Everything is bigger in Texas, but when it comes to crypto-friendly laws it doesn’t seem to be the case just yet. On March 12, 2021, Texas Representative Tan Parker introduced the Unified Commercial Code (House Bill 4474) to better align commercial law with blockchain innovations and digital asset regulations.
In particular, the draft law amending the Texan UCC aims to recognize virtual currencies under commercial law. Lee Bratcher, president of the Texas Blockchain Council – an organization recently formed as a trade association to help Texas become a leader in national blockchain growth – told Cointelegraph that the Texas Blockchain Council is working closely with Texas lawmakers Collaborated to work out this bill, it would change business law regarding the definition of digital currencies and the legal definition of control:
“The Texas Blockchain Council has been working with a unified judicial commission around the language of the UCC Amendment Act to ensure they are all familiar with the language.”
Texas wants to be second only to Wyoming, but concerns remain
According to Bratcher, HB 4474 is similar to what Wyoming is already doing with its digital assets bill, passed on February 26, 2019 and enacted July 1, 2019. “If the UCC amending bill is passed, Texas would cement a leadership position alongside states like Wyoming, which have already paved the way for regulatory clarity,” commented Bratcher.
While noteworthy, there remain some unresolved challenges. Caitlin Long, chief operating officer and founder of Avanti Financial Group – a Wyoming bank founded as a bridge between digital assets and the US dollar payment system – told Cointelegraph that HB 4474 was similar in one way to Wyoming law : We want to define virtual currencies. Long said:
“This is very positive because in most US states the legal status of Bitcoin is unclear. This means that judges do not have a roadmap for resolving disputes and the parties have no clarity about their rights and obligations.”
Long further noted that if HB 4474 passes, Texas will be the only state to join Wyoming to clear this critical area of the law. “Both Texas and Wyoming laws do this in the right way, recognizing control of virtual currency as a determinant,” Long noted.
However, Long pointed to a critical loophole in HB 4474. According to Long, the bill does not define how a lender can establish an enforceable lien on a virtual currency. “In legal parlance, this is called ‘How to Perfect a Security Interest,” “she commented.
Long said she is concerned that Bitcoin (BTC) owners will “sink into a US lien”. because US commercial law does not clarify which liens on Bitcoin are enforceable. This has become even more worrying for Long when she pointed out that bitcoin-backed lending as collateral has increased dramatically in recent years:
“I think a lien is already building up in Bitcoin. Bitcoin owners run the risk of being hit by old, unknown real estate liens on their coins that they couldn’t discover before buying them – and the higher the Bitcoin price, the greater the financial incentive lawyers have to make such claims to assert. ”
In contrast to HB 4474, Long noted that Wyoming law clearly states how lenders can create an enforceable lien on Bitcoin while providing for the settlement of dormant liens. Unfortunately, HB 4474 has not yet done this. Rather, HB 4474 makes it clear that an innocent buyer will not be subject to such adverse claims by adhering to the “Take Free” rules.
While it does, Long pointed out another problem, asking what would happen to valid land charges that were in effect prior to HB 4474, possibly into law. “Would Bitcoin lenders in Texas no longer have a valid lien? And will this affect the willingness of bitcoin lenders to lend to customers in Texas? “
Texas remains positive despite concerns
While some critical concerns remain about HB 4474, Bratcher noted that at some point more guidance would be formed for the UCC amending bill: “We are working to create a framework that is moving in the same direction as Wyoming, and we will introduce additional laws in the future. “
Meanwhile, some Texas-based crypto companies have already expressed their enthusiasm for HB 4474. Joseph Kelly, CEO of Unchained Capital – a Bitcoin-based financial services company – told Cointelegraph that the company does a lot of business locally and has more clarity on how Bitcoin is treated under Texas law and will help its company and encourage other states to follow suit consequences:
“If Texas and other states pass updates to their UCC that define Bitcoin and set out sensible and commercial methods for perfecting a security interest in Bitcoin, it will help consumers and industry avoid messy scenarios, lower average interest rates, and increase its spread.” achieve Bitcoin as acceptable security. “
However, the challenges related to mortgages remain. Though the solution is still unknown, Long hypothesized that Texas might be taking an approach that strongly favors institutional lenders at the expense of decentralized finance and other peer-to-peer lenders.
“Institutions have the ability to perfect their security interests (by treating Bitcoin in the same way that securities are treated under commercial law – as promissory notes), but that option is not available to individuals and DeFi projects,” Long commented. She also noted that she hopes Texas can fix this as an amendment to the bill in the same way as Wyoming can.
Regardless of the outcome, it is noteworthy that Texas has taken steps to catch up with Wyoming on crypto and blockchain regulations. In addition to HB 4474, Bratcher mentioned that three more blockchain invoices had been submitted. While Bratcher is aware these bills don’t go as far as Wyoming’s bills, he believes that if Texas blockchain legislation passes, Texas will rank right below Wyoming.
“Texas is the second largest economy in the United States, and our congressional delegation is ten times the size of Wyoming. We have a lot more influence on DC. We just want to validate what Wyoming is doing and stand by your side with a large business and congressional delegation. “