On March 24, Kentucky enacted House Bill 701, establishing a statutory framework to support blockchain-based activity and clarifying the treatment of digital assets under state law. The legislation defines key terms, permits the use of digital assets in commerce, and amends sections of Kentucky’s securities and financial services laws to improve regulatory clarity around crypto-based activities.

The bill authorizes a broad range of activities involving blockchain technology and digital assets, while limiting the regulatory burden on individuals and companies operating in the space. The new law makes several important clarifications regarding how blockchain and digital asset activities will be treated under Kentucky law, including:

• Use of digital assets in transactions. Individuals may use digital assets to purchase goods or services without incurring additional taxes or fees solely due to the use of digital assets. However, businesses are not required to accept them.
• Authorization of node and staking activities. The law permits individuals and businesses to operate blockchain nodes and provide staking services. Validators will not be liable for transactions they merely confirm.
• Confirmation that staking is not a securities offering. The law makes clear that offering staking services does not constitute the offer or sale of a security.
• Exemptions for self-custodied digital wallets. The bill confirms that holding digital assets in a personal wallet will not trigger money transmission licensing requirements in Kentucky.

Putting It Into Practice: Kentucky’s new law provides additional clarity for digital asset users amid recent federal efforts to ease regulatory pressure on the industry (previously discussed here and here). Kentucky adds to the list of states giving digital asset users and service providers more certainty about their regulatory obligations (previously discussed here). Market participants should watch for other states to adopt similar frameworks, signaling continued progress toward a more uniform and predictable regulatory landscape for digital assets.