Wyoming introduces triple cryptocurrency classification in new bill
If it doesn't pass the Howey Test, and isn't a digital currency, it's a digital consumer asset.
In a new bill, the state of Wyoming has proposed three formal classifications for different types of cryptocurrencies, and in the process lays down some definitions for distinguishing between them.
The three categories are digital consumer assets, digital securities and virtual currencies. While there are undoubtedly some rough edges that will need to be sanded down to fit the real world, this kind of multiple classification system could help go to the heart of the obstacles impeding crypto regulation.
It describes digital securities as digital assets that pass the Howey Test, and virtual currencies as digital assets that are "used as a medium of exchange, unit of account or store of value, and are not recognised as legal tender by the United States government."
Digital consumer assets are the catch-all for the cryptocurrencies which don't fall into one of the other categories. It describes digital consumer assets as "a digital asset that is used or bought primarily for consumptive, personal or household purposes," but notes that any digital assets that don't qualify as either a digital security or a virtual currency will be lumped into the "digital consumer assets" category.
Paving the way
Functionally, this bill opens the door for banks and other institutions to provide custody for crypto assets, and it also provides a framework for this to happen.
"A bank may provide custodial services for digital assets consistent with this section upon providing 60 days written notice to the commissioner," it says.
Also in the bill is a solid explainer for envisioned custody systems, and the choices a customer might have to make, which provide an interesting insight into some of the challenges of integrating digital assets into the existing financial system.
For example, it asks whether crypto being held by a custodian should be fungible or non-fungible. If a custodian holds someone's bitcoin, can that person expect to get the exact same bitcoin back later? Or can it be safely mixed up with other assets? The bill decides that customers should be given the choice, which will influence a bank's obligations. If the customer wants it non-fungible, it must be separated from other assets, otherwise it can be held in a pool.
It also brings questions around how to legally identify the actual, tangible digital thing being held by a custodian. The bill stipulates that banks and customers will need to agree, in writing, on the actual digital asset being held. Of course, two coins might share identical code and be differentiated only by their communities and level of recognition, which could be a fuzzy point.
Also prior to implementing any updates, except emergency security updates, a bank will have to provide customers written notice and wait for a response. The bill also determines that fork, airdrop and other proceeds will go to the customer and be distributed in the same account.
Original bitcoin enthusiasts might not be too thrilled as regulations to "bankify" bitcoin, but it's worth noting that this bill explicitly prohibits the rehypothecation of customer digital assets, except on the customer's instructions.
The scattered regulatory landscape in the United States can be chaotic, but it can also allow individual states to take their own initiatives on cryptocurrency to a certain extent. Wyoming has been one of the more pro-crypto states to date, along with Colorado, Arizona and California.
Disclosure: At the time of writing, the author holds ETH.