Technology News – Token Taxonomy Act

On December 20, 2018, Representatives Warren Davidson and Darren Soto of Ohio and Florida, respectively, introduced a bill H.R. 7356, entitled the “Token Taxonomy Act.” For those following the legal issues related to digital assets and tokens, this bill attempts to adequately distinguish digital assets commonly called “security tokens” from non-security tokens as well as provide a safe harbor for digital asset holders who find that the SEC has determined that their tokens qualify as securities.

The bill defines a digital token as follows:

(20) DIGITAL TOKEN.—The term ‘digital token’ means a digital unit that—

(A) is created—

(i) in response to the verification or collection of proposed transactions;

(ii) pursuant to rules for the digital unit’s creation and supply that cannot be altered by a single person or group of persons under common control; or

(iii) as an initial allocation of digital units that will otherwise be created in accordance with clause (i) or (ii);

(B) has a transaction history that—

(i) is recorded in a distributed, digital ledger or digital data structure in which consensus is achieved through a mathematically verifiable process; and

(ii) after consensus is reached, cannot be materially altered by a single person or group of persons under common control;

(C) is capable of being traded or transferred between persons without an intermediate custodian; and

(D) is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.

A digital unit is defined as follows:

(21) DIGITAL UNIT.—The term ‘digital unit’ means a representation of economic, proprietary, or access rights that is stored in a computer-readable format.

The proposed bill recommends gross income exemptions with regard to virtual currency transactions if the exchange is an exchange of virtual currency for something other than cash or cash equivalents so long as the exchange is valued at less than $600.

The bill recommends amendments to the Securities Act of 1933, the Securities Exchange Act of 1934 as well as the IRS Code of 1986, among others.

Nothing in this article is purported to be legal advice. You can contact me via email at cynthia.gayton@gayton-law.com.

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