US lawmakers seek to exclude cryptocurrencies from federal securities laws

Two U.S. lawmakers, Reps. Warren Davidson and Darren Soto, have introduced a new bill that seeks to exclude cryptocurrencies and certain other digital assets from the definition of a security, CoinDesk reported.

The bill, “Token Taxonomy Act,” was introduced on Thursday. Davidson and Soto believe that securities laws do not apply to companies that use blockchain once they reach their goal of becoming a functional network.

On these lines, the bill seeks to amend both the Securities Act of 1933 and the Securities Exchange Act of 1934 in order to exclude “digital tokens” from the definition of a security.

The bill defines digital token as a digital unit that is created “(i) in response to the verification or collection of proposed transactions; (ii) pursuant to rules for the digital unit’s creation and supply that cannot be altered by a single person or group of persons under common control; or (iii) as an initial allocation of digital units that will otherwise be created in accordance with clause (i) or (ii).”

This essentially means that cryptocurrencies that do not have a central controller would be left outside the scope of securities, CoinDesk noted.

Furthermore, the bill states that the digital token has a transaction history that “is recorded in a distributed, digital ledger or digital data structure in which consensus is achieved through a mathematically verifiable process; and…after consensus is reached, cannot be materially altered by a single person or group of persons under common control;…is capable of being traded or transferred between persons without an intermediate custodian…”

Importantly, the bill seeks to exempt digital tokens from securities laws arguing that digital token “is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”

“This bill provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies,” Davidson said in a statement. “To be certain, there will be other regulatory initiatives at some point, but this legislation is an essential first step to keeping this market alive in the United States.”

Blockchain advocacy group Coin Center welcomed the bill, saying:

“We are happy to see continued action from Congress to implement common-sense clarifications and adjustments to the regulatory treatment of cryptocurrencies.”