Guest Post: Is Illinois Defining Digital Assets?

It has been a pleasant surprise how many colleagues have expressed interest in contributing to the information we publish here. Hopefully, that continues and we will continue to have a deep bench of Guest Posts. One of the many fruits of the good fortune of working brilliant people.

So, without further ado, I give you my colleague Matt Ingersoll:

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In the ever-changing landscape of digital assets, the need for thoughtful regulation has become increasingly important. As we navigate this complex world, it is crucial to examine the frameworks proposed by regulators, such as the Securities and Exchange Commission (SEC) and the Illinois General Assembly. In doing so, we can identify commonalities, shortcomings, and areas for improvement in our approach to digital asset regulation.

The Securities and Exchange Commission (SEC) has recently withdrawn its definition of "digital assets." The definition was broad, encompassing assets issued or transferred using distributed ledger technology, including virtual currencies, coins, and tokens. Similarly, Illinois' HB 3479 bill proposes a definition that focuses on digital assets as a medium of exchange, unit of account, or store of value, separate from fiat currency. The two definitions share similarities, attempting to define a vast, evolving space.

However, both also sacrifice nuance for breadth and risk oversimplifying the diverse and multifaceted world of digital assets. The sweeping definitions would capture assets and technologies that should be treated differently or left unregulated altogether, while also leaving room for ambiguity and confusion. For example, the definitions could inadvertently capture digital artwork or digital assets used for in-game purchases or decentralized applications that may not have the same risks and concerns as other digital assets.

It is incumbent upon us to acknowledge the potential for distinctions among digital assets, as different use cases will most certainly embody unique characteristics with specific implications for financial systems and consumer protection. A tailored approach to regulation, one that addresses these distinctions, is required to craft legislation that effectively serves the public interest. The goal must not be to paint all digital assets with the same broad brush, but to understand the intricacies that distinguish them from one another

Definitions like these must be returned to the drawing board and examined under the microscope of necessity. In the short-term, the Illinois General Assembly should, like the SEC, reconsider its definition of digital assets in HB 3479. Doing so, and perhaps even tabling the bill altogether, would allow for a dialogue on the nature of these assets and better equip legislators to craft laws that thoughtfully addresses the unique challenges posed by digital assets, while safeguarding the interests of Illinois residents. 

In short, the SEC's and HB 3479's definitions of digital assets are too broad to be effective. Legislative bodies should reconsider ill-conceived definitions like the Illinois General Assembly’s definition of digital assets. In doing so, lawmakers will pave the way for a more nuanced understanding of the technology, ultimately benefiting their constituents and fostering a more robust regulatory environment.

What kind of lawyer would I be without a disclaimer?

Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email (dlopezkurtz@crokefairchild.com or david@bsl.group), telegram (@davidlopezkurtz), twitter (@lopezkurtz), and on LinkedIn here.