In a voting session that was full of twists and turns, the Colorado Senate shot down House Bill 1426, a legislation that would have helped the blockchain development industry to stand on its feet amidst unchartered regulations.
HB 1426 had received a warm welcome by the Colorado House of Representatives, where it passed by a majority before being moved to the State Senate. Unfortunately, it did not seem to receive the same treatment by the State Senators and eventually met its demise in a voting session that itself changed course very abruptly.
The bill first passed the vote within the Colorado Senate with 18-17, only for things to take a turn in another unexpected voting session which took place minutes later. In the second round of voting, the bill met its eventual demise in 18-17 against.
The unprecedented development took place when Republican Senator Randy Baumgardner flipped his stance to vote in favor of the bill, while Democratic Senators Daniel Kagan and Lucia Guzman switched to vote against it.
What Was House Bill 1426?
House Bill 1426 was meant to discern between blockchain tokens in defining them as securities only if their use led towards direct financial gain. This approach would have helped clarify the confusion that arose from the comments of Jay Clayton, Chairman of the U.S. Security and Exchange Commission (SEC), where he had told a Senate Committee hearing in February 2018 that almost all initial coin offerings (ICOs) are securities.
HB 1426 would have elucidated on this cryptic statement and would have thus helped the development of blockchain technology within the State, where those tokens and ICOs that served a utility function would have been exempted from being termed as securities and subsequently saved from unnecessary regulatory delays.
According to the bill, the term “security” would not have applied to insurance or annuity contracts where holders received annual profits by an insurance company. It would have also not applied to blockchain tokens not marketed as investments; tokens not exchangeable for goods or services; and tokens not under a repurchase agreement where the seller of the token was to locate a buyer.
Why Did the Blockchain Bill Not Pass?
The Attorney General of Colorado, Cynthia Coffman, did not see the bill in a positive light, and explained that the language used in the bill was “openly broad and vague.”
“The language would have created immunity from criminal liability for someone who commits securities fraud in that context, putting Colorado consumers at risk. That is why my office opposed the bill.” Coffman said in an email statement.
Sen. Guzman, who was one of the legislators who changed their vote after initially being in favor of the bill, mentioned that the State AG’s remarks were one of the key factors that made her change her mind.
Whereas, Republican Sen. Tim Neville, who was one of the bill’s co-sponsors, expressed his disappointment in the bill’s demise, stating that it would have let the State of Colorado define its own legislation regarding this new industry while the federal government and agencies take their time to do so. He mentioned that if passed, the bill would have created more opportunities for growth in the sector and its rejection has been an “epic failure.”
What Does this Move Mean for the Overall Regulation for Blockchain?
If passed, the bill would have brought about a safe space for those who want to explore and market their innovative ideas that are supplemented by blockchain technology but have been held back due to the looming uncertainty of the current regulatory environment.
The federal government, the SEC, and other federal agencies have been taking their time to develop stringent regulations pertaining to the blockchain industry, only because cryptocurrencies are a big part of it and are perceived as digital securities even if there’s no current legislature defining this firsthand.
But in the midst of this process, non-financial tokens indirectly get treated as securities as well, at least for now. This, in turn, creates an environment where the inventors and presenters of such utility tokens are subject to the same regulatory treatment as their financial counterparts, and this creates a problem in terms of future development because the regulatory procedure to contact the SEC and have an ICO to be compliant with its securities requirements is a lengthy and daunting process in itself.
Due to this, State legislature that paves way for development within the blockchain industry is very important to supplement the operations of developers and solution providers in this segment.
The way that HB 1426 was shot down by the lawmakers on the account of them not knowing more about it speaks volumes of the limited knowledge which even the most proficient of people hold about this new industry. It goes on to show that the often unfair regulations and requirements that the blockchain industry has to go through, stem from unawareness rather than hostility.
It puts a requirement on lawmakers and representatives of public views to learn about how the technology works and the risks that it does not pose before they go ahead and shoot down any progressive attempts to aide in the development of this sector.
Since these individuals have the responsibility to have their constituents’ best interests at heart, making informed decisions for new technologies that hold the power to change the world akin to the internet is imperative in every sense of the word.
On the other hand, what the blockchain industry can do about this is to be more proactive to not just be an exclusive environment for technologically proficient entities, but also be open to those who do not understand the difference between a threat or a new technology due to lack of knowledge.
Needless to say, it might take some time, but with perseverance and patience, the blockchain community might just be able to turn the tables and eradicate this fear of the unknown which influencers and lawmakers have regarding blockchain technology and its pertaining products and services. Only through constant communication and repeated explanation can the blockchain industry be known to the “outer” world.
Most new technologies did not really take a walk in the park to be where they are right now (yes, that includes the internet).