Cryptocurrency, blockchain, tokens, consensus mechanisms, hashes, digital signatures, decentralized marketplaces – there is a whole new taxonomy being developed to govern emerging digital marketplaces and Colorado has decided that its regulatory framework needs an upgrade to match. The newly passed Colorado Digital Token Act, which Governor Polis is expected to sign, aims to clarify the regulatory framework that applies to digital marketplaces, also known as cryptoeconomic systems.
The Digital Token Act combines a few of my favorite topics: technology; securities regulations; and, blockchain technology, in all of its glorious intangibility. Substantively, the Digital Token Act clarifies which types of cryptocurrency offerings are subject to state securities regulations, by providing issuer and licensing exemptions for “Digital Tokens.” The bill summary states that a Digital Token is “a digital unit with specified characteristics (set forth in Section 4(b) of the bill), secured through a decentralized ledger or database, exchangeable for goods or services, and capable of being traded or transferred between persons without an intermediary or custodian of value.”
Essentially, the Colorado legislature has decided that when cryptocurrency is being used to purchase consumable goods and services, including content, it should not be subject to onerous securities regulations that are meant to protect investors making speculative investment decisions. The Digital Token Act seeks to support the growth of businesses offering consumable goods by permitting them to use cryptoeconomic systems to raise growth capital without the uncertainty of whether state security regulations will apply. The full details of the exemption won’t be known until the Colorado Security Commissioner proposes new rules that will accompany the Digital Token Act, but the bill is clear that issuers of Digital Tokens exempt under the Digital Token Act will still have to file a notice of the offering with Colorado Securities Division.
Passage of the Digital Token Act signals that Colorado remains agile, innovative, and committed to creating a strong and resilient state economy. Colorado recognizes blockchain technology as a force for economic growth. By embracing its potential, Colorado has reasonably and thoughtfully adapted its regulatory framework to reflect the realities of the increasingly digital world we all occupy. And this isn’t the only area where Colorado stands out. From being the Delaware of cooperative law, to the ease of completing administrative filings for clients, Colorado sets itself apart from other states. This is reflective of the prevailing attitude in Colorado’s politics. Our politicians and their staff have recognized the rapidly changing business landscape and are thoughtfully adapting state laws and procedures to accommodate the realities of the increasingly complex global marketplace.