After a successful committee hearing on March 19, the Washington State House of Representatives is moving forward with consideration of Washington State’s so-called “Blockchain Bill” otherwise known as SB 5638.
The bill unanimously passed the State Senate on March 6 and legislators anticipate that it will head to the floor of the State House for voting sometime in April. With no reported opposition, the bill looks likely to be signed into law by Governor Jay Inslee.
SB 5638 was introduced on January 25, 2019, by State Senator Sharon Brown and would revise the “Washington Electronic Authentication Act” by adding legal definitions for “blockchain” and “distributed ledger technology”.
If passed, the law would provide clarification on the legality of storing records using distributed ledger technology and ease the regulatory environment in Washington State. This would occur by giving records created and stored using distributed ledger technologies the same standing as other electronic records.
SB 5638 would also clear the path for smart contracts and other distributed ledger technology communications to be considered in the same manner as other electronic records under state law.
Washington State has previously been characterized as having a “bad rep on blockchain and cryptocurrency,” with companies such as Shapeshift, which left Washington State in late 2017, going so far as to call state regulators “unethical, wasteful, and reckless” after the passage of Senate Bill 5031.
SB 5031 was interpreted by regulators to classify many blockchain businesses as money transmitters, akin to companies like Western Union, and would have meant massive licensing fees could be levied on them.
In addition, it would have required companies such as Shapeshift to remove customer information from their blockchain and centralize it in a database, defeating the essential purpose of blockchain technology and denying the competitive advantage blockchain-based businesses seek to capitalize on.
If SB 5638 does succeed, the passage of the bill could kickstart innovation in the fintech sector within the state, a prospect which has generated excitement in Washington’s blockchain community. One of its members, a noted blockchain technologist, and investor Brandon Kite has expressed his support the bill:
“The proposed Washington State legislation will enable a hotbed of legal and fintech innovation,” said Kite.
“While some might brush it off as simply a measure to digitize paper onto ‘blockchain’, legally binding smart contracts go a long way towards enabling new forms of micro-lending, smart securities, or title and property management in tandem with publicly verifiable certifications and licenses of regulated professionals and businesses for consumer protection.
“Once price speculation simmers, distributed ledger technology could become a valuable component of public infrastructure, like water and electricity supply in states like Washington,” he added.
Oher blockchain investors in Washington share Kite’s enthusiasm.
“We’re excited about the potential impact of Washington State’s blockchain legislation – it’s especially important that we continue to engage with regulators on further legislation in order to enable blockchain innovation,” said Greg Heuss, Managing Partner of Counterpoint Ventures, a blockchain-focused venture capital firm based out of Seattle.
While this bill is clearly an opportunity to clarify regulations for the blockchain sector and would give legal authority to messages and contracts created using distributed ledger technology, it still fails to address Washington State’s position on cryptocurrency and DLT with regards to tax or securities law.
Wyoming has provided a blueprint for other states with its recently passed regulations aimed at attracting blockchain businesses. Delaware is also ahead of the curve, having moved to create a proof-of-concept blockchain-based business filing system at the state level and allowing corporations to automate businesses processes through DLT.
Senator Sharon Brown, who sponsored SB 5638, sees it as the first step to changing perceptions about the state’s openness to blockchain technology.
“Many states currently recognize the validity of this technology and Washington needs to be among them as a leader in this space. We don’t want to be the period at the end of the sentence – we need to start the conversation. It makes sense that companies will relocate to states that put them in a position to succeed. Should this bill pass and be signed by the governor, we can expect to see that success in our own backyard,” she said.
Lobbying efforts around SB 5638 have been led by the newly-formed Cascadia Blockchain Council in partnership with the Washington Technology Industry Association (WTIA).
“This bill is about empowering economic development in Washington,” said Arry Yu, Chair of the Cascadia Blockchain Council.
“Thanks to proactive regulation many years ago, Washington is a national and international leader in cloud, gaming and e-commerce, and it is on the cusp of national leadership in online privacy. We can also be a leader by recognizing distributed ledger technology, creating economic opportunity for Washington and ensuring we remain an innovation leader,” she added.
If SB 5638 passes into law this month as expected, Washington will be primed for the development of an ecosystem of new startups in the already tech-heavy state.