Newly formed Blockchain Association aims to make CT a leader in industry growth, regulation

With the recent checkered history of cryptocurrencies, investing time and energy into unleashing blockchain technology companies may seem like a risky venture for Connecticut, but Alan Deckman is optimistic about the outlook.

“Blockchain itself has been around for many, many years before a lot of the craziness you see on a daily basis with cryptocurrencies,” he said.

Deckman is a longtime lobbyist in Hartford, president of the TCORS Capitol Group. A couple of years ago, his curiosity was piqued by what he read about blockchain, the distributed ledger technology that underpins cryptocurrencies.

“I said, well, wait here. There is a need to educate and engage and organize to help this industry in Connecticut,” Deckman said in a recent interview

It was the driving force behind a new trade group, the Connecticut Blockchain Association, formed in 2022. Its self-proclaimed mission is to inform the public and public officials about blockchain technology, motivate the use of blockchain by both the public and private sectors, and influence legislation that is relevant to the industry.

The association counts among its board members senior managers of two of the largest blockchain companies in Connecticut: Oasis Pro Markets and Digital Currency Group.

The organization is stepping up its efforts at a critical time for cryptocurrency in the state. In the wake of high-profile failures like the failure of cryptocurrency exchange FTX, Connecticut is taking specific steps this legislative session toward closer regulation of blockchain technology and cryptocurrency companies — among the earliest states to do so.

“It’s a new tool, there’s a lot of consumer fraud going on and there’s a lot of confusion,” Banking Commissioner Jorge Perez recently told a legislative committee. “But also (the) industry is (asking) for states and the federal government to provide some guidance. They’re actually asking for regulation.”

To that end, the banking department is supporting a bill (HB 6752) that would, among other things, allow it to develop more comprehensive regulations for business use of digital assets.

“The sooner the better,” said state Rep. Tom Delnicki (R-South Windsor), at the March 2 public hearing on the proposal. “I mean, this is like the Wild West. I have a huge concern about it.”

“There has been reluctance at the federal level to implement strong regulations around virtual currency and digital assets,” said Matt Smith, the bank’s director of government relations. “Our counterparts in New York probably have the strongest consumer protections and regulations around digital assets. They’ve really become a model for other states and federal governments.”

Deckman said among the most pressing needs he sees is education.

“It can be very complicated and difficult to understand,” he said of blockchain technology. “To take that and try to simplify it so that other people can understand it — that’s the challenge in all of this.”

The Blockchain Association has started a video series on its website with such beginner-friendly titles as “What is Blockchain?” and “How does blockchain work?”

The latest production is a video detailing some of the statistics on blockchain’s economic impact in Connecticut. These figures come from a 2021 report prepared for the National Blockchain Association by Oxford Economics.

The study claims Connecticut saw more than $330 million in GDP as a result of blockchain infrastructure that year. The industry supports about 1,800 jobs in the state, and led to a state and local tax contribution of about $22 million, and a federal tax contribution of about $51 million, according to the report.

The state’s interest in the technology goes back further than Deckman’s lobbying. A Blockchain Working Group was created by the legislature in 2018, and drafted several proposals for lawmakers to consider.

Then in December 2021, the State Department of Administrative Services (DAS) released a report studying the potential for incorporating blockchain technology into state administrative functions to improve efficiency and cost-effectiveness.

But in the foreword to the report, then-DAS Commissioner Josh Geballe warned: “While there may be value in the use of blockchain technology by state agencies, DAS advises against incorporating specific technologies into statutes, recommending instead that blockchain technology, along with other new technology ideas, be evaluated through the testbed process.”

Meanwhile, some of the state’s initial economic development efforts to attract blockchain-focused companies have been less than successful.

Back in 2018, the Chinese company Seven Stars Cloud (later renamed Ideanomics) announced its planned purchase of the former UConn campus in West Hartford, with the stated goal of developing a $283 million financial technology hub centered on blockchain technology — only to admit, after two years of delays, that the development work was a dud.

The company has since turned its focus to the commercial use of electric vehicles.

Some less-than-glamorous headlines have also followed Connecticut’s recent courtship of Digital Currency Group, which moved its headquarters to Stamford from New York City in November 2021, promising to create 300 jobs in the state.

As of the beginning of this year, DCG announced it would close one of its Stamford-based subsidiaries, wealth management company HQ, and it has yet to meet employment targets that would trigger government incentives.

Gov. Ned Lamont announced last July that Darien-based Oasis Pro Markets, which operates an alternative trading system that allows subscribers to trade digital securities, would add 91 full-time jobs in the state as part of an expansion. The company will be eligible for a grant of nearly $1.1 million if it meets that hiring benchmark.

The Department of Economic and Social Development refused to answer questions about how blockchain might fit into the state’s overall economic development strategy going forward.

“There have been some pretty clear and present difficulties in the overall market,” said David Noble, director of the Peter J. Werth Institute for Entrepreneurship & Innovation at UConn. “It has definitely had a negative impact on the presence of blockchain in the state and the economic development issues around it.”

Noble is a Bitcoin enthusiast and early adopter. He has owned the currency since 2013, and first taught a course on it at UConn in 2016. He said the state should keep up, undeterred by today’s ups and downs in the market.

“Cryptocurrency over time is going to win. It’s a technological advance,” he said. “I always like to give an example that when I was younger, I never thought I would put a credit card on the internet or my phone, for example . But I was really annoyed at the hotel yesterday because they didn’t accept Apple Pay.”

So, what can create the kind of landscape where this volatile industry can be successful in driving economic growth in Connecticut?

“We want to build this ecosystem,” Deckman said. “We want to build jobs, we want people to come to Connecticut to invest, and not be afraid of the regulatory environment.”

He has met officials in the banking department, and said the industry wants regulation to promote confidence.

“In Washington, there is so much instability in Congress that the problems are coming back to the states,” Deckman said. “Connecticut has a unique opportunity to really be the statewide model for blockchain, if we get the regulation right.”

Noble is more of a regulatory skeptic.

“I don’t think it’s a very good idea for states to try to regulate a global platform,” he said. “It’s not really possible to regulate, and I think you’ve seen, regulation too soon kills an industry.”

The growth of prosperity behind cryptocurrency opportunities is demonstrably creating a new service economy.

Justin Wilcox is a partner at CPA firm FML in Glastonbury and has become an expert in this rapidly evolving practice area.

“I realized there are a lot of people who made a lot of money quickly and didn’t have the knowledge to calculate the tax burden,” he said. “So it was an opportunity for us to build out a cryptocurrency tax practice.”

In fact, this field is so new that only in March of this year the Financial Accounting Standards Board issued a proposal on the accounting of cryptocurrencies, in an attempt to build the first explicit standard for digital assets in US generally accepted accounting principles. The rule is available for public comment until June, before it will be finally finalized.

“The complexity of transactions outpaces the law and will continue to do so,” Wilcox said.