1、BLOCKCHAIN COUNCIL REPORT TO THE COMMUNITY COLORADO OFFICE OF ECONOMIC DEVELOPMENT exchanges are not regulated by 5 Blockchain Council: Report to the Community | the state of Colorado so, despite real uncertainty around regulation of exchanges, there is little that a Colorado body could resolve. In

2、many of the working groups, however, there was a substantive issue that the Council could work to improve within Colorado. The Council worked with partners across different government agencies and other private organizations across Colorado to determine how to best serve the State and its citizens,

3、businesses, entrepreneurs, users, and customers. The issues identified by the Council, the problem statements produced by the working groups and the solutions-in-progress are explained in detail in subsequent sections. 6 Blockchain Council: Report to the Community | ISSUES IDENTIFIED BY THE COUNCIL

4、DEFINITION OF TOKENS Definitions around the various types of tokens and digital assets are unclear and vague. This leaves companies considering the issuance of tokens with a high level of legal risk, given overlapping regulatory regimes. By defining and classifying types of tokens, companies can cre

5、ate token offerings that fit within a clear legal framework. This drastically reduces the companys costs, protects consumers, and gives more visibility to the offering. Additionally, regulators and policymakers would be able to create a cohesive regulatory framework that guides companies and protect

6、s consumers. 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. There is a need for a framework to determine which blockchain-based assets are securi

7、ties and which are not, and to coordinate said framework with the SEC, CFTC and other state regulatory bodies so that such asset determinations do not run afoul of rules and regulations outside Colorado. TAXATION Federal taxation of cryptocurrency is both onerous and somewhat unclear, even after the

8、 2017 tax reforms. Pronouncements from the Internal Revenue Service indicate that the Treasury will tax cryptocurrency as “property,” subject to taxation of gains and losses similar to taxation on securities or collectible property. There is currently no “de minimis” exemption on gains, creating a t

9、remendous burden on taxpayers to track the basis (or cost of acquisition) on every purchase or receipt of cryptocurrency, no matter how great or small. If a citizen buys a digital asset for $1 and then uses that digital asset to purchase a cup of coffee when the digital asset is worth $3, the citize

10、n must track, report, and pay capital gains on the $2 “gain”, or increase in value of the digital asset from the date of acquisition to the date it was used in the coffee purchase transaction. If a taxpayer is unable to prove his or her cost basis, the basis is deemed to be zero, resulting in capita

11、l gains tax on the entire value of the taxpayers cryptocurrency. This also appears to be the law in Colorado. This tax treatment creates a significant chilling effect, discouraging taxpayers from using cryptocurrencies for everyday purchases. In addition, the lack of information available to taxpaye

12、rs on the tax treatment of cryptocurrencies likely results in significant under- reporting of taxable gains. There are questions about how payments to employees in crypto will be tracked and recorded given potential price volatility, and how tax filing and withholding would be implemented. This unce

13、rtainty makes it difficult for employees or employers who may 7 Blockchain Council: Report to the Community | want to pay salary in wages to do so and ensure they are in compliance. The lack of clarity around taxation of cryptocurrency, and the absence of a de minimis capital gains tax exemption in

14、Colorado leads to uncertainty, and potential criminal and civil liability for companies and individuals who accept or use cryptocurrency in commerce. BANKING REGULATION/MONEY TRANSMISSION Blockchain businesses conducting value-exchanging transactions on behalf of clients may be deemed money transfer

15、 agents, and enforcement actions in this regard have already occurred. Both general banking and money transmitter regulations are the domain of individual states, the federal government, or both. Blockchain companies, therefore, operate in a gray legal area, unsure which (if any) financial regulatio

16、ns are applicable to them. The definition of money transmission, for example, varies by state and even with significant legal expense can be difficult to apply to different blockchain businesses. BANKING SERVICES Blockchain businesses, particularly those with a cryptocurrency focus, have historicall

17、y found it difficult to obtain traditional banking services such as simple bank accounts. Due to regulatory and product uncertainty, banks sometimes consider these businesses too risky to accept as customers, making it difficult for cryptocurrency companies to access and store capital. TRUST/CUSTODY

18、 Blockchain asset custody procedures require specificity in dictating safekeeping and transaction handling based on the unique nature of their composition. Unlike traditional assets, where the physical asset itself or a proxy of the asset is held in custody, blockchain assets cannot be physically he

19、ld. By definition, Blockchain assets exist on a blockchain - a public, immutable ledger of transaction activity. Because information is public and distributed, transaction reversals are not possible as they are with traditional databases serving as a single point of record between two known parties.

