California Proposes Bill To Ban All Unlicensed Bitcoin Businesses, Without Even Defining What That Means

from the a-mess-in-the-making dept

California, the state that prides itself as the birthplace of modern technology and whose policies such as the unenforceability of non-competes contributed substantially to the innovation ecosystem, recently proposed a law that requires innovators to get permission from the state, or be banned.

Last week CA’s State Assembly announced AB 1326, a bill that would ban any unlicensed bitcoin or cryptocurrency business activity. It would “prohibit a person from engaging in this state in the business of virtual currency, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement.” Banks, financial institutions, and governments would be exempted under the law, making it even harder for a startup to compete. Worse yet, the bill doesn’t even define what “the business of virtual currency'” means, making it both overly vague and counter to the very nature of the trustless, permissionless innovation that bitcoin and blockchain technology enable. So right now, if you’re building multisignature technology to better enable people to secure their bitcoin, or developing an open source peer-to-peer remittance app that connects users to send each other bitcoin, the state of CA could very well ban you from operating unless you’ve received a license.

So for the next wave of entrepreneurs building technology in the bitcoin or blockchain space, the state is poised to say that in order to start your company or release your technology, you must pay $5000 for a license and tens or hundreds of thousands in legal and compliance fees, not to mention requirements such as informing them of your educational background and 10 years of past addresses. That might be awkward for the 21 year old college dropouts working on a cryptocurrency startup. And of course there’s no guarantee the state will actually grant the license, or shall we say, permission.

I wrote last summer about the problematic approach that NY state is taking with its proposed BitLicense, an attempt to make virtual currency entrepreneurs demand permission from the state to innovate, and how the even greater danger was that other states would follow suit. I expected a more innovation-friendly approach from California, but this bill may prove me wrong.

The cryptographic technology behind bitcoin itself has tremendous potential to enable more transparency (proof of solvency, real time continuous auditing), and security (multisig, threshold encryption), providing compelling solutions to public policy concerns that licensing regimes only attempt to address. The assumption that the analog-world model of licensing must fit this new and fast-evolving space is ignorant at best and dangerous at worst.

California can and should do better. It can craft policies that enable entrepreneurs to innovate and encourage them to implement good practices on security and consumer protection without requiring licensing and permission. And if California won’t do it, there are many other jurisdictions that will. Australia, UK, and Singapore, to name few, are all looking to implement policies to be the crypto Silicon Valley.

Tomorrow, I and others will be discussing the development of cryptocurrency and blockchain policy at the Copia Inaugural Summit. The future viability of this important ecosystem depends on getting it right — so we need everyone to make themselves heard as the debate moves forward.

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Comments on “California Proposes Bill To Ban All Unlicensed Bitcoin Businesses, Without Even Defining What That Means”

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36 Comments
jlaprise (profile) says:

Ignoring the Real Competition

Hi Elizabeth,

I think this is less about innovation and more about monopoly. Bitcoin at its heart challenges currency and banks are the powerful gatekeepers of capital. Financial institutions have no interest in decentralized financial power and will lobby furiously to protect their position. This is not unlike the battle between uber and traditional taxi services except the stakes are much higher. Beyond the banks are governments which at some point will feel threatened by the potential loss of control over macroeconomic policy posed by bitcoin.

I look forward to meeting you at Copia.

Anonymous Coward says:

Re: Ignoring the Real Competition

It’s 1933 all over again.

Sure people think of it as just the recession era but there was o so much more going on.

Just considering the work of FDR & Woodrow Wilson alone, it is clear that the Democratic Party has caused more damage to America than the Republicans… of course Bush with the Patriot Act and DHS pretty much caught up to them. And with Obama quite literally sucking Bush cock policies, while the poor folk suck Obama’s cock…

Well let’s just say… it’s going to be a true shock if we ever recover.

No, the people in power will never let it go… and Bank’s are where the real power is at!

Some say… to find out who rules over you, just determine who you are not allowed to criticize. I say nay… to find out who rules over you, just follow the damn money! Some people still rule over you and take your criticism without batting an eye.

We should be Capitalist with Strong Anti-Monopoly laws… its clear we are now neither capitalist or anti-monopoly.

