The bill, introduced by state Sen. Alison Clarkson, would allow distributed ledger startups to create limited liability companies that would be taxed by the state in any coin of its making at a low rate.
Perhaps the most surprising of the proposals is the requisition of a study to determine how Vermont could create an e-residency program. The bill specifically asks state officials to examine Estonia's e-residency program, which allows anyone, anywhere, to virtually become a citizen of the state.
The move would put the state on a path following Estonia's digital transformation program, which the New Yorker characterized as the most "ambitious projects in technological statecraft," in the world. Estonia allows its e-citizens to digitally sign documents and contracts; encrypt and transmit documents securely; establish a company online, enable companies to administer a company from anywhere in the world; apply for third-party services like e-banking and remote money transfers; access online payment service providers and declare Estonia taxes online.
Clarkson sees the bill as a continuation of technology-friendly policy in the Green Mountain State.
“We have a history of passing innovative laws for business,” Sen. Clarkson said.
Vermont passed two blockchain-related bills in 2016 and 2017. The first bill passed by the Vermont Assembly allowed for authentication of an object, such as artwork, precious stones or high-value footwear, through blockchain technology. The bill establishes that blockchain data is admissible evidence in court. Blockchain technology could be used to supply a notarization of authenticity legally.
The second bill passed in the spring of 2017 allowed the state to modify its money transmission rules with a definition for virtual currency, allowing money transmitters to hold digital currencies as a kind of "permissible investment," but with the caveat that this can be done "only to the extent of outstanding transmission obligations received by the licensee in identical denomination of virtual currency.”
The existing Vermont legislation on blockchain technology and other aspects of e-finance have given Vermont the potential for leadership in this sector of technology, she said. “We have been busy putting the enabling legislation in place to build fluency” in financial technology.
It's a rural state — with a population of about 600,000 — that is losing workers due to outmigration and retirement, and whose economic indicators and job creation show a decline since 2012. So , she thinks, the legislature is very interested in getting recognition as the first state to encode legal enhancements for virtual business.
“Our legislation is fairly forward-looking to advance economic development,” she said. “We desperately want to attract young workers. (This bill) might attract them to be here physically.”
Clarkson and her husband, Oliver Goodenough, who wrote a financial report to accompany her bill, both admit that they were a little more than inspired by the Estonia model.
“While our state may not have Silicon Valley or Wall Street, it is already a moderate tech hub,” said Goodenough, a law professor at the University of Vermont.
Forbes magazine ranked Burlington among the top 10 metropolitan areas for innovative technology development.
Estonia has shown the world that its ideas can disrupt business; disrupt what it means to be a state; and too, that the small, former Soviet Union captive can begin to dominate innovation in the Council of the European Union.
Vermont hopes to emulate Estonia's state-level disruption within the United States by adopting a model that will foster financial technology laws to enhance participation in Vermont’s economy as virtual citizens.
As currently written, Clarkson's bill would:
- Conduct a review of existing statutory and regulatory laws (including anti-fraud rules and other consumer protections) to make sure current state laws consider evolving financial technologies.
- Allow the creation of trust organizations or limited liability corporations, termed Digital Currency LLCs (DCLCCs) designed to work within the existing LLC laws, but with a specific sub-chapter of rules. This would include:
Permitting DCLCC governance to be provided in whole or in part through the technological architecture of the system. Allowing the assignment of the roles of members and managers to participants — nodes, miners, etc. Granting limited liability protection to these participants, and authorizing the limitation of their agency authority with respect to the system. Granting authority for the kinds of counter-hacks that the Ethereum system has carried out when under attack. Creating governance procedures for innovations and changes in the currency architecture.
It would also allow for trust frameworks to prevent identity theft, allow the application of blockchain technology for insurance and e-banking and create the first legal structure in the U.S. for the governing of autonomous agents — for example, an artificial intelligence that controls securities or commodities corporations.
Clarkson fully expects most of her proposals to pass in the springtime. Because the state is small, she said, it can be very nimble.
“Our legislature is fairly forward-looking, and they are looking to promote economic development,” she said.
