State Legislature's Cryptocurrency Bill Designed to Regulate the New Financial Sector

July 7, 2021, 6:45 a.m. ·

Nebraska Legislative chamber
Nebraska legislative chamber. (Photo courtesy Nebraska Unicameral Information Office)

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Signed into law in late May, LB 649, or the Nebraska Financial Innovation Act, will create “Digital Asset Depositories,” or banks, that trade cryptocurrency in the state. Also, existing banks in Nebraska have the opportunity to create a department that works with cryptocurrency. The new financial sector will be supervised by the Nebraska Department of Banking and Finance, with other regulations on the way.

Cryptocurrencies, or ‘crypto’ for short, like Bitcoin for example, have been popular for a while. Crypto is a digital and often volatile currency. Now, banks in Nebraska can open accounts for consumers who own bitcoin or other cryptocurrencies.

Also, banks can trade “stable coin,” which is a cryptocurrency that doesn’t fluctuate in value as much as volatile cryptos, like Bitcoin. Stable coins are tied to a physical currency like the U.S. dollar.

Any bank wanting to trade cryptocurrency must first complete an application with the state. Also-called ‘Digital Asset Banks,’ they cannot loan money, although they can receive Federal Reserve funding and will be able to buy and sell gold and silver.

The Bill passed 46-2 on final vote, and Governor Ricketts signed it into law on May 25 -- making Nebraska the second state to allow banks to hold cryptocurrency behind Wyoming.

In some cases, crypto investors have had issues accessing their investment because they forgot their password or security key to an online account.

Senator Mike Flood
Sen. Flood represents Norfolk, Nebraska. (Photo courtesy Nebraska Unicameral Information Office)

Mike Flood, a state senator from Norfolk, wrote the original bill. He says LB 649 makes sure consumers are protected.

“We really made sure that consumers were taken care of,” he said, “that there were necessary disclosures to people that wanted to start accounts and that if they (banks) did custody U.S. dollars, those U.S. dollars had to be in an FDIC approved account.”

A cryptocurrency trading company will open a location in Nebraska. Telcoin recently announced the first crypto bank in the state will be located in Norfolk, Nebraska.

Senator Flood and Telcoin CEO Paul Neuner, were college roommates at Notre Dame and Neuner says his company will move its headquarters to Norfolk. Telcoin is based in Tokyo, but Nuener says he would consider moving his residency to Nebraska.

The President and CEO of the Nebraska Bankers Association, Richard Baier, says his group wanted to make sure they had a hand in writing the bill.

“First of all to make sure that the Nebraska banks were able to participate in the digital asset economy,” he said. “Secondly, we’re very interested in making sure that there were appropriate protections put in place, not only for the consumer but for the banking industry and financial service sector as a whole, and lastly, we wanted to make sure that we had an appropriate regulatory framework.”

There are two main reasons why the government wants to regulate cryptocurrencies: tax opportunities and illegal activity. The latter is despite the fact less than half a percent of crypto transactions are used illegally, according to a report from Edward Jones Investing.

Cryptocurrencies have no centralized oversight for transactions. Instead, they utilize what’s known as blockchain technology, which is a ledger of digital transactions created by a computer network. The network is run by many different people and their computers.

How the banks that buy and sell crypto use the blockchain will depend on their business models.

There is still confusion on how cryptocurrency should be classified and the new bill does not clearly address that.

“We do not pay our taxes using cryptocurrencies. They work as financial instruments. We deal with cryptocurrencies and then once we decide to pay our taxes, we have to convert that into a real currency, such as dollars and then pay our taxes,” he said. “It is a currency, it’s a special type of currency that operates as a financial instrument, as a stock.”

That’s Dr. Jacques Bou Abdo, a professor at the University of Nebraska at Kearney, who’s an expert in blockchain technology and cybersecurity.

Abdo says the question, “How much is the next investor willing to pay?” applies to cryptocurrency and is usually associated with stocks, even though crypto is transferred, transacted, and thought of the same way as money.

Supporters believe young professionals will flock to Nebraska, in hopes of investing opportunities.

The only certainty with the future of cryptocurrency is that it is largely uncertain. Perhaps the most positive aspect of virtual currency is how people can safely and securely transfer money internationally. Stable coins may be useful for transactions, but currencies like Bitcoin, are so volatile that it makes transactions very risky.

Cryptocurrencies and their regulations can go many different ways, but the fact Nebraska’s legislature has already dipped its hand into the pot, shows how important it could be to the future of finance in the state.