Cryptocurrencies

What is Cryptocurrency?

According to the Internal Revenue Service (IRS), cryptocurrency is “a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.”

The IRS also defines “virtual currency” as “a digital representation of value, other than a representation of the U.S. Dollar or foreign currency, that functions as a unit of account, a store of value, and a medium of exchange.”

This article explores how states are developing policy around the use of cryptocurrency to facilitate payments.

Commercial Code Revisions

The Uniform Law Commission (ULC) issued a new Uniform Commercial Code (UCC) article to provide, among other things, rules for transactions involving certain new types of digital assets, including cryptocurrency. The ULC indicates the “2022 amendments” will ensure the UCC continues to facilitate commercial activity well into the future.

Since the 2022 UCC amendments were finalized, several states proposed legislation to incorporate some or all of these revisions into their commercial codes. The status of that legislation is shown in the map below.

State Money Transmission Laws

In 2023, three states enacted laws relating to money transmission and cryptocurrency:

• Georgia defined virtual currency and subjected it to the state’s money transmission laws (HB 55);
• North Dakota amended money transmission law to include virtual currency and provided that, with certain exceptions, transmitters of virtual currency must obtain a money transmission license (SB 2119); and
• South Dakota amended money transmission law to require licensees transmitting virtual currencies to hold like-kind virtual currencies of the same volume as obligated to its consumers (SB 47).

Alaska and Illinois have pending legislation that would include virtual currency in their money transmission laws, similar to the above states. Mississippi, however, introduced legislation that would have exempted cryptocurrency developers, sellers, and exchange facilitators from money transmission laws, but it did not leave committee.

Payments to a State Agency

A survey of state laws did not identify any states that permit the acceptance of cryptocurrency as payment for taxes, fines, or fees. However, in 2023, Arizona and New York introduced legislation that would allow the use of cryptocurrency as payment to the State. Both bills are currently in committee.

Arizona’s SB 1239 would allow state agencies to work with cryptocurrency service providers to accept payments for fines, civil or other penalties, taxes, fees, financial obligations, and special assessments to be paid with cryptocurrency.

New York’s AB 2532 is similar to Arizona’s legislation and would allow agencies to enter into agreements with cryptocurrency service providers or a person to accept cryptocurrency payment.

Kansas Cryptocurrency Policy

Kansas law does not explicitly address cryptocurrency and payment facilitation. The 2023 Session saw the first legislation introduced that references cryptocurrency:

• The 2023 Donor Intent Protection Act was enacted and defines “property” to include cryptocurrency; and
• 2023 HB 2167 would have prohibited the use of cryptocurrency for campaign contributions, but was stricken from the House calendar by rule 1507.

The Office of the State Bank Commissioner issued a general guidance document (PDF) clarifying the applicability of the Kansas Money Transmitter Act (KMTA) to cryptocurrency. The guidance document indicates the exchange of one cryptocurrency for another cryptocurrency or transfer of cryptocurrency from one account to another by itself does not qualify as money transmission. Persons engaging in virtual currency are permitted to contact the agency to determine if their business model requires a license under the KMTA.

To learn more about how cryptocurrency works, or federal policy on the topic, see KLRD’s memo, “Cryptocurrency and Blockchain Technology” (PDF).