New Hampshire could become an option for crypto firms moving to the Bahamas

New Hampshire is on the verge of becoming a national leader in cryptocurrency if the legislature follows the recommendations made by a commission appointed by Governor Chris Sununu. The recommendations would establish a legal framework for blockchain and crypto businesses in the state, providing clarity and certainty to entrepreneurs and regulators while avoiding the burdensome and largely pointless special rules that federal regulators and members of Congress want to impose on the industry. The proposed rules will also protect consumers, depositors and investors.

Blockchain companies currently exist in something of a legal gray area in the United States. Congress has provided little guidance to the regulatory agencies, resulting in confusion and difficulty in maintaining compliance. This adds unnecessary costs and sometimes causes companies to do contradictory things. The responsibility for regulating the companies is shared between the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Although these agencies regulate different things, they have different approaches, and it is not even clear whether one or the other agency has priority. Due to the lack of clarity, many cryptocurrency exchanges and companies have moved their operations and corporate domiciles out of the US to countries with fewer regulations. Bermuda, the Bahamas, Antigua and Barbuda and Malta are popular offshoring locations.

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Coinbase CEO Brian Armstrong said last year that regulatory uncertainty was driving 95 percent of trading offshore. “Punishing American companies … makes no sense,” he tweeted. Circle moved its exchange to Bermuda in 2019, while Fidelity Investments had to offer an exchange-traded Bitcoin fund in Canada in 2021. President of the Digital Chamber of Congress, Perianne Boring, also attributed offshoring to uncertainty, saying: “they are not willing to operate in a gray area with potential enforcement hanging over their heads.”

New Hampshire’s framework would remove the gray area, setting the rules for how digital assets should be treated by regulators — such as securities, commodities or currencies — and help ensure they comply with anti-money laundering (AML) and fraud rules. While officials will have their work cut out for them to lure crypto businesses away from the Caribbean, new startups will benefit as the new rules could attract more risk-averse investors.

The confusion and uncertainty isn’t just bad for the industry, which continues to grow. The draconian rules federal agencies and members of Congress want to impose could be worse. They want to torpedo an industry that has important implications for the economy – not just people trading Dogecoin (DOGE) or pictures of monkeys. For example, some companies are using blockchain to tokenize real estate to help people become homeowners without the huge down payment and monthly costs of a traditional mortgage. In the long run, strangling the blockchain industry in its cradle will also harm US interests – much of the country’s “soft power” is tied to the fact that our financial institutions are well regulated and have access to a lot of capital, while the US dollar is a global reserve currency. As crypto grows in popularity and receives increasing attention from foreign governments, a weakened domestic industry could allow our soft power to disappear.

In part, much of the confusion comes from suspicion of cryptocurrency. A few high-profile cases that have resulted in criminal charges – such as the Silk Road market and FTX – have created a perception that cryptocurrency is only used for the “dark web”, Ponzi schemes and other illegal activities. Therefore, companies that trade in it need more regulation and supervision than banks and other firms. But the reality, as the commission pointed out, is that more financial crimes involve conventional currencies and firms. (Since 2016, Wells Fargo has paid more than $7 billion in fines and settlements related to illegal activity.)

To put blockchain-based businesses on a sound legal footing, the commission made three main recommendations: The state should allow limited liability protection for decentralized autonomous organizations (DAOs), establish a “blockchain dispute documentation” in the legal system, and have committees of the legislature to update relevant legal codes, such as the Uniform Commercial Code, state securities laws and state banking laws.

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Another concern that helps separate New Hampshire from skeptical federal regulators is its commitment to privacy and private property. The commission noted that the Financial Crimes Enforcement Network’s proposed rules require financial institutions to record and verify the identity of anyone involved in cryptocurrency transactions simply because of the possibility that cryptocurrency could be used to finance crime or terrorism. This is not only an absurd requirement that does not apply to other transactions, but in itself creates a vulnerability cybercriminals can exploit, giving them access to a massive database of personal information.

The Commission correctly recommended: “As financial institutions or money services businesses provide platforms to provide cryptoasset services to clients who own cryptoassets, these centralized organizations should be subject to the same [Bank Secrecy Act] BSA/AML rules that financial institutions that provide services to customers with cash … there should be an exceptionally high standard of proof before the BSA/AML regime … imposes greater burdens on crypto service businesses.”

New Hampshire cryptocurrency advocate and Tron DAO policy lead Andrew Hemingway approves of the commission’s work. “The ‘live free or die’ spirit is evident in the commission’s perspectives and recommendations,” he said in an email to me. “This spirit is also harmonious with the ethos of cryptocurrency.”

Money laundering is a serious crime, but it is not unique to cryptocurrency. Law enforcement officials have said it’s easier to prevent with crypto because of Blockchain’s transparency. If New Hampshire implements the commission’s recommendations, it will become a leader in the digital asset economy and serve as a guide to federal agencies and lawmakers on how to do it right.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.