California Executive Order Foretells Conflict with Feds & the Policy Framing of Asset Mining in the U.S. and Abroad
Digital Mining Orders Proposed in the OK, Passed in Kazakhstan, and What the CA Execute Order Spells.
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The Docket
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
Proposed: Digital Commodity Exchange Act (United States)
In a bipartisan effort, United States House Representatives Glenn Thompson (R-Pa.), Ro Khanna (D-Calif.) Tom Emmer (R-Minn.), and Darren Soto (D-Fla.) introduced the Digital Commodity Exchange Act (DCEA) of 2022.
Overall, the DCEA provides a new framework for digital commodity exchanges and customers, as well as protections for customers of stablecoins and digital commodities. The bill defines digital commodity as “any form of fungible intangible personal property that can be exclusively possessed and transferred person to person without necessary reliance on an intermediary.” But the major provision is that the Commodity Futures Trading Commission (CTFC) would be allowed to oversee companies that facilitate trades of digital commodities (i.e., Coinbase).
Key Takeaways. The sponsors of the DCEA have repeated that regulatory clarity is most needed in the crypto-space, in order to provide consumer protections, transparency, and accountability. In the same week that we see this push for more defined regulation, we saw the SEC nearly double the size of their Crypto Assets and Cyber Unit, signaling their push to crack down on threats and provide more protections to customers. In sum, “consumer protections” is the buzzword coming from DC this week for crypto-related legislation and policy.
Proposed: Commercial Digital Asset Mining Act of 2022 (Oklahoma, USA)
A partisan bill on digital asset mining passed in Oklahoma State Senate in March (29 to 16) and House in April (64 to 18). The bill provides a series of tax incentives for commercial digital asset miners, such as tax exemptions on equipment used for mining for example. As the bill has passed both bodies, it is now in the General Conference Committee on Appropriations for further discussion, before both bodies can vote again.
Key Takeaways. Compared to NY State’s recent moratorium on new PoW mining projects, OK’s bill signals the opposite tone to miners. Moreover, the bill frames commercial mining as an “industrial process,” similar to historical forms of manufacturing or industrial processing, which could inspire states in search of job creation to adopt similar legislation.
Passed: Digital Mining Activities Order (Kazakhstan)
An order from Kazakhstan’s Ministry of Digital Development, Innovation and Aerospace Industry was signed and passed on April 29. The order requires all digital asset miners to submit business registration data, along with information on personnel, energy consumption, mine location, equipment used, and investment plans, over to authorities.
Key Takeaways. Following China’s ban on mining, many PoW miners found new homes in Kazakhstan. However, with new miners came sprawling electricity shortages and routine power blackouts in retaliation. Now, the central government is going one step further to control how the energy supply and mining demand.
California Executive Order Foretells Conflict with Feds
When California Governor Gavin Newsom (D) released his blockchain executive order (EO), he was taking a page out of President Joe Biden’s playbook. Like the White House executive order published a few weeks ago, Governor Newsom’s document outlines guiding policy principles and initial government actions related to the nascent world of decentralized finance.
The two executive orders share some striking similarities. Both make a clear case for American leadership in the blockchain sector and put consumer protection at the forefront. At the same time, each document betrays a distinct policy approach that reflects the varied interests of federal and state actors.
President Biden’s chief concern is keeping the U.S. at the forefront of the global financial system and ensuring robust enforcement of U.S. financial regulations. The Biden EO mentions technological innovation and economic growth, but most substantive discussion centers on national security priorities. Given the federal bias toward the security and enforcement apparatus, it should come as no surprise that the Securities and Exchange Commission announced a goal of hiring 20 new staff members to support the newly rebranded Crypto Assets and Cyber Unit.
In contrast to the federal approach, Governor Newsom’s EO presents a sunnier tone focused on job creation, economic growth, and financial inclusion. California is intent on maintaining its unique position as a global computing technology hub. In addition, the policy statement recognizes the inequitable growth and unintended consequences of prior digital innovations.
If the federal EO put cybercriminals on notice, California’s seems targeted toward the business community. State and local governments compete vigorously to attract business investment and jobs. California’s economic development efforts have suffered some high-profile setbacks, with companies such as Tesla choosing to locate new production sites outside of the state. Web3 companies will presumably appreciate California’s clear intention to galvanize the state’s government machinery to support industry development efforts. From aligning with federal regulations to creating a blockchain talent pipeline, the California EO is chock full of goodies for founders and developers alike.
The two competing approaches set the stage for tension between national and state regulators. California is not the only state to indicate an interest in attracting the next generation of internet businesses. New York, Texas, and Florida, among others, are making concerted push to convince web3 builders to locate in within their borders. The desire to provide a conducive business environment may not square neatly with the federal government’s enforcement posture. The Biden Administration must walk a fine line between oversight and interference, or it risks undermining state efforts.
In closing, it is important to note that each EO lacks legal staying power. EOs are the low-hanging fruit of policymaking. What is ordered with the stroke of a pen can just as easily be undone by future administrations. The EOs play an important role in directing early government action, but they are unlikely to facilitate a stable web3 business climate on their own. Wyoming’s move to legalize the DAO structure represents an intriguing first step on the state legislative front. No doubt several more twists and turns are in store.