Τhe California Blockchain Working Group suggested that a definition and separate regulation of digital assets based on their function could bring regulatory clarity to blockchain and digital assets.
The California Blockchain Working Group
Τhe California Blockchain Working Group was appointed by the Secretary of the Government Operations Agency (CalGovOps), the California government agency responsible for administering state operations including procurement, real estate, information technology, and human resources.
The group was announced on August 2, 2019 and one of the members of the group was Liz Chien, Ripple’s VP of Global Tax and Chief Tax Counsel. Camille Crittenden, Executive Director of the Center for Information Technology Research in the Interest of Society and the Banatao Institute, was chosen to serve as Chair of the newly formed blockchain working group.
The group was tasked with evaluating blockchain uses, risks, benefits, legal implications, and best practices, defining the term blockchain, and recommending amendments to other statutes that may be impacted by blockchain, and issue a report by July 1, 2020.
Blockchain in California: A Roadmap
Indeed, on July 1, 2020, the group issued its report, “Blockchain in California: A Roadmap”. The 179-page report provides a definition of Blockchain, its defining characteristics, and a framework for assessing the fitness of blockchain technology. It also suggests potential application areas for Blockchain and recommends what the role of the State Government should be.
Definitions for Digital Assets
The group acknowledges that clarity of the regulatory regime is a cornerstone of business success and suggests that California can improve the blockchain business climate by adopting a common legal definition of blockchain and clarifying key regulations.
California can improve the blockchain business climate by:
“Adopting a common legal definition of blockchain and clarifying key regulations. California could follow the lead of other states such as Arizona, Colorado and Wyoming and countries such as Singapore, Germany and Switzerland: define digital assets based on their function and regulate them separately. California could create three categories: i) payment, ii) consumptive/utility tokens, and iii) asset tokens, and exempt consumptive or utility tokens from state securities laws. The State should further research and explore these possibilities.”
While the Working Group only provides recommendations on potential application areas for blockchain deployment and the role that the state government should consider, Members of the California Legislature are going to take the report’s recommendations under thorough consideration.
Ripple has been facing a series of lawsuits since 2018, claiming XRP is a security and that Ripple violated the law by selling unregistered securities. A possible definition of digital assets by California and an exemption of XRP from state securities law could put the final nail in the lawsuit’s coffin, at least in the State of California.
The lawsuit has been dragging for almost two years with Ripple being in no rush to close it. It has been consolidated with other cases twice and moved from federal court to state and back. Lately, Ripple has been focusing on the fraud allegations outlined in the case, filing to dismiss them.
Ripple, an alternative to current remittance technologies
Ripple is also mentioned in the report, as an alternative to current remittance technologies.
“Blockchain technology has been used with considerable innovation for international remittances. Blockchain is a promising technology to facilitate cheaper and more efficient cross-border transactions because it eliminates intermediaries, most of whom take a cut out of every cross-border payment. Companies like Ripple are creating blockchain-based alternatives to current remittance technologies and have piloted their technologies with money transfer companies including Western Union and Moneygram.“
This comes only a few weeks after the Bureau of Consumer Financial Protection (CFPB) acknowledged that Ripple’s suite of products allows banks and credit unions to know the exact final amount that recipients of remittance transfers will receive before they are sent.
Whether these acknowledgements from Government agencies will have an effect on regulation and bring much needed clarity, time will tell.