The Washington State Legislature recently passed SB 5544, a bill establishing a “Washington blockchain work group.” A bi-partisan bill sponsored by 10 different senators, SB 5544 is a foundational step toward creating blockchain-related regulation and has strong potential to be a harbinger of future enactments that transform current state law. 

The purpose of Washington’s blockchain work group is to examine various potential applications of and policies for blockchain tech, such as applications in computing, banking and other financial services, the real estate transaction process, health care, supply chain management, higher education, identity verification, and public recordkeeping. The work group will comprise a wide range of appointees from the public and private sectors, industry groups, tribes, and public interest organizations.  

The work group will convene by December 2022—and must report to the governor and legislature on the potential uses and impacts of blockchain tech by December 2023. The report will describe blockchain tech’s impacts on existing industries, utilities, demand for electricity, and demand for computer processing capacity. It will also propose policies to facilitate the development of blockchain applications in Washington, grow the related workforce, evaluate potential environmental advantages and concerns, and address racial equity considerations.

Washington State Representative Tana Senn, D-Mercer Island, a recent appointee to the work group, lauded the work group as an “important step towards developing policies that will spur an environmentally responsible, equitable blockchain sector that benefits all Washingtonians.”  Given the wide range of topics to be explored by the work group and the diverse background of its appointees, the blockchain work group will help lay the groundwork for the growth of a healthy and competitive blockchain tech sector in the state of Washington.

Washington joins several other states, including California, Wyoming, Connecticut, Illinois, Hawaii, North Carolina, Tennessee, Pennsylvania, Utah, and Texas, that have implemented state blockchain work groups to address similar issues and develop state policy addressing the technology. The experiences of these states lend further support for the importance of Washington’s adoption of SB 5544. Of these states, Wyoming and California’s blockchain working groups have moved the furthest along in developing concrete legislation, policies, and pilot projects.

Wyoming’s experience reflects the beneficial effect legislative workgroups can have on a state’s regulatory landscape. Wyoming’s creation of its analogous “Wyoming Blockchain Task Force” in 2017 precipitated the passage of 13 blockchain-based bills in that state by the end of 2019—and later led the legislature to establish a permanent Select Committee on Blockchain and Financial Technology. To date, Wyoming has adopted no fewer than 30 blockchain-based laws, leading Wyoming to often be referred to as the “Delaware of digital assets.”

Among the legislation formulated and subsequently passed by the Wyoming Blockchain Task Force are laws: 

• recognizing property rights for individual owners of digital assets and reclassifying them under the Uniform Commercial Code; 
• creating a fintech “sandbox” waiving regulations for innovators; 
• removing sales and property taxes for digital assets, and; 
• authorizing a state-chartered depository institution to provide basic banking services for cryptocurrency. 

Those involved with the Wyoming Blockchain Task Force claim that approximately two dozen states have followed suit and passed at least some legislation mimicking Wyoming’s approach. 

Wyoming also recently passed a law creating a Chancery Court to resolve many complex business disputes that may arise as it becomes a nationwide leader in the cryptocurrency arena. 

For its part, California created a blockchain working group in 2018 consisting of public and private representatives, akin to SB 5544. In July 2020, California’s blockchain working group published a 179-page report detailing the promising public and private applications of blockchain technology and outlining its recommendations for state adoption. Governor Newsom’s recent Executive Order concerning Web3 innovation and economic development is the latest expression of California’s commitment to leveraging blockchain technology and adopting a regulatory regime that acknowledges these benefits. 

In particular, the California blockchain working group launched pilot projects with three different California state agencies: the Department of Motor Vehicles (DMV), the Department of Food and Agriculture (CDFA), and the Secretary of State’s State Archives Division. The proposed projects with the DMV included creating a digital wallet for a persistent form of digital identification, building a common blockchain program for tracking a vehicle’s lifecycle, and creating a fine-grained security structure around sharing driver records across states. The proposed project with the CDFA includes using blockchain technology to more quickly trace the source of food-borne contamination by collecting and organizing data from growers, transporters, wholesalers, and retailers to find where the products are in the distribution system to speed recall and consumer notification. The Secretary of State’s Archives Division is also exploring moving the State Archives online with blockchain technology.

The California working group’s July 2020 report recommended that the state explore a number of potential applications of blockchain technology in areas ranging from health records, verifiable credentials, securing pharmaceutical supply chains, supporting bonds and public financing, and the cannabis industry, among others. The report also recommended that the state explore a regulatory sandbox for blockchain and cannabis innovators that incorporates public banks and digital asset deposit and custodial institutions.

In July 2019, North Carolina created its own blockchain taskforce, the North Carolina Blockchain Initiative, to explore potential opportunities for economic growth and position North Carolina as a leader in blockchain innovation. North Carolina’s Lt. Gov. Daniel Forest said at the time that he hoped the taskforce could develop a strategy “to increase awareness of blockchain, streamline regulatory oversight, and modernize state government.” In 2021, the state legislature passed the North Carolina Regulatory Sandbox Act of 2021, a bill that was based on the taskforce’s recommendations. The law authorizes a waiver of legal and regulatory requirements to persons developing a qualifying innovative product or service.

In June 2017, Illinois’ legislature created the Illinois Blockchain Taskforce, which was charged with studying distributed ledger technologies and potential applications in that state. The Illinois Blockchain Taskforce published its final report in early 2018, recommending that the state government support efforts to make Illinois a leader in blockchain by adopting initiatives to foster a talent pipeline, support entrepreneurship, and collaborate with the private sector. The taskforce’s policy recommendations included modernization of the state’s notarial rules and real estate records systems. The Illinois Blockchain Technology Act, which went into effect in January 2020, recognizes the validity of smart contracts and blockchain-based records and credentials in the state of Illinois and prohibits local governments from imposing taxes or special restrictions on their use. 

In fall 2021, the Texas legislature passed legislation creating Texas’ Work Group on Blockchain Matters. The 16-member committee has been tasked with studying and recommending policies and  investments to support the expansion of the blockchain industry in that state. In May 2022, both Utah and Hawaii’s legislatures moved to create similar state taskforces to analyze blockchain-based policy measures in those states.

The passage of SB 5544 bodes well for Washington’s efforts to become a national and global hub for blockchain and decentralized ledger technologies. The Washington Technology Industry Association (WTIA) and Cascadia Blockchain Council look forward to the recommendations and outcomes that emerge from the Washington state blockchain work group.

**Corr Cronin LLP is a law firm based in Seattle, Washington. Corr Cronin’s Blockchain and Cryptocurrency litigation attorneys are proud to be underwriter-sponsors of the Cascadia Blockchain Council.