Legal Crypto In Vermont

Overview of Cryptocurrency Legality in Vermont

Legal Status of Cryptocurrency

Vermont considers cryptocurrencies as property, rather than currency, in line with federal IRS directions. Transactions are subject to cap gains tax and businesses must obey the state laws in reference to property transactions.

Regulatory Framework

VMSA 8 V.S.A. Chapter 79 regulates cryptocurrency activity, with a focus on virtual currency money transmission. From July 2024, companies that perform the exchange of virtual currency or provide a custodial wallet service are required to gain a money transmitter license from the Department of Financial Regulation (DFR) of the Vermont state. Personal transactions or companies offering software services are exceptions. License holders must adhere to Bank Secrecy Act (BSA) anti-money laundering (AML) and know-your-customer (KYC) standards and carry surety bonds for consumer protection.

Unique to Vermont’s regulation is 12 V.S.A. § 1913 which forms the basis of the Vermont Blockchain Enabling Act. The measure, signed into law in 2017, is among the first in the U.S. to formally acknowledge the admissibility of blockchain records in court, as long as they comply with rules of evidence applicable to authentic documents. Not only does this law enable Cryptocurrency Payments, it also makes Vermont the first state to have implemented blockchain technology into state law and paves the way for innovation in the world of cryptocurrency in Vermont.

Law/Statute	Description	Key Provisions
8 V.S.A. Chapter 79 (VMSA)	Regulates money transmission, including virtual currency activities	Requires licensing for cryptocurrency exchanges and custodial services; mandates AML/KYC compliance and surety bonds
12 V.S.A. § 1913 (Vermont Blockchain Enabling Act)	Recognizes blockchain-based records in legal proceedings	Allows blockchain records as admissible evidence, fostering trust in cryptocurrency and blockchain transactions

Regulation of DeFi and NFTs

Vermont has not established any specific laws or regulations for DeFi. But DeFi services which involve transmitting money, like token swaps can need a VMSA licence if they are being run by a centralised body. Non-Fungible Tokens (NFTs) are generally treated as property and are liable for sales or capital gains tax, unless sold as investments and be subject to securities regulation. The Vermont Blockchain Enabling Act doesn’t have any NFT-specific laws, but it does allow NFT transactions by legally providing for ownership records of blockchain assets.

Popular Exchanges and Methods of Exchange

In the US State of Vermont major centralised exchanges that are able to operate under VMSA include Coinbase (trade, custody, staking), Kraken (trade, custody, futures) and Gemini (trade, custody, earn program). Exchange methods include:

• Centralized Exchange (CEX): Regulated platforms that follow VMSA licensing and AML/KYC rules.
• Peer-to-Peer (P2P) Platforms: Personal trades are free; businesses may require a license.
• Decentralized exchanges (DEXs): Unregulated in the case of protocols such as Uniswap, though custodial activities could require licensing.

Recent Developments

New Hampshire provides yet another good example of why states are obliged to evaluate the need for new cryptocurrency regulations. The 2016 VMSA, however, passed into law; Vermont updated the law in July 2024 to clarify VMSA licensing requirements for virtual currency businesses, geared towards trends happening at the national level, as well as consumer protections. The DFR’s enforcement action against BlockFi for unregistered crypto lending products that you mention in 2021 is an example of an active regulator.

Unique Vermont Initiative

The Vermont Approach Many states have used the Vermont program for creative inspiration; for example, Delaware has created a benefit LLC program through legislation and by statute.3 Vermont's BBLLC program, adopted pursuant to 11 V.S.A. §§ 4171-4174, includes a feature that has not been enacted elsewhere. Passed in 2018, this legislation permits businesses to apply to be BBLLCs, or LLCs which rely on blockchain technology for a substantial portion of their activities, such as record-keeping or governance. BBLLCs create a clear and legal system for both cryptocurrency and blockchain startups with better legitimacy. This move led to becoming home to the largest ecosystem of crypto businesses in the world.

Useful Information

• Tax Compliance: Cryptocurrency transactions need to be reported on your tax declaration.
• Licensing: Any money transmitter is required to secure a DFR license through the Nationwide Multistate Licensing System (NMLS).
• Protection Of Consumers: Licensed bodies are a guarantee of financial security and openness.
• Blockchain Evidence: Vermont Blockchain Enabling Act (12 V.S.A. § 1913) permitting blockchain records in court.
• BBLLC Program: Businesses may apply to become a Blockchain-Based LLC pursuant to 11 V.S.A. §§ 4171–4174 for blockchain enterprises.
• Regulatory Roundup: VMSA Updated, SEC Discusses Stablecoins July 2044 VMSA Updated for Virtual Currency The Virtual Markets Integrity Initiative (VMSA) is a regulatory tool that helps investors to make sound trading judgements on virtual currencies.
• Enforcement: DFR is watching for compliance, ex: 2021 BlockFi action.

Conclusion

Vermont offers a progressive and, of course, a regulated environment for cryptocurrencies, considering them a property, and overseeing their activities under the VMSA. These initiatives, the Vermont Blockchain Enabling Act and the state’s Brandon-Bergamini Limited Liability Company program, help position the state as a leader in the creation of an ecosystem conducive to blockchain adoption, and one that can support the transactions of cryptocurrency and NFT’s, while facilitating innovation. Exchanges that comply, like Coinbase, Kraken and Gemini, continue to coexist with other exchange methods. While DeFi and NFTs are not subject to state-level regulations, federal securities laws might come into play. It’s important for both businesses and individuals to stay educated, and obtain proper advice in order to traverse Vermont’s cryptocurrency-safe-haven legal structure.