Chapter 1: An Overview of New Jersey's Legislation

It’s hard to stay composed when confronted with something as bewildering as New Jersey's latest legislative move regarding digital assets. As a resident of New York, I typically regard our neighboring state with a sense of camaraderie rather than disdain. However, today is an exception.

The state is on the verge of enacting a law that is fraught with glaring flaws. To begin with, the definition of "Digital Asset" is astonishingly convoluted:

“Digital asset” refers to an economic, proprietary, or access right stored in a machine-readable format, recorded in a distributed digital ledger or data structure where consensus is established through a mathematically verifiable process. This encompasses digital consumer assets and virtual currencies, but explicitly excludes securities as defined under various federal and state laws.

This definition appears to be the result of a chaotic brainstorming session, perhaps involving a limited number of monkeys and typewriters. The breadth of this definition not only aims to regulate cryptocurrencies like Bitcoin but also inadvertently extends to projects such as JPMorgan's Onyx and Signature's Signet, as well as IBM's blockchain supply chain initiatives and even NFTs, which are essentially art pieces.

It’s baffling that the response to the challenges posed by efficient private supply chain management is to impose licensing requirements through the New Jersey banking regulator. Additionally, it’s ironic that the state is focusing on ensuring Damien Hirst’s art projects are confined within a regulated banking framework.

This is not a serious attempt at regulation in 2023.

Chapter 2: The Flaws in the Proposed Regulations

I understand the complexities of crypto regulation firsthand, and I acknowledge that mistakes happen—sometimes on a spectacular scale. However, that does not justify the passage of legislation that is so fundamentally flawed it effectively acts as a ban.

This is not 2014; we are in 2023. Enacting a bill that is glaringly ignorant of years of technological advancements, while imposing banking-level regulations on non-financial activities, is absurd.

Consider an artist aiming to launch a unique NFT art project. Under the proposed legislation, this artist would be classified as a digital asset issuer and subjected to a daunting array of compliance requirements, including:

• The risk of license revocation if they fail to provide requested documents (with no restrictions on what can be asked).
• Submission of policies and procedures to comply with anti-money laundering and anti-terror financing laws.
• Provision of audited financial statements for the last fiscal year and the preceding two years.
• A comprehensive schedule detailing fees, insurance protections, market volatility, and various risks associated with digital assets.

This set of requirements is not only overwhelming but also impractical for artists. To be fair, New Jersey’s ambition to have NFTs insured by the FDIC is commendable.

Chapter 3: The Unintended Consequences

As Robert Conquest wisely stated, “The behavior of any bureaucratic organization can best be understood by assuming that it is controlled by a secret cabal of its enemies.” The predictable reaction from New Jersey officials will be to claim, “That’s not what we intended.”

However, intent matters little when weighed against the actual wording and implications of the legislation. Implementing a poorly conceived licensing framework that encompasses a significant amount of non-financial economic activity due to a few isolated incidents at a Bitcoin ATM reflects poorly on government competence.

If the goal is to create a safe and sensible regulatory environment for cryptocurrencies, I wholeheartedly support that. However, I urge the state to focus on constructive actions rather than enacting this flawed legislation.

On a brighter note, perhaps this will lead to accountability for those responsible for mismanaging supply chains, such as Bayer’s tracking of Advil shipments.

As a professor, I’m open to assisting anyone interested in developing effective regulations that genuinely protect retail investors from misconduct. I would even be willing to help ensure that Damien Hirst's art is critically assessed—if that’s what they truly want.

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