The Colorado Council for the Advancement of Blockchain Technology Use has released its final report to the community, identifying taxation, securities, money transmission, banking services, debt payments and definition of tokens among the major blockchain-related issues facing the state.
The council was created by former Governor John Hickenlooper and continued under Governor Jared Polis, who aims to make Colorado a national hub for blockchain innovation. It was formed to help the state take on “the challenge and promise of blockchain use in government,” according to a news release issued by the Colorado Governor’s Office of Information Technology, and create a roadmap for state agencies to collaborate on the technology.
“[B]lockchain technology and innovation has continued to grow in Colorado. Over the past three years, blockchain companies affiliated with Colorado have raised over $50m in venture capital funding,” the report states. “Colorado has the chance to be a leader in promoting and supporting healthy innovation in this space. The Colorado Blockchain Council and this report are designed to be the first steps in this effort.”
The Blockchain Council Report to the Community provides background to help understand blockchain technology, an outline of the organization and process of the Council, and an explanation of the problems and potential solutions the Council identified and worked to implement.
The report identifies the following issues:
• Taxation: Federal taxation of cryptocurrency is both onerous and somewhat unclear, the report states, even after the 2017 tax reforms.
• Securities: The lack of regulatory clarity around token sales leads to uncertainty — and potential criminal and civil liability — for companies and individuals who want to sell or purchase digital tokens.
• Definition of tokens: Tokens and digital assets are only vaguely defined. This saddles companies thinking of issuing tokens with significant legal risk.
• Banking regulation/money transmission: Blockchain businesses conducting value-exchanging transactions on behalf of clients may be deemed money transfer agents, and enforcement actions on this basis have already occurred.
• Banking services: Blockchain businesses, particularly those with a cryptocurrency focus, have historically found it difficult to obtain traditional banking services such as simple bank accounts.
• Trust/custody: Unlike traditional assets, where the physical asset itself or a proxy of the asset is held in custody, blockchain assets cannot be physically held.
• General regulatory environment: Emerging and disruptive technologies, such as blockchains, don’t always fit neatly within the existing Colorado legal framework of statutory, regulatory and case law.
• Debt payments: There is a need for a framework that defines blockchain-related debt transactions, including the incurrence and payment of debts.
“The members of the Blockchain Council did exceptional work during their charge by identifying critical issues faced by the blockchain community and beginning to provide solutions in a variety of ways,” said Jana Persky, director of blockchain and opportunity zones for the Colorado Office of Economic Development and International Trade, where the Governor-appointed Council was housed.
In May, OIT announced the appointment of Thaddeus Batt as the state’s first ever Blockchain Solution Architect. According to the release, Batt will expand upon the work of the Blockchain Council in partnership with a consortium of state agencies including OEDIT, the Department of Regulatory Agencies, Colorado Department of Revenue, and the Colorado Department of Higher Education.
The consortium will work on the continued adoption and expansion of blockchain technology in Colorado by exploring policy and regulatory clarity, banking services and support, taxation of digital assets and collection of taxes using cryptocurrency, blockchain workforce development, industry innovation, and active monitoring of other states’ industry-specific legislation.
“The Blockchain Council report showcases the important work already underway,” Theresa Szczurek, OIT chief information officer and executive director, said in the release. “Our continued efforts will provide Coloradans with secure, transparent, and trusted data access for government services through the application of blockchain and distributed ledger technologies.”
The report can be found at https://choosecolorado.com/blockchain/.