Texas was recently dubbed by Forbes as “the new El Dorado for bitcoin mining,” thanks in part to the state’s deregulated electricity market and cheap energy (the crypto mining process requires a huge amount of electricity).
In early March, global cryptocurrency mining company Argo Blockchain confirmed its purchase of 320 acres of land in West Texas for constructing a new Bitcoin mining facility run mostly on renewables. Argo is just the latest cryptocurrency mining company to establish a presence in Texas.
According to Peter Wall, CEO of Argo Blockchain, “We now have access to some of what we believe is the cheapest renewable energy worldwide, in a location where innovation in new technologies is encouraged and incentivised.”
While Texas is an attractive location for energy-guzzling crypto mining operations, the state lacks a comprehensive framework for regulating virtual currency.
Wyoming, in comparison, enacted a total of 13 blockchain-enabling laws from 2018-2019—earning it the nickname the “Delaware of digital asset law,” a nod to Delaware’s prominence in corporate law. Among other things, Wyoming law:
- Recognizes direct property rights for individual owners of digital assets of all types (virtual currencies, digital securities, and utility tokens) and applies the super-negotiability rules of commercial law to virtual currencies—which foster their liquidity—by applying the very same rules that apply to money.
- Creates a fintech sandbox to provide regulatory relief to financial innovators from existing laws for up to 3 years.
- Sets up a new type of state-chartered depository institution to provide basic banking services to blockchain and other businesses.
- Authorizes the first true “qualified custodian” for digital assets which is a bank.
Texas has lagged relatively far behind.
In 2019, the Texas Legislature passed legislation clarifying the ability of businesses organized under Texas law to incorporate blockchain technology into their entity recordkeeping and communications.
This session, four cryptocurrency bills are up for consideration by the Texas Legislature.
- UCC Amendment—Of the four blockchain bills filed this session, HB 4474 has generated the most buzz. HB 4474 would define “virtual currency” in the Uniform Commercial Code and clarify that the “take free” rules apply, which means innocent purchasers of virtual currencies take free of any adverse claims as long as they didn’t defraud the seller. If the bill is enacted, Texas would become the second state (after Wyoming) “to treat #bitcoin the same as money,” says Caitlin Long, CEO and founder of crypto bank Avanti. However, Long says there is a “gaping hole” in the law—there is no mechanism for a lender to establish an enforceable lien on virtual currency. This is a problem because crypto-related lending in various forms has become a major part of the crypto industry. “Enacting this bill may cause legit lenders to leave Texas,” Long warns, because the UCC take-free rules would override legitimate claims of lenders.
- Blockchain Working Group—HB 1576 / SB 1076 would create a working group to develop a master plan for the expansion of the blockchain industry in Texas and recommend policies and state investments in connection with blockchain technology. A similar bill was filed in 2019 (HB 4517) and passed out of committee but didn’t get a full chamber voter.
- Digital Identity Working Group—HB 2199 / SB 1077 would create a separate working group to develop recommendations for the use of “digital identity” in Texas and identify optimal policies and state investment related to digital identity technology. The Texas Blockchain Council suggests that blockchain technology could be used to facilitate voting in elections and to track votes cast. In January 2021, Hyland and Hedera Hashgraph presented a proof of concept to the Texas Secretary of State, the agency that runs elections in Texas.
- Blockchain-Anchored Digital Signatures—SB 344 provides that Texas governmental agencies must accept valid electronic signatures that employ blockchain or distributed ledger technology for: (1) the issuance of an apostille by the Texas Secretary of State, if the apostille may be signed using an electronic signature; or (2) government contracts. An “apostille,” a form of certification set out in the 1961 Hague Convention, is a form of numbered fields that allows the data to be understood by the receiving country regardless of the official language of the issuing country.
Governor Abbott recently voiced his support for crypto law, tweeting: “Count me in as a crypto law proposal supporter. It is increasingly being used for transactions and is beginning to go mainstream as an investment. (Fidelity, etc. trying to get Bitcoin ETF). Texas should lead on this like we did with a gold depository.”
Whether the Texas Legislature will enact any of the cryptocurrency bills proposed this session remains to be seen, but with the governor’s support, they are likely to garner serious consideration.
June 3, 3021 update:
HB 4474 (UCC Amendment) was sent to the governor for signature on May 31, 2021.
HB 1576 (Blockchain Working Group) was sent to the governor for signature on May 26, 2021.
HB 2199 (Digital Identity Working Group) passed the House but died in the Senate. SB 1077, an identical bill, died in committee and did not receive a floor vote.
SB 344 (Blockchain-Anchored Digital Signatures) died in committee.