Ky. senator aims to position state as major player in cryptocurrency
A Republican senator from Perry County intends to enact legal protections for virtual currencies and investments — as well as establish special purpose banks serving those markets — to position Kentucky as a contender in the cryptocurrency space.
If passed during the 2022 legislative session, BR 955 would define in Kentucky law various cryptocurrency-related terms, assert the monetary value of cryptocurrencies, and recognize their ownership and exchange. BR 954 would establish special purpose banks organized as corporations to manage virtual currency and other digital assets.
Sen. Brandon Smith — the sponsor of these bills and a member of the Banking & Insurance committee — has pursued them for the past five years because of his interest in blockchain technology. Now, he said, many early cryptocurrency investors have died and left their assets to institutions or individuals who may want to convert those assets to cash.
“The whole purpose of trying create a special depository is to be able to allow trusts or other people that are doing asset management or are in the crypto side to have a way of converting this into cash or using it to offset other investments, to allow that to be managed inside the boundaries of Kentucky,” Smith said.
Cryptocurrencies are digital currencies, such as Bitcoin and Dogecoin, that are encrypted with blockchain technology and used to purchase goods and services or trade for profit. Bitcoin in particular has proven particularly volatile, surging to $68,000 per coin for the first time on Nov. 10 before dropping below $54,000 multiple times thereafter.
Kentucky has been especially active in the cryptocurrency industry over the past year, securing 18.7% of Bitcoin’s collective computing power for mining, or hashrate, by October. In June, Blockware raised $25 million to purchase thousands of Bitcoin mining rigs for its new mining facility in Paducah. And in July, Kentucky enacted new sales and gross receipts tax exemptions for cryptocurrency mining facilities.
Founded in 2009 to hold assets for third-party custodians, Kingdom Trust in Murray found success holding cryptocurrency in the late 2010s and soon came to dominate a sizable portion of the market, competing with such firms as Coinbase and Gemini.
Although much of the resistance his bill has faced over the past five years has been from older legislators and bankers who may be wary of blockchain and cryptocurrencies, Smith said the banking industry has become increasingly receptive of these concepts.
“I had a whole group of people that just thought, ‘This is a scam. It’s bad. It’s like the dot com [bubble],’” Smith said. “I had to sort through a lot of that stuff, even though that wasn’t initially my goal. My goal was to do data centers and provide the security aspect of blockchain for our utilities.”
Smith noted this would include protecting water treatment systems and other public services from hackers who intend to poison local water supplies, as observed in Florida and California earlier this year. He also hopes to put to use what he described as a surplus of power in western and eastern Kentucky by encouraging investment in cryptocurrency mining in the state and training electricians to work in the industry.
“I think it’s perfectly healthy to be skeptical of anything, but I firmly believe in the abilities of what blockchain can do,” Smith said. “It has an incredible value to us in the rural areas because those are the most attractive right now, so I think Kentucky is just getting started.”