The blockchain sector is evolving rapidly and the relevant regulations are also evolving rapidly. It is important for firms to be proactive in anticipating the change and be aware of their responsibilities.

First, you may want to follow the legislative process and stay attuned to the California Department of Financial Protection and Innovation (DFPI), which coordinates regulatory oversight of digital assets. One large area of regulation coming down the pike is the California Digital Financial Assets Law (DFAL), which is scheduled to take effect July 1, 2025. This law will establish a licensing regime for all entities engaging with digital asset technologies. Firms should also be tracking federal regulators such as the SEC, CFTC and FinCEN. A very helpful way to monitor legal legislation would be to track either the California Legislative Information office or the DFPI website.

Second, engage with regulators through the public hearing process or public consultations. The DFPI, and other regulatory agencies, appreciate hearing from the public regarding blockchain regulation, and it has always been helpful to become engaged and educated about the declaratory processes used. Businesses may also contact regulators to inquire if they would clarify a specific rule or inquire if the regulator has a regulatory sandbox allowing for testing of new technology in a controlled regulatory environment.

Third, consult and enlist legal counsel knowledgeable about blockchain law. Having legal representation knowledgeable and experienced will assist an organization to be compliant with state and federal law. Additionally, firms should conduct compliance audits, for purposes of compliance, as it relates to blockchain technology, and should be aware and educated of the tax implications of the technology. The California Franchise Tax Board and IRS are actively clarifying the complexities of tax and crypto.

Fourth, become a member of one of the industry associations such as the Blockchain Association or the Chamber of Digital Commerce. These organizations create opportunities to meet networks of stakeholders in the industry, provide updates on relevant legislation, and advocate for favorable laws for blockchain. There are also local tech hubs in Silicon Valley and Los Angeles that can offer resources and access to relevant regulators.

Finally, your company will need to develop a strong internal compliance program, including applying for the appropriate licenses, KYC (Know Your Customer) and AML (Anti-Money Laundering) processes, and compliance software products such as Chainalysis, TRM Labs, or Elliptic to track compliance and identify potential legal risks.