Colorado Governor signs bill to exempt Cryptocurrencies from Securities Laws

Jared Polis, the Governor of Colorado, has recently signed the Digital Token Act that is set to exempt certain cryptocurrencies from securities laws and allows technologists in Colorado to operate outside of strict securities registration requirements.

Under the Digital Token Act, digital tokens that qualify the pre-defined criteria will be able to transfer value on a cryptographically secure blockchain. Moreover, these cryptocurrencies will not be labeled as securities, and subject to laws formed for ‘fundamentally different’ financial instruments.

During the New Year, lawmakers in Colorado introduced SB19-023 to clear away regulatory uncertainty encompassing cryptocurrencies. Now, crypto start-ups and business entrepreneurs are free to start a blockchain business in Colorado to build new technologies, robust ecosystems and decentralized applications that can use utility tokens to power various activities. The bill introduced in January provided “limited exemptions from the securities registration and securities broker-dealer and salesperson licensing requirements for persons dealing in digital tokens.”

Digital tokens are the ones different from traditional, regulated security, such as a stock or a bond, as these can execute “smart contracts,” perform functions and transfer value. As per the law, cryptocurrencies that have a “primarily consumptive purpose” with qualifying use cases (details of specific goods or services that are tied to the digital asset) and which are available for offer, sale or transfer will no longer face possible prohibition under article 51. Consumptive purposes mean receiving goods, services, or content, including access to goods, services, or content.

Now, Colorado stands as a pro-crypto state that aims to support entrepreneurs who are building blockchain-based systems. It has become a hub for businesses that seek to utilize crypto economic systems to power blockchain technology-based business models.

This marks a major step forward for proponents of the digital economy in Colorado. The key goal behind this strategic move is “to deliver data and value digitally and securely in decentralized environments that can cut out middlemen, decrease bureaucratic duplication, promote paperless documentation and automate processes.”

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