The Wyoming Division of Banking is working to finalize the first two applications for a new type of bank: Special Purpose Depository Institutions (SPDI) or “speedy banks,” which will specialize in transactions involving cryptocurrency.
Providing financial services for the modern age, SPDIs could facilitate transactions with cryptocurrency, such as Bitcoin, and access to cryptographic keys.
Chris Land, general counsel for Wyoming’s Banking Division, said the agency is the chartering authority for the new banks, which were made possible by legislation earlier this year.
“Once an application is filed, the chartering process takes six to nine months, which is the same as any other bank,” Land wrote in an email, adding the first applicants filed in October. “During this time, we’ll review their applications closely and determine whether they have a proposal that meets our high standards and doesn’t present significant risks to the state or national financial system.”
Despite Wyoming typically trailing national trends, the state is paving the way for SPDIs, said Caitlin Long, a member of the Wyoming Blockchain Coalition.
“We’ve done this at least twice before — we did it 150 years ago when we gave women the right to vote,” Long said. “And Wyoming invented the Limited Liability Company in 1977, which is the most prominent form of business entity in the United States today.”
Other states are taking note. Colorado Gov. Jared Polis told Gov. Mark Gordon, “You guys are leading the way on blockchain, and I’m coming for you,” Gordon’s senior policy adviser Renny Mackay told the Wyoming Legislature’s Joint Committee on Minerals, Business and Economic Development.
Long said kudos are owed to the policy makers.
“Other states are behind the curve, because they just haven’t had someone roll up their sleeves and do it,” she explained. “We really needed new economic ideas in Wyoming, and both Gov. Matt Mead and Gov. Gordon got behind this. Legislative leadership recognized this is an opportunity for us to truly lead, and hat’s off to them. They did it.”
SPDI facilities most likely won’t resemble traditional banking institutions, Long said.
“The average person won’t even know it’s a bank,” she said. “It’s really there to provide custody of access to the cryptographic keys.”
Unlike a typical digital password, private cryptographic keys are a type of password that can’t be changed used to lock or unlock cryptographic functions such as authentication, authorization and encryption.
Sen. Chris Rothfuss, D-Laramie, said companies attempting to conduct their finances with cryptocurrencies encountered several obstacles in their day-to-day business operations, creating a need for the SPDIs.
“We put together the legislative framework for SPDI banks based on concerns of federal regulations and statutes that were challenging for innovative companies to overcome,” Rothfuss explained. “They were dealing with these challenges when they were just trying to bank, things like make payroll for their employees.”
Although cryptocurrency has a negative reputation for being hard to track — thus, the currency of the criminal underworld — Long said the opposite was true.
“I came across cryptocurrency in 2012 when I was working on Wall Street,” she said. “When we put money in (a traditional) bank account, we technically are lending the bank that money, and they may or may not pay it back to us. I wanted to be able to own my assets outright.”
On the stock exchange, bookkeeping can be inaccurate as Dole Food Company shareholders discovered in 2015 when more than 4,500 shareholders submitted claims for nearly 50 million company shares, despite the fact only about 36 million existed. Cryptocurrency, on the other hand, allows people to accurately track their assets.
“With cryptocurrency, it’s very clear who owns the asset,” Long said. “If you control the private cryptographic key, which is what enables you to move the asset, then you own the asset.”
Land said law enforcement agencies are catching up to the technology and using cryptocurrency data to track down criminal organizations.
“As long you follow the data, you’ll be able to trace where the asset goes, and where it’s coming from with a higher degree of certainty than you would have with large amounts of cash,” he said. “There’s a lot of software products out there that specialize in bringing transparency to the digital asset markets.”
As with most new technologies, cryptobanking has a potential for hiccups.
“There’s always a risk, because it’s innovation,” Land said. “I’m literally spending 90 percent of my time trying to mitigate those risks. In case one of the banks fail, we have policies and procedures and resources to ensure it doesn’t cost the state money.”
Making sure SPDIs don’t cost taxpayers money while providing a “net benefit” to the state is a top priority for the division, he added.
“We’re trying to control the known unknowns,” Land said.
Wyoming has more laws regulating blockchain, the technology behind cryptocurrency, than any other state in the nation, he said.
According to Rothfuss, Wyoming jumped to the head of the financial technology pack when Mead created the Blockchain Taskforce in 2018.
“This is an emergent field in financial technology that does not have a lot of robust governance structures around the country or world,” he said. “There were a lot of industry advocates trying to get some time with any government. They found a receptive ear in the blockchain task force and people flew in from all over the world.”
Despite growing divisions between political parties nationwide, Rothfuss said penning legislation for the growing sector has been a bipartisan effort.
“This is an area where we fortunately do have a tremendous amount of support from both sides of the aisle,” he said. “This is an area where everyone — regardless of party, regardless of branch — wants to see a path forward to success.”
Although the foundation was laid, but Rothfuss said Legislature has more work ahead.
“Much like with the LLC, you learn from experience, you amend the statutes to improve the functionality of that entity,” he explained. “We’ll be doing much the same thing as time goes forward with SPDI banks.”