Colorado Governor Signs Act: Certain Cryptocurrencies Exempted From Securities Law

Jared Polis, the pro-crypto governor of Colorado who assumed office in November last year, has recently put his signature on the Digital Token Act that seeks to place some cryptocurrencies outside the ambit of the strict securities law. In addition, the act also gives leeway to technology practitioners to work beyond the securities registration requirements that are otherwise imposed.

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The Digital Token Act will be laying down some clear criteria and these predefined criteria will form the basis for identifying certain cryptocurrencies. These cryptocurrencies can then transfer value over a secure blockchain network bolstered by cryptographic principles. These will not be treated as “securities”. Instead they will be governed by laws that are made specifically for “fundamentally different” financial instruments and assets.

In January this year, the legislators in the state of Colorado had introduced the SB19-023 to address and remedy the lack of regulatory clarity in the field of cryptocurrencies. Now, any new firm or entrepreneur hoping to start an enterprise in the world of cryptocurrencies or blockchain technology can benefit from the conducive ecosystem in the state.

They can even develop dApps or decentralized applications that allow users to make use of utility tokens to facilitate services rendered over them. The January bill was meant to introduce “limited exemptions from the securities registration and securities broker-dealer and salesperson licensing requirements for persons dealing in digital tokens”.

Cryptocurrencies are quite different from traditional forms of securities as they can perform various functions, transfer value and even execute blockchain smart contracts.

The law calls for the exemption of cryptocurrencies that are meant for a “primarily consumptive purpose”, which means that they will will used for receiving goods, services etc. and accessing them.Following this, any prohibition under article 51 will not apply to these cryptocurrencies.

Digital tokens are the ones different from traditional, regulated security, such as a stock or a bond, as these can execute “smart contracts,” perform functions and transfer value.

As per the law, cryptocurrencies that have a “primarily consumptive purpose” with qualifying use cases (details of specific goods or services that are tied to the digital asset) and which are available for offer, sale or transfer will no longer face possible prohibition under article 51. Consumptive purposes mean receiving goods, services, or content, including access to goods, services, or content.

This marks a strong step forward for Colorado, a pro-crypto state that sets out its goal as being:

“to deliver data and value digitally and securely in decentralized environments that can cut out middlemen, decrease bureaucratic duplication, promote paperless documentation and automate processes.”