Changes to the US Commercial Code exclude crypto from the category of electronic money
The Union Law Commission directed all states to adopt the new amendments to boost the growth of the digital economy
By Shashank Bhardwaj
Image: Shutterstock
The Uniform Commercial Code (UCC) was amended by a joint committee of the United States Uniform Law Commission (ULC) and the American Law Institute (ALI). The new changes will address the peculiarities and nuances of digital asset transactions, as well as the regulation of crypto-as-collateralized financing.
Prior to the amendments, secured creditors faced difficult perfection issues under UCC Article 9 in connection with liens in crypto, other digital assets, and electronic contract rights. This primarily applied to contracts where the secured creditor has exclusive electronic access and other rights in connection with liens. Due to lack of clarity and uniformity, the plethora of unresolved legal issues hindered the growth of the digital economy.
The new changes include the introduction of “verifiable electronic records” (CER). It will cover not only existing blockchain-backed assets, but also all future types of digital assets. A verifiable electronic record is a “record stored in an electronic medium.” They will include crypto assets as well as non-fungible tokens (NFT).
However, according to analysts, CERs, “specifically exclude, among other things, “electronic money,” electronic records of promissory notes (“verifiable payment intangibles”), and electronic records of accounts receivable (“verifiable accounts”) .”
The ULC approved a final draft of the joint ULC-ALI Emerging Technologies Committee (ETC) amendments to the UCC at its annual meeting on 8-13 July. The most important updates for the crypto industry appeared in Articles 3 and 9, and the new Article 12 also contains a number of relevant details. Article 12 defines different digital asset classes and establishes ground rules for crypto-backed secured financing. It proposes a number of changes to existing Article 9 and Article 3. Article 9 deals with secured transactions, while Article 3 deals with negotiable instruments. Article 12 describes controllable electronic records.
The changes also include the revised category of money, “electronic money.” It represents digital fiat currencies. Despite the exclusion of crypto, central bank digital currencies (CBDCs) may be considered “electronic money” under the new guidelines. Articles 9-107A and 12-105 are also specified in the amendments. According to these articles, to become the first priority perfected in crypto security, a lender must obtain the borrower’s private key and transfer the crypto to a wallet that is solely controlled by the lender or custodian.
The changes are “recommended for adoption in all states.” However, the final implementation may vary from one state to another. The UCC changes come after a handful of states passed non-uniform laws that sought to define and regulate interests in digital assets. These states include Wyoming, Kentucky, Idaho and Tennessee. Most state legislatures are expected to adopt ETC’s proposed changes. However, the timelines will vary from state to state.
The author is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash
Image: Shutterstock
