California has become the first state in the union to legally approve the use of Bitcoin. This is a welcome move, and we can only hope that, to paraphrase Jimmy Carter, laws like AB129 will have the inclination to spread.
AB 129 repeals Section 107 of the California Corporations Code, which prohibited any corporation, association or individual from putting in circulation as money, anything but the lawful money of the United States. The new law, therefore, paves the way for, and pre-empts the possibility of anyone construing Section 107 as prohibiting the use of, Bitcoin in the state of California.
California governor, Jerry Brown signed AB 129 into law on June 28th, 2014. It was filed with the California secretary of state the same day, but it was set to take effect from this year, 2015. As previously mentioned, the bill was meant to remove a piece of California’s laws that would have rendered illegal the use of alternative currencies besides the US dollar. Other types of alternative currencies besides Bitcoin that now fall within the purview of AB 129 include gift cards, reward points such as are used at shopping malls and virtual tokens.
Pace of Crypto Regulation in the United States
California’s action stands in sharp contrast to the rest of the nation. In 2014, the superintendent of the Depart of Financial Services in New York, became (in?)famous for his proposal on introducing Bitlicense, a move that would have seriously complicated the use of Bitcoin in the Big Apple. The move predictably caused an uproar from the Bitcoin community, and the DFS chose to open a public comment window on the proposed laws which lapsed in late 2014. Critics of the Bitlicense in its original form had charged that it would seriously infringe on the privacy rights of consumers, Bitcoin enterprises and others.
In late 2014, Congressman Steve Stockman (R-Texas) proposed a five-year moratorium on Bitcoin regulation when he introduced the HR 5777, or the Cryptocurrency Protocol Protection and Moratorium Act. The law would have frozen any statutory regulations on cryptocurrencies for a five-year period beginning June 15th, 2015. The bill is currently at the committee stage in the House of Representatives.
Debate on How to Treat Bitcoin
With cryptocurrency in its infancy as an industry, the general consensus was that it would be more appropriate to hold off on regulation till such a time when Bitcoin and other digital currencies would have acquired quantum to a much more appreciable degree. At present, the only legal scaffolding that cryptocurrency would need is with respect to taxation. However even that seems to have run into headwinds over the ongoing debate on whether to look at Bitcoin as a currency or as commodity, and hence subject to VAT, sales tax, capital gains and other forms of taxation on commodities. Different jurisdictions around the world have taken different approaches. The United Kingdom has chosen the currency route. Australia has taken the view that Bitcoin is a commodity, whereas the Eurozone is still waiting for Brussels to pronounce itself on the matter.
Be that as it may, cryptocurrency is developing at a brisk pace, and the revolution is being blockchained. California’s action over the AB 129 will be seen as supportive of its huge tech community, and could see the massive innovation that gave the world Silicon Valley moving to give new life to Bitcoin and other cryptocurrency. It could also enable the further development of blockchain technology, especially as the technology matures and moves to decouple itself from finance into other potential applications such as smart contracts, business applications and even governance itself.
Images from JJKBACH and Wikimedia Commons.