the Bank of Korea (BOK), reported that total balance of Korean cryptocurrency investment as of December 2017 stood at almost USD 1.8 billion.

Recent events

South Korea has made frequent crypto-positive headlines in regards to cryptocurrency regulation and blockchain technology adoption. Recent news of major hacking attacks provoked a swift regulatory response from the South Korean government in June, sparking some concerns over how strict these regulations would be.

However, South Korea has been making significant efforts to revise these regulations in a positive light; regulators plan to ease the rules on regulations and the classification of cryptocurrencies in line with the G20 recommendations.

Bank of Korea’s crypto report

Local media outlet Yonhap News reported on 6 July that BOK released a report regarding the significant virtual crypto-assets being held by the nation’s commercial banks. Totalling KRW 2 trillion (USD 1.79 billion) as of December last year, the figure sits at roughly 8% of the total deposits by the country’s brokerage houses, which are worth 26 trillion won.

The BOK doesn’t see this as particularly significant, however, despite the cryptocurrency craze that appears to be sweeping the nation.

The BOK report said: “The amount of crypto-asset investment is not really big, compared with other equity markets, and local financial institutions’ exposure to possible risks of digital assets is insignificant… Against this backdrop, we expect crypto-assets to have a limited impact on the South Korean financial market.”

While this may not be considered to have a significant impact nationally, South Korea virtual currency trading accounted for approximately 12% of global crypto-trading volumes, making the nation a powerful market force internationally.

New classification system

Local media portal The BChain provided a detailed report that delved into the present details of the new crypto and blockchain classification system for the industry, which is broken down into ten categories including decentralized applications, blockchain systems, and cryptocurrency exchanges.

On 10 July, South Korea will begin enforcing the anti-money laundering banking rules on cryptocurrency settlements created by the FSC. Banks and other financial institutions in the country are to be obliged to carry out due diligence procedures for crypto-exchanges to their non-client accounts, as well as share overseas digital trading platform information with the FSC, and immediately stop suspicious crypto-transactions.

By the end of July, the government is expected to announce the final draft for the new regulations after it has conducted opinion research from more than 160 institutions. The survey on the nascent industry this year will provide data that is expected to be a positive and prominent guide for blockchain and cryptocurrency regulation.

 

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UK Financial Conduct Authority to Deliver Crypto Regulation Analysis in 2019

The United Kingdom’s cryptocurrency regulation is slowly taking shape as its Financial Conduct Authority (FCA) has announced that they will be analyzing the risks and benefits of blockchain technology and cryptocurrencies.

Regulation in the UK

The FCA, Bank of England and the UK Treasury are working together on a discussion paper for cryptocurrencies which will be revealed in 2019. The coming UK crypto regulations are geared toward attracting businesses based in Continental Europe.

The FCA Business Plan 2018/19 states:

“Cryptocurrencies has been an area of increasing interest for markets and regulators globally. In the UK, the Treasury Committee has announced that it will be launching an enquiry, to which we intend to respond.”

The plan continues:

“Cryptocurrencies themselves (i.e. those designed primarily as a means of payment/exchange) are not currently within our regulatory perimeter. However, some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex.”

Regulation around the world

The FCA has previously warned consumers regarding the risks of initial coin offerings (ICOs). The popular crowdfunding method for blockchain startups has been part of a miasma of controversies causing ICO bans in countries like China, which is still having issues with ICO and cryptocurrency projects getting past the Peoples Bank of China’s (PBoC) strict rulings.

There are very few countries around the world that have outright bans on ICOs, and many of the governments within their respective countries are taking a look at the possibility of future regulations.

Most countries have banned ICOs due to fraudulent actors, scams, security risks and money laundering; however, several are attempting to create definitions and legal frameworks that can accommodate the technology and utilize the long list of benefits that come with it.

Protecting consumers and the technology

In February, the UK Treasury Committee launched an inquiry into cryptocurrencies and distributed ledger technology, stating that one of its goals is to provide protection to consumers and businesses without stifling innovation. MP Nicky Morgan, committee chairman, said:

“People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors… We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.”

The FCA also released a statement in response to the UK’s growing number of cryptocurrency and blockchain firms describing that cryptocurrency derivatives could be classed as financial instruments, meaning that tokens issued through ICOs could require FCA authorization.

While the FCA doesn’t quite have a clear idea on how to manage or regulate cryptocurrencies and ICOs, it is evident that the regulator intends to embrace distributed ledger technology and, in doing so, enable blockchain-related businesses and innovations to thrive in the UK.

 

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Arizona Lawmakers Gearing Up to Pioneer State-Wide Regulated Blockchain Industry

The state of Arizona has officially signed into law a bill that allows for corporations to hold and share data on a blockchain. First introduced in February by state representative Jeff Weninger, the bill is intended “to open the door for emerging technologies in Arizona”.

Over the past two months, Arizona has been making headlines following numerous blockchain-related reports. Firstly in early March, the Arizona House of Representatives gave passage to a bill which was initially introduced in January. It has not yet been voted into law, however, if passed, it would make Arizona the first US state to accept payment for taxes in “Bitcoin or other cryptocurrency”.

A brief timeline of events

Jeff Weninger also sponsored House Bill 2602, which in February was passed. The bill would provide protection against any form or local regulation for users who are running blockchain nodes; the bill states: “a city or town may not prohibit or otherwise restrict an individual from running a node on blockchain technology in a residence.”

Weninger was also at the helm of two more blockchain bills. In February, the Arizona state representative began paving the regulatory framework for initial coin offerings (ICOs) in the state. The first bill defined “virtual coins” as “a digital representation of value that can be digitally traded and that functions as a medium of exchange, unit of account and store of value”.  The second bill made amendments to the Arizona Revised Statutes, which is to account for data that is written and stored on a blockchain.

By the end of March, controversy struck when an Arizona Bitcoin trader was convicted for five accounts of money laundering. On 28 March, Thomas Mario Costanzo was jailed for accumulating over USD 164,000 in cash made from narcotics, exchanging it into Bitcoin and further selling and distributing illegal substances using Bitcoin as a preferred method of payment via internet purchases.

The efforts made were not stifled by the Bitcoin controversy; typically a Bitcoin scam/scare can cause regulators and lawmakers to come down hard on the technology, but not in Arizona.

A year after, the state began accepting smart contracts as legal documentation and recognizing signatures recorded on a blockchain. Arizona is finalizing proceedings with the HB2603, HB2602, and HB2601 bill package that together can demonstrate to the rest of the United States that it is possible to integrate and regulate blockchain technology state-wide.

Arizona leading the way

Other states have not been so fortunate. Both New Hampshire and the state of Georgia failed to pass a bill that was to require the state to accept cryptocurrencies for payment of taxes and license fees. In Georgia, it was supposedly held back by a lack of understanding and education on the benefits that blockchain technology could bring.

Though that is not to say that new legislation and regulations are entirely off the cards for any of the states; Arizona has the opportunity to set the standard for the rest of the nation and demonstrate the beneficial potency of a regulated blockchain industry.

 

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