Bipartisan House bill proposed a federal definition for digital tokens

Representatives Warren Davidson, an Ohio Republican, and Darren Soto, a Florida Democrat, introduced the Token Taxonomy Act on December 20, 2018. The bipartisan measure, designated H.R. 7356, proposed excluding qualifying “digital tokens” from the definitions of a security in the Securities Act of 1933 and the Securities Exchange Act of 1934.

The verified development was the bill’s introduction—not a change in law. The House referred H.R. 7356 to the Financial Services and Ways and Means committees. No provision took effect on December 20, 2018, and neither the Securities and Exchange Commission nor the Internal Revenue Service was immediately bound to alter its treatment of digital assets.

Drawing a statutory boundary

H.R. 7356 defined a digital token through several technical and economic conditions. Its transaction history would have to be recorded in a distributed ledger or digital data structure using a mathematically verifiable consensus process. Once consensus was reached, that history could not be materially altered by one person or a commonly controlled group. The unit also had to be transferable without an intermediary custodian and could not represent an ownership interest, debt interest or revenue share in a company.

The proposal mattered because federal digital-asset policy in 2018 largely depended on applying existing statutes and judicial tests to new token structures. Davidson and Soto presented their bill as a way to distinguish qualifying functional tokens from securities. That description was the sponsors’ policy position, not an SEC finding or a judicial ruling.

The operative text was more detailed than a blanket cryptocurrency exemption. It proposed protection for a developer or seller holding a reasonable, good-faith belief that a digital unit was a digital token. If the SEC subsequently notified the party that the unit was a security, the bill required public notice, reasonable efforts to stop sales and an effort to return proceeds within 90 days. Funds reasonably spent developing the associated technology could be excluded from the returned amount.

Custody and tax provisions

The legislation also addressed custody. It would have directed the SEC, within 90 days of enactment, to recognize protection through public-key cryptography and commercially reasonable cybersecurity practices as satisfying a broker-dealer rule’s “control location” requirement for digital units. This was proposed statutory direction; the bill itself did not certify any wallet, custodian or security practice.

On taxation, H.R. 7356 proposed treating exchanges of one virtual currency for another like exchanges of real property under Internal Revenue Code Section 1031. It also proposed excluding as much as $600 in gain from gross income when virtual currency was sold or exchanged for something other than cash or a cash equivalent, subject to aggregation and inflation-adjustment provisions. The bill assigned January 1, 2017, effective dates to several tax amendments, but those retrospective dates were proposals contingent on enactment, not tax rules in force on December 20, 2018.

What the introduction established

The strongest contemporaneous conclusion is institutional rather than predictive: two members from different parties placed a detailed token-classification framework into the formal congressional process. The measure joined securities classification, broker-dealer custody and tax treatment in one legislative package, showing how broadly lawmakers believed digital-asset uncertainty extended.

The introduction did not establish congressional consensus, regulatory approval or a timetable for passage. It also provides no defensible basis for attributing a cryptocurrency price movement to the bill. This reconstruction therefore makes no market-return claim. As of December 20, 2018, H.R. 7356 remained an introduced House bill awaiting committee consideration, and its practical significance lay in the regulatory boundary it proposed rather than any binding legal effect.