Wyoming: World’s first to welcome cryptocurrency banks

A potential bank to manage the growing digital currency market would operate using blockchain technology. Blockchain is a ledger platform to administer cryptocurrency transactions. These records consist of pieces, or “blocks,” of information like date, time, dollar amount and participants in a transaction.

Lawyer Matthew Kaufman of Cheyenne-based Hathaway & Kunz LLP said the state’s efforts to bring digital currency into mainstream financial operation began with then-Gov. Matt Mead’s Economically Needed Diversity Options for Wyoming (ENDOW) initiative. In an ongoing effort to help the state establish financial footing in business sectors other than fossil fuels, Kaufman was recruited to serve on the Blockchain Coalition to explore the possibilities of bringing this specific type of business technology to the state. Cryptocurrency immediately became an area of interest because of its notorious lack of existing infrastructure.

It has now been more than a decade since the introduction of bitcoin, and in that time, thousands of other digital currencies have emerged and grown exponentially. While the global market has leaped forward and gradually been accepted by world governments and citizens, no official bank for the cryptocurrency medium exists because of the tight administrative oversight necessary of conventional banks.

“The banking industry has deemed blockchain to be a very risky industry sector – it’s very unknown and unregulated,” Kaufman said, pointing out the various safeguards conventional banks must employ to avoid being an unwitting participant in illegal activities. “That has made it difficult for banks to feel comfortable with this currency, and understandably so.”

This conundrum results in a global lack of access to fundamental services for entities that use digital currency – they cannot run payroll, make basic transfers or have formal accounts to utilize for basic money services.

Electronic currency boasts some distinct advantages over the existing money system, including the ability to facilitate instant payments, no need for conversion between international currencies, and a permanence that omits the possibility of fraudulent chargebacks that can occur when using conventional credit cards. While it is becoming clear there may be a place in the future to convert money into an electronic format, the movement is stalled because of an inability to attain the professional backing of a bank.

“That problem has been around a while, and one way the industry can be helped is by giving those businesses the opportunity to establish banking relationships,” Kaufman said.

Wyoming has become the first state to create legal framework for a new banking charter to give digital currencies access to a banking system. The process took off last year when the Legislature enacted a bill establishing Special Purpose Depository Institutions (SPDIs). According to the Wyoming Division of Banking, House Bill 74 authorized the chartering institutions to receive deposits and conduct other incidental activities, including fiduciary asset management, custody, and related activities focusing heavily on virtual currencies, digital securities and utility tokens.

A notable obstacle to any prospective blockchain bank that might aspire to open its doors in the state is that digital asset companies are ineligible to be backed by the Federal Deposit Insurance Corporation. This is addressed in the state law by requiring the SPDIs to maintain 100% of depositor reserves. SPDIs also may not engage in lending activity, but can still provide needed banking services to a niche demographic. In keeping with the intent of the economic diversification initiative continued by present Gov. Mark Gordon, SPDIs are required to have an in-state physical presence.

“Regulatory structures have not been friendly to the growth of cryptocurrency,” Kaufman said. “Wall Street has strict regulatory guidelines on its use, trading and growth. On the other hand, Wyoming is more nimble and can move quickly to respond to the needs of the industry. The promise of blockchain is that it claims to be quick, immediate and secure, and fees are much lower than going through traditional banks and finance.”

Applications for a bank charter were officially being accepted as of November. One of a handful of corporations that is readying to apply is Avanti Financial Group, based in Cheyenne.

“Avanti expects to serve as a compliant bridge to the U.S. dollar payment system and a custodian of digital assets that can meet the strictest level of institutional custody standards,” founder and CEO Caitlin Long said in a news release. “Avanti will be required to fully comply with all applicable laws and regulations including federal ‘know your customer,’ anti-money laundering and related laws and regulations.”

Long has forged a technology partnership with an entity called Blockstream, and announced appointments to her leadership team.

“We have assembled a team of all-stars who have significant experience in regulated financial institutions,” Long said.

Hopes are that their venture can be operating by early next year, which could translate into 30 to 40 jobs in Wyoming for customer service and bank compliance, according to the Wyoming Tribune Eagle. Long added that for those who feel a call to get involved in this emerging industry, now is the time to study up to get ready for a potential career move.

Other similar companies, including Kraken Digital Asset Exchange and Yen.io, are openly advertising full-time job openings in various locations around the state in anticipation of establishing bank charters.

It’s likely several other states will be fast to follow Wyoming’s lead and open up to cryptocurrency banking. At this time, the state is serving as the benchmark for progress toward more progressive money management.

“This is not the state of Wyoming trying to abandon the dollar,” Kaufman said. “We want to recognize the digital asset marketplace is growing, expanding and probably the way of the future. We want to enable this new, growing sector to be able to find a solution to problems, and we want them to find that solution here, in Wyoming.”