As one of the state’s leading law firms in the cryptocurrency and blockchain-related litigation space, Dressel/Malikschmitt is closely following this year’s legislative action. These bills are not yet law—and the below is definitly not legal advice—but it is interesting to see where New Jersey may be landing on some of these open crypto questions.
Bill #1—Virtual Currency and Blockchain Regulation Act
The “Virtual Currency and Blockchain Regulation Act” has been reintroduced after failing to get any traction last year. S1267/A1975 is being sponsored by Sen. Robert Singer (R-Lakewood) and Assembly Members Raj Mukherji (D-Jersey City) and Yvonne Lopez (D-Perth Amboy).
This bi-partisan bill would establish a regulatory framework for virtual currency businesses to operate in New Jersey, create provisions governing the use of blockchain with certain business entities, and create certain incentives for virtual currency businesses to locate in the State.
Provisions on Open Blockchain Tokens
- The bill provides that open blockchain tokens may be considered intangible personal property rather than securities if they have certain characteristics.
- The bill also requires that the developer or seller of a token file a notice of intent with the state before making an open blockchain token available for sale.
Provisions on Digital Assets as Property
- Under the bill, all digital assets will be classified as property, with digital consumer assets classified as a general intangible property, digital securities classified as a security, and virtual currency classified as money.
- A digital asset would also be treated as a financial asset under the bill, if a written agreement is entered with the owner of the digital asset classifying the asset as such. If the digital asset is treated as a financial asset, then the digital asset will remain as intangible personal property.
- The bill allows banks to provide custodial services for digital assets.
Provisions on Decentralized Autonomous Organizations
- The bill permits decentralized autonomous organizations (DAOs) to incorporate as limited liability companies (LLCs), and be treated by law like an LLC.
- Under the bill, a DAO may be member managed or algorithmically managed.
Provisions on Blockchain Filing System
- This bill gives the Division of Revenue and Enterprise Services in the New Jersey Department of the Treasury the authority to use blockchain technology to start accepting filings.
Exemption for Virtual Currency from Money Transmitter Law
- The bill exempts virtual currency from current law governing money transmitters.
- “Virtual currency” is defined as any type of digital representation that: (1) is used as a medium of exchange, unit of account or store of value; and (2) is not recognized as legal tender by the United States government.
Authorization for Business Entity to Issue Stock as Certificate Token
- This bill authorizes a business entity, such as a corporation or LLC, to issue stock certificates in the form of electronic certificate tokens.
Business Incentives for Virtual Currency Businesses
- Virtual currency businesses that start-up in New Jersey, or choose to relocate here, will be eligible for a number of tax incentives under the bill.
Use of Virtual Currency to Pay State Taxes
- The bill would allow the Director of the Division of Taxation to accept virtual currency for the payment of State taxes.
Bill #2—A385: Requires Department of Treasury to Review and Approve Digital Payment Platform
The other crypto bill that has already been introduced is A385. It would require the Department of the Treasury to review and approve a viable blockchain-based, digital payment platform to provide payment services to legal and licensed businesses in this State that do not have access to traditional financial services and are forced to operate in cash-only or cash-heavy environments. The purpose of the payment platform is to provide a safe, secure, and compliant system that does not exclude these businesses from participating in digital commerce.
New Jersey Is Not The Only State Eager To Act
New Jersey is not the only state whose legislature is eager to pass cryptocurrency regulations this year. According to the National Conference of State Legislatures, thirty-one states and Puerto Rico already have cryptocurrency legislation pending. The list of bills will surely continue to grow as time goes on.
As one of the few law firms in New Jersey to have successfully represented crypto and blockchain clients in litigation, the Dressel/Malikschmitt team knows how important it is to get right the regulations governing this technology. The old rules don’t always work, so it is time to find a better path forward.