Wyoming has made itself the leading state among the United States for the cryptocurrency industry. The state has created a regulatory system friendly to cryptocurrency and attractive to commercial environment in cryptocurrency business from around the world. Wyoming's welcoming environment for cryptocurrency works along with the state's strong LLC laws protecting privacy and asset protection to attract global investment in the cryptocurrency industry.
A cryptocurrency is a digital asset using encryption to control the generation of the asset and to verify the ownership and transfer of the asset. This type of asset, especially when used as a currency, operates independently of any government's central bank. While cryptocurrency is not regulated as governmental currency, businesses dealing with crypto are regulated as a money service business.
Overall, the U.S. federal government has taken a hesitating posture towards cryptocurrency regulation. A comprehensive legislative move towards cryptocurrency regulation in Washington has had trouble getting any forward movement, and with yet another election cycle underway, it is not considered likely that any big regulatory effort is likely to be seen soon. As a result, the regulatory approach of every individual state has become more important. For example, New York has taken an aggressive move towards cryptocurrency regulation and has strict rules that apply to companies that want to deal in cryptocurrency.
While some states take a heavy-handed approach touting consumer protection, other states see the opportunity to help consumers and attract global business by opening the path for cryptocurrency businesses. Wyoming has taken the lead in opening up the cryptocurrency industry.
In 2019, Wyoming enacted 13 new laws designed to enable cryptocurrency businesses in the state. Wyoming is currently the only state that has created a legal framework that not only allows but also welcomes the crypto industry to do business in the state through companies and individuals.
The new Wyoming laws recognize legally protected property rights for owners of all types of digital assets, including cryptocurrency. This is important because that recognition means that all of the state laws authorizing and protecting transfers of property include cryptocurrencies. Crypto is more liquid and secure when the state's commercial laws and protections apply as they would to ordinary money or any other legal form of property.
Wyoming also now authorizes a new type of depository institution to be charted by the state that provides basic transactional and banking services to cryptocurrency businesses. This type of institution is not altogether the same as a bank, as it cannot make loans and must maintain 100% reserves.
The new laws also create for the first time a method for banks in the state to be treated as a "qualified custodian" of cryptocurrency assets for the purposes of securities laws. This means that owners of cryptocurrency do not give up any ownership rights when depositing crypto with a bank. They only place the asset as a bailment, which legally means it is simply being held for safekeeping. Investment management businesses are certain to flock to Wyoming to take advantage of banks that hold cryptocurrencies as bailments in a totally secure setting. Guaranteed solvency is something that is not likely to be found in cryptocurrency investing and management anywhere else anytime soon.
Limited Liability Companies (LLCs) are popular in every state in the U.S. because of the advantages of doing businesses through a separate legal entity. LLCs generally offer asset protection, whereby only the assets held in the name of an LLC can be charged for the obligations of the LLC and not the personal assets of the LLCs owners. Wyoming provides enhanced LLC benefits beyond those of other states that are attractive to cryptocurrency investors, especially in light of Wyoming's new enabling cryptocurrency laws.
Many cryptocurrency investors and enthusiasts place great stock in the privacy and anonymity provided by the associated technologies. Wyoming law allows for the formation of an LLC without listing or disclosing the names of the members of the LLC in any public record. It is required that a registered agent and address is publicly provided so that the state or anyone who wants to send legal paperwork to the LLC will have a person and address of record to do so. However, the registered agent can be any designated agent (attorney, CPA, financial agent, etc.) and is not required to be a member of the LLC.
Asset protection is a key feature of LLC formation in every state. The strength of that asset protection is dependent on the law of an individual state when it comes to the details.
An LLC in every state is a separate legal entity than its owners. Therefore, a "corporate veil" exists which prevents the individual assets of an owner of a membership interest in an LLC from being exposed to the liabilities of and claims against the LLC. Creditors and claimants in lawsuits in every state often explore legal theories to "pierce" the corporate veil in order to put an owner's personal assets at risk for the debts of the LLC. Every state has its own law through statutes and caselaw that provides the standard for when "piercing" may or may not be allowed.
Wyoming has one of the most difficult standards for claimants to meet in order to pierce through the asset protection provided by an LLC. The state amended the LLC law in 2016 creating a difficult and strict set of requirements for piercing to occur. Essentially, some bad intent beyond mere negligence must be proven before a court will set aside the LLC asset protection rules.