🔒Newly-formed Blockchain Association aims to make CT a leader in industry growth, regulation

With the recent checkered history of cryptocurrencies, investing time and energy into courting blockchain technology companies might seem a risky bet for Connecticut, but Alan Deckman is bullish on the prospects.

“Blockchain itself has been around for many, many years prior to a lot of the craziness that you see on a day-to-day basis with cryptocurrencies,” he said.

Deckman is a longtime lobbyist in Hartford, president of TCORS Capitol Group. A couple years ago, his curiosity was piqued by what he was reading about blockchain, the distributed-ledger technology that backs cryptocurrencies.

“I said, well, wait a second here. There’s a need to educate and get involved and organize to help this industry in Connecticut,” Deckman said in a recent interview

That was the impetus behind a new trade group, the Connecticut Blockchain Association, formed in 2022. Its self-proclaimed mission is to inform the public and government officials about blockchain technology, motivate the use of blockchain by the public and private sector alike, and to influence legislation relevant to the industry.

The association counts among its board members senior executives of two of the biggest blockchain companies in Connecticut: Oasis Pro Markets and Digital Currency Group.

The organization is ramping up its efforts at a critical time for cryptocurrency in the state. In the wake of high-profile fiascos like the failure of cryptocurrency exchange FTX, Connecticut is taking specific steps this legislative session toward more closely regulating blockchain technology and cryptocurrency companies — among the earliest states to do so.

“There’s a new tool, there’s a lot of consumer fraud happening and there’s a lot of confusion,” Banking Commissioner Jorge Perez recently told a legislative committee. “But also, the industry (is) asking for states and the federal government to give some guidance. They’re actually asking for regulation.”

To that end, the Banking Department is backing a bill (H.B. 6752) that, among other things, would allow it to develop more comprehensive regulations governing the business use of digital assets.

“The sooner, the better,” said state Rep. Tom Delnicki (R-South Windsor), at the March 2 public hearing on the proposal. “I mean, this is like the Wild West. I have a tremendous amount of concern over it.”

“There has been hesitancy at the federal level in implementing strong regulations around virtual currency and digital assets,” said Matt Smith, the banking department’s director of government relations. “Our counterparts in New York probably have the strongest consumer protections and regulations around digital assets. They have really become quite a model for other states and the feds.”

Deckman said among the most urgent needs he sees is for education.

“It can be very complicated and difficult to understand,” he said of blockchain technology. “To take that and try to simplify it so others can understand it — that’s the challenge in all of this.”

Economic development prospects

The Blockchain Association has begun a video series on its website with such beginner-friendly titles as “What is Blockchain?” and “How Does Blockchain Work?”

Its latest production is a video that details some of the statistics on blockchain’s economic impact in Connecticut. Those numbers come from a 2021 report that was prepared for the national Blockchain Association by Oxford Economics.

The study claims that Connecticut saw more than $330 million in GDP as a result of blockchain infrastructure in that year. The industry supports some 1,800 jobs in the state, and led to a state and local tax contribution of around $22 million, and a federal tax contribution of around $51 million, according to the report.

The state’s interest in the technology goes back further than Deckman’s lobbying venture. A Blockchain Working Group was created by the legislature in 2018, and drafted several proposals for lawmakers to consider.

Then in December 2021, the state Department of Administrative Services (DAS) released a report studying the potential for incorporation of blockchain technology in state administrative functions to improve efficiency and cost-effectiveness.

But in the preface to the report, then-DAS Commissioner Josh Geballe warned, “Although there may be value in utilization of blockchain technology by state agencies, DAS recommends against the incorporation of specific technologies into statute, and instead recommends that blockchain technology, along with other emerging technology ideas, be evaluated through the testbed process.”

Meanwhile, some of the state’s initial economic development forays into attracting blockchain-focused companies have been less than fully successful.

Back in 2018, Chinese company Seven Stars Cloud (later renamed Ideanomics) announced its planned purchase of the former UConn campus in West Hartford, with the stated aim of developing a $283 million financial technology hub centered on blockchain technology — only to admit, after two years of delays, that the development effort was a bust.

The company has since pivoted its focus to the commercial adoption of electric vehicles.

Some less-than-stellar headlines have also accompanied Connecticut’s more recent courtship of Digital Currency Group, which relocated its headquarters to Stamford from New York City in November 2021, promising to create 300 jobs in the state.

As of early this year, DCG announced it would shutter one of its Stamford-based subsidiaries, wealth management company HQ, and it has not yet met the employment targets that would trigger state incentives.

Gov. Ned Lamont last July announced that Darien-based Oasis Pro Markets, which operates an alternative trading system that allows subscribers to trade digital securities, would be adding 91 full-time jobs in the state as part of an expansion. The company will be eligible for a nearly $1.1 million grant, if it hits that hiring benchmark.

The Department of Economic and Community Development declined to respond to questions about how blockchain might fit into the state’s overall economic development strategy going forward.

“There’s been some pretty clear and present difficulties in the overall market,” said David Noble, director of the Peter J. Werth Institute for Entrepreneurship & Innovation at UConn. “That’s definitely had some negative impact on the presence of blockchain in the state and the economic development issues around it.”

Complexity of transactions

Noble is a Bitcoin enthusiast and early adopter. He’s owned the currency since 2013, and first taught a course on it at UConn in 2016. He said the state should hang in there, undeterred by the current ups and downs of the market.

“Cryptocurrency over time is going to win. It’s a technological advancement,” he said. “I always like to give the example of when I was younger, I never thought I would put a credit card on the internet or my phone, for instance. But I was really annoyed at the hotel yesterday because they didn’t take Apple Pay.”

So, what might create the kind of landscape whereby this volatile industry could become a success in driving economic growth in Connecticut?

“We want to build this ecosystem,” said Deckman. “We want to build jobs, we want people to come to Connecticut to invest, and not be afraid of the regulatory environment.”

He has met with Banking Department officials, and said the industry wants regulation to promote confidence.

“In Washington, there’s so much gridlock in Congress that the issues are coming back to the states,” said Deckman. “Connecticut has a unique opportunity to really be the model across the country for blockchain, if we do the regulation right.”

Noble is more of a regulation skeptic.

“I don’t think it’s a really good idea for states to try to regulate a global platform,” he said. “It’s not really possible to regulate, and I think you’ve seen, regulation too early kills an industry.”

The growth of wealth behind cryptocurrency opportunities is demonstrably creating a new services economy, though.

Justin Wilcox is a partner at CPA firm FML in Glastonbury, and he’s become an expert on this rapidly developing practice area.

“I realized that there’s a lot of people that made a lot of money quickly and didn’t have the knowledge to calculate the tax burden,” he said. “So, that was an opportunity for us to build out a cryptocurrency tax practice.”

In fact, that field is so new that the Financial Accounting Standards Board only in March of this year issued a proposal on accounting for cryptocurrencies, in an effort to build the first explicit digital asset standard in U.S. Generally Accepted Accounting Principles. The rule is available for public comment until June, before it will be finalized.

“The complexity of transactions is outpacing the law and will continue to do so,” said Wilcox.