In an apparent follow up to President Biden’s March Executive Order on Digital Assets (which we previously discussed here), this week, California Governor Gavin Newsom signed a similar executive order aiming to foster responsible innovation, bolster California’s innovation economy, and strengthen consumer protection through creating a transparent regulatory and business environment for Web3 companies.  Newsom’s executive order credits Biden’s executive order as paving the way for the assessment of key issues raised by crypto-assets and sets California on a path to harmonize its nascent crypto regulatory framework with forthcoming federal rules and guidelines and, hopefully, create regulatory clarity for businesses and consumers.

With the Executive Order, Governor Newsom mandated the state legislature to begin the process of creating a regulatory approach to spur responsible innovation, ensure and enshrine fundamental principles of consumer protection, assess how to effectively deploy blockchain technology to work for state and public institutions, and build research and workforce development pathways to prepare Californians for success in the blockchain industry.  Specifically, the executive order lays out seven goals:

1. Create a transparent and consistent environment for blockchain technology companies by harmonizing federal and California laws while incorporating California values such as equity, inclusivity, and environmental protection.

2. Collect feedback from stakeholders and create a regulatory approach by aiming to explore and establish public-serving use cases (such as incorporating blockchain technologies into state operations), and build research and workforce pipelines.

3. Collect feedback from stakeholders for potential blockchain applications and ventures by engaging technical experts and other stakeholders interested in addressing inequities and the environmental impact of blockchain technology.

4. Engage in a public process and develop a comprehensive regulatory approachby creating consumer protections and solidifying California’s status as the premier global location for responsible crypto asset companies to startup and grow.

5. Encourage regulatory clarity by coordinating closely with the federal agencies that were ordered to outline their plans in Biden’s executive order.

6. Explore opportunities to deploy public-serving blockchain technologies by working with the private sector, academia, and community organizers and representatives to present pilots for innovative policies, programs, and solutions that demonstrate and showcase the potential of adopting blockchain technologies to respond to specific challenges.

7. Identify research opportunities by exposing students to emerging opportunities to power innovation in blockchain technology, including crypto assets, power emerging industries, and help ensure economic benefits are experienced equitably.

Putting It Into Practice: As the fifth-largest economy in the world, Newsom’s executive order potentially tees up California to become a hub for blockchain technology innovation.  But it also means that the California rules will likely track those of other jurisdictions that have grappled with the issue and result in a more stringent application process.  To date, California has generally held that money transmission licenses are not necessary for many crypto-related activities. But California crypto companies should take note of the increasing likelihood that the state may adopt a registration and licensing regime similar to New York State’s Bitlicense (which we blogged about here).  Stay tuned for updates.