If you are dumb enough to believe we are either a free market or capitalist then you are too stupid to argue with.
We are an oligarchy!

Anonymous Coward says:

Re: Ignoring the Real Competition

“beyond the banks” …

Really? I think many of the national /international banks are bigger than government and one of the key issues is who owns government. The people may have already lost = bail outs or face economic collapse.

Without an economy, there is no government.

Anonymous Coward says:

Re: Simple Equation to Explain This

And not just sales tax, but income tax and capital gains tax. It might not be long before everyone will be paying taxes on their Bitcoins (even the ones just sitting there and never cashed in) because the government will know who owns what. And when the value of your vault increases, you will be forced to cash out a big chunk just to pay the taxes on it. And then when the value goes back down to where you started, causing you to break even, don’t expect to get your taxes refunded. So like all kinds of investments, the only way to not get swallowed up by taxes is to have all buy/sell decisions centered around an effective tax strategy.

Just as the US government has been clamping down hard in recent years on Americans who have foreign bank accounts, the same will happen with Bitcoin accounts.

Anonymous Coward says:

Re: Re: Simple Equation to Explain This

But bitcoins don’t require accounts. People used ewallet services to keep bitcoins in but they weren’t necessary or really desirable. At least two of the bitcoin banks got drained because they had bad security. A thumb drive stored safely off the net with your coins on them makes more sense. Load what you need to make a transaction and keep the rest safe.

This law may make it difficult to cash out your accounts into the US. I’m more dubious as to why these things have value in the first place.

Anonymous Coward says:

This is just the first step toward the ultimate goal — to heavily regulate and tax all *remaining* non-government-sanctioned currencies, whether gold-based or cybercurrencies or whatever else. Anything that threatens the domination of the US dollar as the world’s reserve currency will of course be treated as a threat to national security. As more and more trade is conducted through Bitcoin (and Bitcoin alternatives), governments around the world, and especially the US, will be increasingly clamping down, as the use of alternatives erodes the value of national currencies. As with many other things, there probably won’t be any kind of sudden outright ban, but death through the slow strangulation caused by increasing suppressive government regulations.

One thing is certain, the free-wheeling days of Bitcoin will sooner or later come to an end.

Gwiz (profile) says:

Question for Mike

Back in 2011, you stated you were torn as to whether Bitcoin was sustainable or just a fad. Now you accept Bitcoin at the Techdirt Insider Shop. I was just wondering if and how your views concerning Bitcoin have changed since it’s inception. Do you think of it as a viable payment system now or is it just a bandwagon that you jumped on with the Insider Shop?

Mike Masnick (profile) says:

Re: Question for Mike

Don’t have time for a detailed answer — been meaning to write a long post about Bitcoin (literally have been planning it for over a year…), but just haven’t had the time to focus on it.

But, yes, I think Bitcoin/cryptocurrency is incredibly important and will have a significant impact. Though not in the way most people expect. For the reasons why… well, you need to wait until I get this post together.

GMacGuffin (profile) says:

Here's the thing ...

Being currently involved with bitcoin, I see many articles about how it’s dead. The pundit always traces back to banks. They don’t like it. IRS thinks of bitcoin as property … nice for now.

While the transactions are transparent, in most non-web wallets the addresses hierarchically change during use, and you can have wallets not tied to you. It’s easy enough to create a wallet on blockchain’s hidden Tor site with no personal info whatsoever, bounce transactions through a tumbler/mixer or through other wallets, and effectively engage in virtually impossible-to-trace transactions never tied to you personally. No amount of legislation will stop that.

And since the software is open-source and the meta-software continually being improved worldwide, it’ll only get better and more secure. And more widely adopted.

So, to The Man: Good luck, Man.

jlaprise (profile) says:

Re: Here's the thing ...

Good luck bitcoin.

Currency/money is about trust. That’s why we still have people who think gold is special. It’s intrinsic (industrial) value has little to do with its market price.

The bitcoin technology is fantastic and works, it still needs adopters while competing with traditional currency systems. National currencies are implicitly/explicitly backed by states or groups of states. Bitcoin is still an innovator’s technology. Most people don’t particularly see great value in impossible to trace transactions. On the other hand, lots of state foes do. The rhetoric is predictable.

