Crypto Victory: Colorado Exempts Cryptocurrencies From Securities Laws

08-03-2019

Colorado Governor Jared Polis just signed the Digital Token Act. The new law exempts certain cryptocurrencies from securities laws and allows technologists in Colorado to operate outside of strict securities registration requirements.

Lawmakers in Colorado introduced SB19-023 earlier this year to remove regulatory uncertainty surrounding cryptocurrencies. Passage of the Digital Token Act clears the way for entrepreneurs to emerge in Colorado and to build new technologies, strong ecosystems and decentralized applications that can use utility tokens to power various activities.

Under the new law, digital tokens that meet certain criteria will be able to transfer value on a cryptographically secure blockchain and will not be labeled as securities or otherwise subject to laws designed for fundamentally different financial instruments.

Digital tokens that are exempt highlight some of the major differences between a traditional, regulated security, such as a stock or a bond, and today's emerging class of cryptocurrencies that can execute "smart contracts", perform functions and transfer value.

The lawmakers recognized that they are not the same.

Cryptocurrencies that have a "primarily consumptive purpose" with qualifying use cases and which are available for offer, sale or transfer will no longer face possible prohibition under article 51.

A use case would offer details of specific goods or services that are tied to the digital asset.

Under the act, Colorado becomes an increasingly pro-crypto state that aims to support entrepreneurs who are building blockchain-based systems.

"Colorado has become a hub for companies and entrepreneurs that seek to utilize cryptoeconomic systems to power blockchain technology-based business models."

These businesses often raise capital through the sale of digital tokens.

"Companies that seek to utilize cryptoeconomic systems face regulatory uncertainty that the issuance, sale, and purchase of digital of digital tokens that have a primarily consumptive purpose may be prohibited under this article 51."

"'Consumptive purposes' means to provide or receive goods, services, or content, including access to goods, services, or content."

The passage marks a major step forward for proponents of the digital economy. It supports developers, venture capitalists and investors who are working to blend traditional platforms with crypto infrastructure and blockchain-based solutions.

The goal is to deliver data and value digitally and securely in decentralized environments that can eliminate middlemen, reduce bureaucratic redundancies, shrink paper-based documentation and automate processes.