How Wyoming Became a Crypto Hub
Wyoming was the first U.S. state to embrace cryptocurrencies. It's quickly become one of the most crypto-friendly areas in the U.S.
Key Takeaways
- Wyoming has passed several laws that have laid the foundations for the cryptocurrency industry to flourish.
- The state offers tax exemptions and a welcoming regulatory climate for crypto holders and businesses.
- It also launched a pioneering banking charter for the sector and legally recognizes DAOs.
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Wyoming is fast becoming the beacon for crypto adoption in America, having established a mature legal framework needed for the digital assets industry to flourish.
Wyoming’s Lead in Crypto Regulation
Wyoming is quickly becoming America’s leading crypto hub. In recent years, pro-crypto regulations and zero corporate and personal state income taxes have attracted the attention of some of crypto’s biggest firms, including Ripple and Kraken.
About 24 crypto-related laws have been passed in the last few years, resulting in Wyoming becoming the most crypto-friendly state in the U.S. Following Wyoming’s lead, other states like Texas, Nevada, North Dakota, Illinois, and Montana have begun passing crypto-friendly bills.
In 2018, the House Bill 19 (HB 19) exempted cryptocurrencies from the money transmission licensing requirements in the state. Furthermore, anyone who develops, sells, or facilitates the exchange of a blockchain token was made exempt from money transmission laws.
Other states like New York mandate that blockchain-based cryptocurrency operators get a money transmission license called BitLicense. Some applicants have difficulty obtaining the license. Wyoming’s Financial Technology Sandbox, meanwhile, lets blockchain startups test new products and technologies without having to worry about regulations.
Wyoming has also waived crypto-related taxes at the state level. While the state recognizes cryptocurrencies as property, The “Crypto Property Tax Exemption Bill” (SF111) passed in 2018 exempted the asset class from property taxes.
This means that crypto transactions made by Wyoming-based firms and individuals do not get taxed at the state level. However, crypto activities in the state are subject to separate federal taxes. In 2019, another critical legislation called Wyoming Utility Token Act (HB 62) was passed. This law declared that tokens issued on a blockchain with “specified consumptive characteristics” would be exempt from securities laws and only considered as intangible personal property.
Wyoming Welcomes Crypto Banks
To date, U.S. regulators have shown reluctance to allow banking services for the crypto sector. As a result, many crypto startups have struggled to get basic bank account services for operations across the country.
Wyoming, however, introduced a new banking charter for the industry to change how crypto banking is carried out. In 2019, the state passed a bill called HB0074 giving birth to crypto banks known as special-purpose depository institutions (SDPIs).
The Wyoming Division of Banking has granted four banking charters so far, but several more are expected in the future.
In 2018, the leading crypto exchange Kraken was the first firm to become an SDPI, followed by Avanti Finance, Wyoming Deposit and Transfer, and Commercium Financial. These state-chartered entities are permitted to provide critical financial services to crypto-based businesses and offer deposit-taking, custody, and fiduciary for cryptocurrencies.
SDPIs are only for business depositors, are required to have 100% reserves at all times, and cannot lend. Unlike most traditional banks, FDIC insurance is not required.
Wyoming has a history of being a pioneer in creating novel corporate entities. It was the first jurisdiction worldwide to introduce the concept of Limited Liability Corporation (LLC) in 1977, which later became one of the most-used corporate structures in the world. Recently, the state updated its original version of an LLC.
In 2021, Wyoming passed Bill 38 into law, allowing decentralized autonomous organizations (DAOs) to register as a limited liability company (LLC). In doing so, Wyoming laid the foundations for U.S.-based DAOs to be legally recognized. The law also permits limited liability companies to become DAOs. The law has been described as a milestone moment that opens the door for American entities to organize themselves in a decentralized manner on the blockchain.
Wyoming also has cheap and abundant energy sources, with favorable conditions for crypto mining operations. A ratified bill (HB 113) from 2019 allows electric companies to negotiate special utility agreements outside the standard rates. Under the law, big mining firms can also buy power plants and set up cryptocurrency mining operations.
Wyoming’s crypto-friendly legislation has made the state an attractive destination for U.S.-based cryptocurrency firms. Meanwhile, individual owners of crypto assets can gain the protection of Wyoming’s laws by moving to Wyoming or physically locating their cold storage assets somewhere in the state, or setting up their own Wyoming LLC, corporation, foundation, or other business entity. As crypto starts to see wider adoption across the world, Wyoming has a good shot at becoming one of the leading areas for the technology to flourish.
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