Bitcoin will get better. The question is whether people beyond innovators and early adopters who place a high value on privacy are enough to drive adoption. Privacy has yet to be a successful baseline selling point.

GMacGuffin (profile) says:

Re: Re: Here's the thing ...

“The question is whether people beyond innovators and early adopters who place a high value on privacy are enough to drive adoption.”

I think post-Snowden, there are certainly more — including myself when I saw the part about how the NSA can decide whether to read attorney/client communications it has collected. !?!

I think the big adoption of cryptocurrency is likely to happen predominantly by the 3rd-world and disenfranchised classes… those with smartphone and no bank account. See, e.g., Kenya. Once ensconsed, I doubt it’s going anywhere. (Even banking on it, as they say, to some extent.)

jlaprise (profile) says:

Re: Re: Re: Here's the thing ...

I agree that the Snowden revelations have changed the calculus. However, it remains to be seen how much the status quo has changed. There is a long history of pro-privacy services going bankrupt.

I disagree with the developing world/disenfranchised classes argument. Mobile banking (such as M-Pesa) is light years ahead in Africa and spreading into Asia. Moreover cultural privacy norms are different making the privacy advantage of cryptocurrency questionable. Cryptocurrency’s best bet is to make itself (and its UI) look and feel just like any other currency rather than different for broad user adoption. Ideally, users should know that they are using cryptocurrency, but it shouldn’t feel any different than using a credit card or e-payment.

John Fenderson (profile) says:

Re: Re: Here's the thing ...

” Most people don’t particularly see great value in impossible to trace transactions.”

I don’t know about most, but a very large number of people certainly do. That’s why they prefer using cash.

“The question is whether people beyond innovators and early adopters who place a high value on privacy are enough to drive adoption.”

I don’t use Bitcoin right now, because the value of bitcoins is still too volatile for my taste. But I expect that will settle down to acceptable levels eventually, and as soon as it does, I’m in.

FreeJack says:

Shouldn't they be looking to IMPROVE the job market

For one of the brokest, nearest-to-bankrupt states in the union, California sure seems to hate the idea of job creation. Yes, by all means…strangle any and all potential for new skilled jobs to be added to the California economy, in the interests of protecting big banking. Because digital currency is going to boom, and the “silicon valley” in this new field will show up in a state that is friendly to it. That state won’t be California, if bills like this are allowed to pass.

California legislators need to realize that their state is BEYOND broke and stimulating job creation by encouraging new companies in the digital currency field, rather than stifling them with ridiculous “bans.”

John Fenderson (profile) says:

Re: Shouldn't they be looking to IMPROVE the job market

“For one of the brokest, nearest-to-bankrupt states in the union, California sure seems to hate the idea”

California isn’t one of the brokest, nearest-to-bankrupt states. (BTW, states can’t declare bankruptcy). According to Business Insider’s list of states in the most economic trouble, California is 41st. The five worst, in order from worst to best, are: Mississippi, New Mexico, Arkansas, Maine, and South Carolina.

Ehud Gavron (profile) says:

Break it down into its components...

Computers calculate. This is a fact. It cannot be legislated against. So there will be large numbers. Large numbers in and of themselves are not unlawful.

People email. This is a fact. It is a Constitutionally protected first-amendment right to speak freely. People can email large numbers.

People who buy fiat currency (like US Dollars) do so because these are guaranteed by the US Federal Government to allow us to pay for things. Or give away to people on street corners with cute signs. Or donate to charitable organizations. Or hoard in bank accounts, mattresses, and fake shaving-cream cans branded “Shaving Cream.” This is a function of law, and cannot be legislated against.

Put the three together and this bill cannot possibly be lawful.

Land of fruits and nuts indeed.

Ehud
Tucson, AZ

Anonymous Coward says:

Hello hollywood. I have no doubt one of the key lobbyists are from MAFIAA hoping to curtail using online services for encryption and data which in their rosy world, only “pirates” have a need for.

“Let’s kill all new innovative and possibly disruptive services and technology before they begin” could become the Democratic tag line for this coming election season.

What an embarrassment.

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