tl;dr
The Financial Innovation and Technology for the 21st Century Act (FIT21) bill, recently passed by the House of Representatives, aims to provide a pathway for cryptocurrencies to be certified as digital asset commodities under new rules. It outlines criteria for a digital asset to be classified as a ...
The Financial Innovation and Technology for the 21st Century Act (FIT21), passed by the House of Representatives, aims to enshrine decentralization in U.S. law for cryptocurrencies, providing a pathway for them to be certified as digital asset commodities under new rules.
FIT21 introduces definitions, procedures, and thresholds for determining the decentralization of a network, including affiliate actions, distribution, voting power, and issuance methods. It requires digital assets to have been issued solely through the programmatic functioning of the blockchain system and examines affiliates' marketing and intellectual property practices.
Any person can file certification with the SEC that a digital asset's network is decentralized, but the SEC can rebut certifications based on a review process. FIT21 addresses the regulatory ambiguity surrounding the decentralization of digital assets, seeking to provide clarity and prevent crypto businesses from moving overseas.
If FIT21 becomes law, a digital asset would be classified as a commodity and regulated by the Commodity Futures Trading Commission (CFTC) if its underlying blockchain is "functional and decentralized." FIT21 outlines several key terms, such as what a "decentralized network" is and who its "affiliated persons" are.
Under the bill, a network’s affiliates must not have had "unilateral authority" to alter how a blockchain functions within the past 12 months. Focusing on overall distribution, a digital asset wouldn't meet the requirements if an affiliate owns 20% or more of its overall supply. The bill also requires that within the past 12 months, the digital asset has been issued solely through the "programmatic functioning of the blockchain system."
Furthermore, FIT21 looks at whether affiliates have marketed the digital asset as investments within the past three months, or implemented any "intellectual property to the source code of the blockchain system" that materially changes how it functions. "Any person" can file certification with the U.S. Securities and Exchange Commission (SEC) that a digital asset’s related network is indeed decentralized, FIT21 states, but through a review process, the SEC can rebut certifications.
Decentralization has been a fundamental concept in the cryptocurrency industry, and FIT21 aims to provide a comprehensive definition to determine if a digital asset is a commodity or a security, addressing the lack of clarity that has driven crypto businesses overseas.