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Hoping to spur development, group of ND legislators aims to launch 'crypto sandbox'

House Bill 1268 would add North Dakota to a short list of states with a cryptocurrency sandbox, a developmental environment made for testing financial technology products.

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North Dakota Rep. Nathan Toman, R-Mandan, has proposed the creation of a 'crypto sandbox' to drive financial technology innovation in the state. Illustration by Troy Becker
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BISMARCK — A group of North Dakota legislators has proposed a bill to launch a "crypto sandbox," an experimental environment designed to allow penalty-free development of cryptocurrency technology.

Sponsoring House Bill 1268 is Mandan Republican Rep. Nathan Toman, the legislator behind the idea to create a blockchain asset tied to the state's assets called "North Dakota Coin." Fellow Republicans Rep. Rick Becker (Bismarck), Rep. Cole Christensen (Rogers), Rep. Tom Kading (Fargo) and Sen. Shawn Vedaa (Velva) joined Grand Forks Democrat Rep. Corey Mock in backing the bill.

The crypto sandbox would give cryptocurrency developers an established environment to test their products while also providing a level of protection, Toman explained.

"It provides that development environment where developers could come with their fintech (financial technology) ideas, specifically for the development of cryptocurrency or a crypto asset or whatever it would be," he said. "Then you'd have those low regulations and approved deployment of it so there's some protections for the developers or people that would be participating in that coin or product, whatever it would be."

Individuals or companies could apply, Toman said. While he has yet to receive interest from developers, he noted both Arizona and Wyoming were among the first to establish crypto sandboxes. "I'm not sure of what exactly those products look like, but there are a couple of use cases underway in those states," he said.

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Arizona's sandbox became the nation's first when it opened to participants on July 2018. Since then, the program has drawn 10 participants, with three still active.

Wyoming, Utah and Nevada followed suit in 2019 as each state enacted legislation to create their own sandboxes. In 2020, both West Virginia and Florida also passed legislation to establish sandboxes in their state.

Hawaii's Digital Currency Innovation Lab , created through the state's Department of Commerce and Consumer Affairs, Division of Financial Institutions and Hawaii Technology Development Corporation went live with 11 participants in March of 2020. The program is now seeking new applicants, the state recently announced .

While a federal sandbox has yet to be established, the Securities Exchange Commission announced in October 2019 that it had joined London-based Financial Conduct Authority's Global Financial Innovation Network , which seeks to create a global sandbox.

If passed, Toman's bill would see North Dakota join the list of early innovators. The bill was referred to the House Industry, Business and Labor Committee, though a hearing has yet to be scheduled.

Regardless of whether or not North Dakota's sandbox draws as much interest as others, Toman said his goal was to bring the state up to speed on the emerging technology.

"I figured we better get on board with that stuff so we can be at the table for future model legislation, state regulations or protections," he said.

Toman said he's met with the state's Department of Financial Institutions to discuss the framework necessary to create the sandbox. 'It's good to know what’s out there from the development standpoint," he said. "It might cross over into having to get a money transmitters permit."

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While North Dakota is known for its agriculture and natural resources, Toman argued that the state has the potential to emerge as a host for a broad range of technologies, including blockchain, cryptocurrency and financial technology.

"I wanted North Dakota to reap the benefits of future companies or incorporations (realizing) that North Dakota is friendly in this aspect of business," he remarked. "Specifically on the fintech side of it, getting them to incorporate here and launch it from our state so we can benefit while others are benefitting from our common-sense rules and regulations."

Kading noted that North Dakota, the only state with a state-run bank, has a leg-up over others. "One of the things I think North Dakota has going for it when it comes to cryptocurrency or blockchain is...that we have our own bank," he said. "I would love to see that idea continue to move forward and I think Bank of North Dakota is in a very good position to do it."

Lately, Toman said, technological industries have become less and less dependent on full-time-equivalent labor because of the relatively small number of developers required to launch a product as well as remote working capabilities. In spite of that, he said the crypto sandbox could attract employers to the state.

"If we can keep that open on our side, then we're going to get these corporations coming to our banking institutions," he said. "To create that friendly environment is going to create people that want to do business in our state along with our friendly, open-for-business regulations that we currently have."

While the proposal has yet to create "huge excitement" in Bismarck, Toman said other legislators have been "receptive" to the idea. "There's people who want to be involved in it because they see the potential," he added.

Count Kading among that group. In the next decade, Kading believes blockchain and cryptocurrency will continue to grow rapidly with a broad range of real-life applications.

"I think long-term, that's where it's headed," he said. "How it changes over time is anyone's guess, but I think in the next 10 years cryptocurrency technology is going to grow, blockchain technology is going to grow and I could foresee our state seeing more and more of that in our everyday lives."

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In the near-term though, Toman hopes to be a driving force behind the implementation of what he called "common-sense" rules and regulations pertaining to technology.

Long-term, Toman envisions North Dakota working with other innovative states to "figure out the right answers" when it comes to cryptocurrency and blockchain.

Toman also foresees technological expansion and economic diversification in the hopes of insulating North Dakota for exterior economic issues, such as those brought on by the COVID-19 pandemic.

"If we would have known all the answers and we would have had something implemented — and I don't think we're horrible here — but I think we would have been a little bit more insulated from the economic standpoint," he said. "You can see with hindsight being 20/20, all the cryptos are skyrocketing still."

Kading agreed, adding that the state should ensure it doesn't "get left behind" in the world of financial technology innovation.

"I think we should always make sure our institutions, not necessarily subsidizing these things, but are in a place where the regulations don’t cripple or restrict innovation," he concluded.

Thomas Evanella is a reporter for The Forum. He's worked for The Forum for over two years, primarily reporting on business news. Reach him at tevanella@forumcomm.com or by calling 701-353-8363. Follow him on Twitter @ThomasEvanella.
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