CALIFORNIA SEEKS TO SAFELY PROMOTE BLOCKCHAIN TECHNOLOGY

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Benjamin S. Levine

June 27, 2022

Roughly twenty-five percent of the 800 blockchain businesses in North America are in California.  In an effort to support responsible innovation of blockchain technology and digital assets, while addressing the risks that stem from their growth, California Governor Gavin Newsom issued Executive Order N-9-22 last month.  The Executive Order seeks to create a regulatory framework – following the approach set forth in President Biden’s March 9, 2022 Executive Order – for the safe development and use of blockchain technology.

What Is Blockchain Technology?
At a basic level, blockchain is a distributed digital ledger that stores data.  Functionally, blockchain is a decentralized database that facilitates the process of recording transactions and tracking assets in a network.  Cryptocurrencies, such as Bitcoin, use blockchain technology to function.  Blockchain acts as the ledger that records all of the transaction records and shares them across a large network of computers.  For a transaction to be uploaded, it must be verified by multiple computers in the networks, which creates security within the blockchain.

California’s Priorities for Blockchain Technology
California’s Executive Order outlines seven priorities:

  1. To create a transparent and consistent business environment for companies operating in blockchain that harmonizes federal and California laws, balances the benefits and risks to consumers, and incorporates California values (equity, inclusivity, environmental protection);
  2. Engage California state agencies in a process concurrent with the federal strategy articulated in President Biden’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets, including creating a regulatory approach to crypto assets harmonized between federal and state authorities and explore public-serving use cases, such as incorporating blockchain technologies into state operations;
  3. To collect feedback from a broad range of stakeholders and technical experts interested in addressing inequities and the environmental impact of and for potential blockchain applications and ventures;
  4. To engage in a public process, led by the Department of Financial Protection and Innovation, to develop a comprehensive regulatory approach to crypto assets and create consumer protections;
  5. To engage in and encourage clarity via progress on the processes outlined in the federal executive order;
  6. To explore opportunities to deploy blockchain technologies to address public-serving and emerging needs; and
  7. To identify opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets.

Employer Take-aways
The federal and now California’s Executive Order emphasizes the trend toward widespread acceptance of blockchain technology.  A harmonized set of federal and state rules – assuming they are reasonable – should encourage businesses to incorporate blockchain technology into their operations.

 

*Special thanks to Brennah Busch, our intern from Conestoga High School, for her contributions to this article.

 
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