20、 This makes the practice of secure transaction handling and verification of paramount importance to proper blockchain asset custody standards. GENERAL REGULATORY ENVIRONMENT Emerging and disruptive technologies, such as blockchains, dont always fit neatly within the existing Colorado legal framework

21、 of statutory, regulatory, and case law. Companies dont have a clear roadmap or point of contact to help them navigate overlapping regulatory regimes, generating tremendous friction and legal costs for entrepreneurs looking to start businesses and remain in compliance. Additionally, prior to the est

22、ablishment of this Council, there was no government entity taking a holistic, focused approach to building a comprehensive legal framework to support the blockchain environment in Colorado. 8 Blockchain Council: Report to the Community | DEBT PAYMENTS There is a need for a framework that defines blo

23、ckchain-related debt transactions, including the incurrence of debts, payment of debts, the use of blockchain assets as collateral and so on, and to ensure that said framework complies with Uniform Commercial Code, Internal Revenue Service Code, and Generally Accepted Accounting Principles as approp

24、riate. OTHER Working groups were also set up to address five areas that were seen not as issues, but as potentially beneficial use cases in need of support: Company Incorporation, Smart Contracts, Digital Identity, Government Use of Blockchain and Higher Education. PROPOSED SOLUTIONS SUMMARY VIEW IS

25、SUE AREASUMMARY OF SOLUTIONSSPECIFIC PROPOSALS Definition of TokensThe Council is drafting a working taxonomy of tokens that can be used for education and to guide policy/regulatory decisions. SecuritiesColorado Digital Token Act will provide an exemption for digital tokens that meet certain require

26、ments. 1 TaxationCryptocurrency Tax Fairness Act will provide de minimis capital gains exemption for small purchases made with cryptocurrencies. The Council is working with the Department of Revenue to provide clarity on other taxation issues. 2,6 Banking Regulation/Money Transmission The Banking Co

27、mmission released interim guidance on September 20, 2018, clarifying that crypto- to-crypto transmitters do not need to apply for a Money Transmission License, but crypto-to-fiat transmitters do. 3 Banking ServicesNo action taken thus far Trust/CustodyNo action taken thus far General Regulatory Envi

28、ronment The Council is proposing that the State establish a FinTech Point of Contact to help businesses navigate the regulatory environment, and to drive potential future policy changes. 4, 7 9 Blockchain Council: Report to the Community | Debt PaymentsNo action taken thus far Company IncorporationN

29、o action taken thus far Smart ContractsThe Council is considering a program to train state judges to better adjudicate smart contracts issues. 8 Digital IdentityThe Council recommended a pilot set of use cases to become more familiar with the mechanisms of digital identity and identify the best ways

30、 to incorporate them into state government services, birth registries and possibly banking AML/KYC requirements. 9 Government Use of Blockchain The Council is continuing to work with government agencies about potential pilots. 5 Higher EducationThe Council is convening stakeholders across the state

31、to understand and build off of existing activity. LEGISLATIVE PROPOSALS 1. Colorado Digital Token Act - this bill was introduced to the Colorado State legislature in Jan 2019 The impetus behind the Cryptocurrency Exemption Colorado Digital Token Act (Act) is to provide regularity clarity for compani

32、es that desire to raise growth capital by issuing digital tokens. This will support innovation and entrepreneurs in the state. The Act is narrowly targeted to create an exemption for digital token offerings that are clearly not securities, while ensuring that consumers remain broadly protected from

33、fraud and misconduct. a. Issuer Exemption The Act provides a registration exemption under the Colorado Securities Act for issuers of digital tokens that have a primarily consumptive purpose. A “consumptive purpose” is defined as providing or receiving access to goods, services or content. An example

