[EDITOR’S NOTE: The following story is technical and kind of wonky. But it focuses on an emerging policy area important to anyone interested in good government. The whole subject of cryptocurrency is an emerging technology. Used properly, it could transform business. But used in nefarious ways, it could cause big problems. Regulators and legislators need to be familiar with the issue to make sure consumers aren’t hurt.]
By Lindsay Street, Statehouse correspondent | State legislatures across the country are taking notice of an emerging technology called “blockchain” that could upend how businesses operate and create a need for regulatory framework.
But while South Carolina’s attorney general has made headlines for issuing cease-and-desist letters to two companies using the technology behind the digital currency Bitcoin, South Carolina lawmakers appear flat-footed when it comes to policy to regulate it.
“I see no scenario in which blockchain does not transform many, many industries and it’s important that the leaders crafting laws help companies take part in that marketplace,” Michael Bolick of Greenville told Statehouse Report. Bolick is managing director at Treis Mining, a company that uses the technology. It has invested $10 million in a South Carolina data mining center, according to this May story.
He likened blockchain technology and its projected impacts to how email transformed business and communication at the end of the 20th century and how steamships upended business in the 19th century.
Blockchain is a digital public ledger technology that records transactions. It is most well-known for its use as a non-government backed currency, or cryptocurrency, such as Bitcoin. But other industries, including those in the medical industry, are beginning to explore its use. Verifying transactions on a digital ledger is called “mining.” Overseeing these transactions offers an investment opportunity for mining companies like Treis as they earn a percentage of the transaction through complicated computations.
State’s top attorney seeks to protect investors
Neither S.C. House nor Senate staff members could point to a lawmaker who has expressed a policy exploration of blockchain technology or its related uses. Calls to several key lawmakers were met with a vague familiarity of the technology but no knowledge of any impending legislation for the 2019-2020 session.
But at the South Carolina Attorney General’s Office, Deputy Securities Commissioner Tracy Meyers has been steeped in cryptocurrency and blockchain mining. This year, the office issued two cease-and-desist letters to Genesis and Shipchain. Genesis is the largest Bitcoin miner in the world, and Shipchain is a blockchain-using logistics company based in Greenville.
Meyers said the office’s interest in cryptocurrency and blockchain mining comes from protecting investors.
“People who are offering the average investor the chance to do mining for Bitcoin or other currency, most the time we’ve found they are taking the money,” she said, adding that emerging technology can draw unscrupulous businesses seeking to take advantage of those with only a cursory knowledge of it. “It is the hot scam.”
Both cease-and-desist letters have been retracted — the only two such letters to be retracted from the office since the 1990s. Meyers said the letter to Genesis was sent after the office was unable to verify the legitimacy of investment claims. Once verified, the letter was retracted, she said.
Meyers said Shipchain prompted concern due to a potential violation of securities law when it offered free tokens as an initial coin offering to invest in the company. Meyers said the company agreed that it was not giving out free tokens.
“(State law) lets us be proactive. We have everything we need mainly because to us, it’s not whether it’s cryptocurrency or whether it’s a time machine … is it an investment and is it at the end of the day the people taking your money and doing something with it?” Meyers said.
‘Get out in front’
Other states have become even more proactive when it comes to blockchain. The first piece of state legislation dealing with cryptocurrency was passed in California in 2014, according to National Conference of State Legislatures Fiscal Affairs program principal Heather Morton.
Morton held a seminar on blockchain for state lawmakers earlier this year. She also penned the report that lists at least 50 bills introduced in 22 states in 2018.
“It’s something that’s developing,” Morton said. “In terms of why states are putting forth legislation about it is, one, the economic development aspect; two, they’re looking at concerns about whether these currencies are being used in a criminal manner with money laundering and that kind of thing; and the unclaimed property and money transmission. This is a growing industry and so states feel a need they need to respond to that.”
Wyoming and Arizona stood out this year because they are working to attract blockchain-using businesses to their state, Morton said.
“States are looking at ways that digital currency businesses are using or creating or involved digital currency, what impact they could have on their state economies,” Morton said. She added that Arizona and Wyoming are “attempting to get out in front.”
Blockchain-focused policies are a matter of “when” in states like South Carolina, Morton said.
“Just because there might not be legislation yet doesn’t mean there might not be something in the future,” she said. “I’m not surprised by that everybody (in South Carolina) is still trying to figure out what it is how it works and what it means.”
Meyers said the Attorney General’s Office is satisfied with current laws on the books in terms of protecting citizens from bad investments linked to blockchain.
‘A mecca’
That leaves two policy options for the state: setting ground rules for businesses to compete fairly and incentivizing the industry to locate and operate in the state.
“Do not put roadblocks to these types of companies,” Bolick said. “By the same token, the rule of law and the structure of marketplace is effective for the differentiation of the highest quality companies.”
Bolick said fair rules and freedom to operate could “let South Carolina to be a mecca??? for companies like ours.” He suggested the state treat the businesses like it does with the life-science industry and its SCBio initiative. Like that industry, blockchain industries will offer high-paying jobs in the state, he said.
“It will fit the model of the knowledge economy in spades,” Bolick said.
S.C. Department of Commerce’s Adrienne Fairwell said the state’s economic development team is aware of blockchain technology but it’s not an industry the state is “actively seeking.”
“If we were approached by a company like that, then we would definitely do the due diligence to see how that company would benefit the state and help it thrive and grow within our borders,” she told Statehouse Report.
Morton said there is plenty of time for South Carolina to catch up on learning about blockchain and understanding how state policy can play a role.
“It’s still a developing industry so I don’t know if anybody is really falling behind,” she said.
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