US commercial code distinguishes crypto from electronic money

The revised rules aim to clarify the parameters of lending crypto assets and define the position of CBDCs.

A joint committee of the United States Uniform Law Commission (ULC) and the American Law Institute (ALI) has completed revisions to the Uniform Commercial Code (UCC), which regulate the particulars of digital asset transactions and crypto-as-collateral secured financings.

The modifications are “recommended for passage in all states,” but the specifics of each state’s eventual implementation may differ.

During a July 8–13 meeting, the ULC-ALI Emerging Technologies Committee endorsed a final draught of revisions to the UCC. The new Article 12 also offers a set of key facts. Articles 3 and 9 cover the most significant crypto industry changes.

The modifications incorporate the notion of “controllable electronic records,” which would apply not just to the present blockchain-backed asset but also to all future types of digital assets. The controlled electronic records, which are described as “records stored in an electronic media,” include cryptocurrencies and nonfungible tokens (NFTs), but are distinct from “electronic money.”

The new category of “money” includes “electronic money,” which indicates fiat digital currencies. Thus, under the new standards, central bank digital currencies (CBDCs) might be deemed “electronic money,” but cryptocurrencies could not.

In a practical sense, analysts at JD Supra underlined, that this distinction meant that “perfection of a security interest in CBDC can only be reached via the lender’s “management” of CBDC.” The changes further stipulate that a lender must obtain its borrower’s private key and move the cryptocurrency to a wallet that the lender (or custodian) fully controls in order to complete a first-priority security interest in cryptocurrency collateral.

Within the scope of the ULC, the ETC was established in 2019 to handle legal issues pertaining to cryptocurrencies, NFTs, and other developing digital assets. The UCC is a series of model legislation that virtually all U.S. states have embraced in its entirety to enable interstate commerce. Therefore, it is probable that the adjustments will ultimately be adopted across the nation.

The New Hampshire House of Representatives approved a measure in March 2022 to adopt the new version of Chapter 12 of the UCC, which will regulate the transfer of digital assets.

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