ULC to Create Unified Set of Rules for Cryptocurrency & Blockchain Technology

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The United States Uniform Law Commission (ULC) has asked states in the country to hold off enacting legislation based on its regulatory model for cryptocurrency and blockchain assets. Instead, the Commission says it needs to do a thorough study of the emerging digital economy to see how virtual assets work with existing Uniform Commercial Code. This move comes as some states like Wyoming and Missouri have rejected the ULC’s code in favor of legislation that could be at odds with the model acts.


ULC Asks States to Hold Off on Cryptocurrency Legislation

In a statement issued on Monday (March 25, 2019), the ULC advised states looking to appropriate its cryptocurrency regulations to hold off from doing so. According to the statement, the Commission has realized the presence of significant issues with its current regulatory framework stemming from the novel nature of the emerging digital asset market.

This statement from the ULC will have some impact on the legislative machinery of states like Nevada, Oklahoma, and California who are already considering laws based on the ULC model. However, no state in the U.S. has passed into law any cryptocurrency regulation based on the flawed ULC model.

A recent article published by Forbes contributor and Uniform Commercial Code (UCC) attorney, Andrea Tinianow, criticized the ULC UCC and its treatment of cryptocurrency ownership rights. The ULC, in turn, wants carefully study the various modalities involved in crafting robust regulatory provisions for the cryptocurrency market.

Ensuring Super-Negotiability for Cryptocurrency Assets

The main crux of the debate as to the current ULC UCC Supplemental Act for cryptocurrencies lies in the area of super-negotiability – the ability of a purchaser to acquire an asset without falling under any unknown encumbrances. According to Tinianow, super-negotiability under the UCC framework applies only to money and securities owned via intermediaries.

Given that most digital assets fall under direct ownership, cryptocurrencies aren’t covered by super-negotiability in the current UCC paradigm. In its Supplemental Act, the ULC does, however, bestow super-negotiability upon virtual currencies like Bitcoin but it doesn’t apply to the asset itself, only the claim of ownership of the cryptocurrency via an intermediary.

The limited scope of the current regulatory standard as set forth by the ULC has a couple of negative implications for the cryptocurrency market in the U.S. as a whole. First, the UCC holds the primacy as far as commerce laws in the U.S. are concerned.

Thus, state-enacted regulations for commerce are usually based on UCC models and not from Federal guidelines. Without any form of modification, laws derived from the UCC code would not cater to cryptocurrencies classified as securities.

Another problematic area of the UCC model is that it requires the presence of intermediaries in cryptocurrency transactions. Given that virtual currency deals have a mostly peer-to-peer (P2P) component, creating laws that eliminate the direct ownership of cryptocurrencies seems likely to cause problems.

Patchwork of State Cryptocurrency Laws in the US

If the ULC is able to create a unified set of rules under the UCC paradigm for cryptocurrency and blockchain assets, it might be the first step in establishing a uniform regulatory framework for digital assets in the U.S. Currently, cryptocurrency entrepreneurs have to navigate a sometimes-confusing patchwork of state legislation.

While regulators look to make sense of the proper regulations for cryptocurrencies, it is important that they take care in classifying virtual assets. Usually, issues arise on whether a particular digital asset falls under securities, commodities, currencies or other categories.

Cryptocurrency legal expert and partner at New York-based law firm Kobre and Kim published a recent tweet highlighting this particular issue. It would be best for all stakeholders involved to adopt a nuanced approach to matters relating to cryptocurrency regulations.

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Osato is a Bitcoin enthusiast who can often be found providing insight on the latest Bitcoin-related news. When he isn't closely monitoring stories in the industry, he is either attempting to beat his scrabble high score or internally debating some existential dilemma. Contact

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