This article was originally published on Gokhshtein Media and appears here with permission.
Colorado has become the first state to accept cryptocurrency for payment of taxes and fees. Governor Jared Polis made the announcement in February saying the rollout of the system to accept cryptocurrency payments would happen mid-year.
The Centennial State will first accept cryptocurrencies for state taxes and fees but eventually plans to include using it for payment for other things like driver’s license renewals and hunting licenses.
“In Colorado, we’ve been laying the groundwork to be a center of crypto and blockchain innovation for a number of years. We see it as a critical part of Colorado’s overall innovation ecosystem.” Polis said in a statement to the press.
A History of Crypto Support
The announcement was not surprising as Governor Polis has been a longtime supporter of cryptocurrencies and even accepted them as donations while campaigning for the governorship. While still serving in Congress, Polis, a Democrat, and Republican representative, David Schweikert, of Arizona, created the Congressional Blockchain Caucus.
Polis briefly discussed his desire a year ago to be one of the first states to accept cryptocurrency as payment for state-related fees and taxes and that plans were in the works to make it happen sooner rather than later.
Even before Polis was elected governor, Colorado was advancing blockchain initiatives through legislation. In 2018 Colorado legislators passed the bipartisan bill Cyber Coding Cryptology For State Records which was signed into law by then-Governor John Hickenlooper who is now a U.S. Senator. The legislation requires state entities to annually assess the benefits and costs of using blockchain technology for things like how to secure encryption methods to improve data security.
Colorado also passed the Digital Token Act in 2019 to exempt some digital assets from state securities regulations and appointed its first blockchain architect that same year. The state continues to push for legislation requiring agencies to consider emerging technologies to protect sensitive data while looking for new ways to accelerate blockchain development within government.
Another bill that would have authorized studying how blockchain technology could be used to provide solutions for water rights issues in the drought ridden state did not make it to the floor for a vote. The bill would have investigated how blockchain technology could be used to establish or operate water markets or water banks. Opponents who voted against the bill did not do so because they did not believe in the use of blockchain technology but because they believed the study didn’t require a bill and didn’t need the state’s involvement.
A co-sponsor of the bill, Senator Jack Tate, a Republican, told the Denver Business Journal, “I'm still gonna be championing innovation, championing what blockchain can do and, you know, maybe we'll bring this back next session.”
How It Will Work
The way the system will work is payments will be made in bitcoin and converted to dollars before being added to the state’s treasury as the state’s expenses are in dollars, and the approved budgets are in dollars.
The system is at odds with the federal government’s current position on cryptos, that they are property, meaning if one wants to pay taxes with cryptocurrencies they have to first pay taxes on their holdings. However, the Biden administration has recently shown itself to be somewhat crypto friendly and that could change in the future.
Colorado Businesses and Crypto
Colorado start-ups like Zcash (CRYPTO: ZEC) and Salt (CRYPTO:SALT) are leveraging blockchain technology hoping to make cryptocurrency transactions more mainstream.
Zcash is a cryptocurrency like Bitcoin (CRYPTO: BTC) and transactions are public, but the amount, recipient, and sender are all kept private. Using cutting-edge cryptographic techniques they are attempting to deliver quick secure transactions but with the privacy of traditional payments.
Salt lets people leverage blockchain assets like Bitcoin or Ethereum (CRYPTO: ETH) just like diamonds or property in exchange for cash loans. Borrowers get to retain ownership of their cryptocurrency instead of selling it (like using your house for collateral) and pay an annual membership fee for access to the lending platform. There are no traditional credit checks and the system connects borrowers with a global network of lenders.
Like other cities experimenting with crypto adoption, Colorado is hoping that making cryptocurrencies a mainstream currency will attract technology companies and entrepreneurs to drive innovation, create jobs and boost the economy.
