On February 27th, 2019, Rhode Island lawmakers introduced Bill 5595, proposing that the Rhode Island Uniform Securities Act be amended to ease up on definitions of what constitutes an issuer of a security. Specifically, H5595 reads, “…a developer or seller of an open blockchain token shall not be deemed the issuer of a security” should they meet all of the following criteria:
- Notice of Intent: If the developer or seller of the token files a notice of intent with the secretary of state,
- Consumptive Purpose: If the purpose of the token is for consumptive purpose (exchangeable for good, services or content),
- Not a Financial Investment: If the developer or seller of the token did not sell the token to the initial buyer as a financial investment (ex. Marketing, consumer belief, consumptive purpose, etc…).
Several other fundamental provisions of Bill 5595 note that; there must be a true belief by the seller or developer at the time of sale that the token is for a consumptive purpose, the seller or developer takes reasonable precautions to prevent buyers from purchasing the token as a financial investment, and the token must not be resold by the buyer until the token has a consumptive purpose.
And, if you’re hung up on the Bill 5595’s language referring to the token as an “open blockchain token,” don’t worry. It simply refers to a digital unit which is created in response to the “verification or collection of a specified number of transactions relating to a digital ledger or database.” Such definition may seem broad, however the core takeaway you should walk away with from this bill is the parameters of “consumptive use.” Consumptive use and purpose merely relates to ones everyday utilization of the token.
Rhode Island Not the Only State
Rhode Island’s proposed bill comes hot off the heels of the passage of a similar bill in Colorado, just two days before. Under the Colorado Digital Token Act, several limited exemptions to securities registration, securities broker-dealers, and salesperson licensing requirements for those dealing in digital tokens are implemented.
The Colorado Digital Token Act also emphasizes “consumptive purpose,” noting at present, there’s a clear regulatory uncertainty for companies seeking to issue or effect the purchase, sale, or transfer of digital tokens which boast a primarily consumptive purpose. Restricting the issuance of such tokens under a governing securities act could ultimately lead to the inability of blockchain companies and startups to access necessary growth capital to build their “network of participants” that they need to grow and expand. Furthermore, the Digital Token Act hits home that the primary intent of the token cannot be for a speculative or investment purpose.
If you’re interested in gaining further knowledge about the regulatory landscape of cryptocurrency and blockchain technology in the U.S., we recommend checking out several of our past articles:
- Wyoming Passes Three Crypto Friendly Bills,
- New Hampshire Eyeing Bitcoin Tax Payments,
- Utah Exploring Benefits of Blockchain Technology, and
- Ohio Businesses Using Bitcoin to Pay Taxes.
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