34、 of this type of digital token could be “Spotify Coin,” where Spotify pre-sells subscriptions to new content through the sale of a digital token, and then uses the proceeds from that sale to actually develop the content. This is similar to crowdfunding platforms like Indiegogo or Kickstarter. To qua

35、lify for this exemption: The issuer of the token must make a notice filing with the Colorado Securities Commissioner The primary purpose of the token must be a consumptive purpose The token cannot be marketed for a speculative or investment purpose The tokens consumptive purpose must be available wi

36、thin 6 months of the time of sale The token cannot be resold or transferred until the consumptive purpose is available The buyer must acknowledge that they are purchasing the token to use it for a consumptive purpose b. Licensing Exemption The Act provides a licensing exemption under the Colorado Se

37、curities Act for online platforms that 10 Blockchain Council: Report to the Community | seek to facilitate the purchase, sale or transfer of digital tokens. An example of this type of platform would be “eBay Token Exchange,” where eBay permits the purchase, sale or transfer of digital tokens that ha

38、ve a primarily consumptive purpose. To qualify for this exemption: The platform must make a notice filing with the Colorado Securities Commissioner The token can be used for a consumptive purpose at the time of purchase, sale, or transfer The platform selling the token must stop permitting the purch

39、ase, sale or transfer of the token that does not conform to the requirements of the Act. c. Additional Terms The Act authorizes the Securities Commissioner to adopt rules to implement the Act or to provide exemptions or waivers as necessary. The Act also authorizes the Commissioner to enter into agr

40、eements with federal, state, or foreign regulators to allow digital tokens issued, purchased, sold, or transferred in Colorado to be issued, purchased, sold, or transferred to another jurisdiction, and vice versa. Finally, the Act makes clear that it is intended to be a “safe harbor” from registrati

41、on/licensing requirements of the Act, and that there should be no securities violation presumption for issuers or online platforms that dont comply with the Act. 2. Cryptocurrency Fairness Act- This bill is still being considered and has not yet been introduced as of January 2019 This bill creates a

42、n exemption from capital gains tax for taxpayers purchasing small goods and services with cryptocurrencies. This bill is almost identical to the Cryptocurrency Tax Fairness Act that then-Reps Polis and Schweikert introduced to the US Congress. Currently, cryptocurrencies like Bitcoin are taxed as pr

43、operty within Colorado, which means that gains from sale and exchanges are treated as capital gains, not ordinary income. Because there is no de minimis exemption for small transactions, taxpayers purchasing goods or services, such as a cup of coffee or an MP3 download, with a cryptocurrency must tr

44、ack and report the price of the cryptocurrency at the time of sale to report to the IRS at the end of the year. This creates a lot of friction that discourages the use of cryptocurrencies in everyday purchases. Under this bill, any cryptocurrency transaction leading to a gain of under $600 would be

45、exempt from capital gains tax. This mirrors the same kind of exemption that is provided for foreign currency. Transactions above $600 would still require gains to be tracked and reported, and capital gains tax to be paid. This bill also includes an inflation adjustment to ensure that it remains rele

46、vant over time and an aggregation rule to prevent a hypothetical purchaser from breaking a large purchase into several smaller payments to avoid recognition of gain. COUNCIL PRIORITIES 3. Money Transmission Guidance On September 20, 2018, the Colorado Division of Banking released interim regulatory

47、guidance that clarified that Divisions interpretation of how the Money Transmitters Act relates to the transfer of cryptocurrency.3 3 11 Blockchain Council: Report to the Community | The interim guidance clarified that transmission systems that do not transfer fiat currency, such as those that only

48、transmit cryptocurrencies, are not considered money transmission and not subject to the Act. Systems that allowed fiat-to-fiat exchanges through the medium of cryptocurrency still require a Money Transmission License. The Council welcomed this guidance and the majority of the Council members signed

49、on to a formal statement in support of the guidance. This Guidance provides much-needed clarity about the conditions under which cryptocurrency businesses need to be licensed as a money transmitter under Colorado law. Additionally, it provides an interpretation that will allow businesses that engage in exchanging exclusively digital assets to avoid onerous regulations, while ensuring that consumers are protected in cases in which fiat currency is or can be transmitted. Because it is formal guidance but not law, it allows for flexibil