Proposed Uniform Commercial Code Amendments: A South Dakota Road Bump & A Proposed Solution

By: Donald L Swanson

The 2022 Amendments to the Uniform Commercial Code were proposed as, and expected to be, a non-partisan and apolitical piece of legislation.

Road Bump

That expectation met a road bump in South Dakota when the proposed Amendments were adopted by both the House and Senate—but then vetoed by the Governor. 

The Governor explained that the legislation, (i) excludes “cryptocurrencies like Bitcoin” from the definition of “money,” and (ii)  “opens the door to the risk that the federal government could more easily adopt a Central Bank Digital Currency.”

For a better understanding, I listened to this audio recording of an interview between the Governor and Glenn Beck.  They summarized their concerns like this: the proposed legislation,

  • “is a direct tie to the federal government saying that, ‘If we don’t like what you are purchasing, well then if you are using digital currency at any time in the future, we can control your access to your dollars’” (at approx. the 4:20-40 mark); and
  • “paves the way for a Central Bank Digital Currency, especially when that’s the only thing defined as money” (at approx. the 5:10-20 mark).

I must say, those concerns were not anticipated.  And no one I know of wants or intends for this legislation to:

  • hinder the use of cryptocurrencies like Bitcoin; or
  • increase federal government control over how citizens spend their money; or
  • pave the way for a Central Bank Digital Currency. 

Such concerns are, actually, the exact opposite of what the proposed legislation is intended to do.

I’ll try to explain. 

Bitcoin Becomes More Useful

Instead of hindering the use of cryptocurrencies like Bitcoin, the proposed legislation actually makes such currencies more useful in commerce.  Here’s how.

–Lien Perfection

Lienholders want to protect the priority of their liens from competing liens in the same collateral.  They can do this by, (i) filing a notice in state records, (ii) taking possession of the collateral, or (iii) exercising control over some types of collateral.  The legal term describing such protective action is “lien perfection.”

Under the existing Uniform Commercial Code:

  • Bitcoin qualifies as “money” for lien perfection purposes;
  • the only way a lender can perfect a lien on money is by taking possession of the money;
  • it’s impossible to hold possession of a cryptocurrency like Bitcoin; and
  • so, a borrower’s Bitcoin assets, under existing law, are useless as collateral for a loan.

The proposed amendments provide for perfection of a lien on cryptocurrencies by filing or by control, instead of by possession.  This proposed change will enable borrowers to use cryptocurrencies like Bitcoin as collateral for loans. 

And that’s important for borrowers and lenders alike.

–Unimpaired Use

Under the existing Uniform Commercial Code, any payment using a cryptocurrency like Bitcoin might be reversed:

  • if someone has a prior claim to the cryptocurrency used to make the payment, that person might undo the payment and claw it back.

The legal term describing such a clawback possibility is that the cryptocurrency is “not negotiable.”  And that’s a terrible thing for any type of currency.

The proposed Amendments will make cryptocurrencies like Bitcoin fully negotiable—i.e., not subject to being clawed back from a person who obtains control for value, in good faith and without notice of the clawback claim. 

And that’s important for all spenders that use cryptocurrencies like Bitcoin.

State Law & Central Bank Digital Currency

State law cannot pave the way for a Central Bank Digital Currency.  Only our Federal Government can do such a thing.

The reality is this:

  • if our Federal Government creates a cryptocurrency and declares that currency to be official “money” of the United States; then
  • that currency is “money” no matter what any state law might say.

The proposed Amendments do nothing more than recognize this reality.

And that’s why the Official Comments to the proposed legislation specify:

  • “The definition of ‘money’ applies to the term only as used in the Uniform Commercial Code”; and
  • such definition “does not determine whether an asset constitutes ‘money’ for other purposes.”

Possible Solution

For a state where concerns expressed by the South Dakota Governor might be an impediment to enactment of the Uniform Commercial Code Amendments, what might help alleviate those concerns?

One possible solution is adding this provision to the proposed legislation:

  • “Nothing in this act may be construed to support, endorse, create, or implement a national digital currency.”

Would that help?


Lenders and borrowers and spenders, alike, need to have cryptocurrency assets like Bitcoin, (i) available for use as collateral for loans, and (ii) fully negotiable.  Under current law, such currencies:

  • are not available as collateral for loans because of lien perfection problems; and
  • are not fully negotiable.

The proposed Amendments to the Uniform Commercial Code are designed to change all that—to make perfection and negotiability happen.

We need to find a way to alleviate the concerns that have arisen, so that needs of borrowers and lenders and spenders using cryptocurrencies like Bitcoin can be addressed.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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