A proposed California law to regulate virtual currency has drawn mixed reactions from industry advocates, in stark contrast to the New York BitLicense that met united industry opposition. AB 1236 sponsored by Assemblyman Matt Dababneh requires virtual currency companies to be licensed. The measure passed the Assembly in June and awaits Senate action.
The Electronic Frontier Foundation (EFF), based in San Francisco, has launched a petition opposing the measure. Coin Center, a Washington, D.C.-based group, supports the bill, calling it a cautious and well-researched approach to virtual currency regulation. Both groups opposed the New York BitLicense, which recently took effect.
EFF opposes all virtual currency regulations while Coin Center claims legislation can provide “much needed regulatory certainty,” according to Bloomberg. Coinbase, the bitcoin exchange that opposed the BitLicense, has sided with Coin Center in California.
EFF claims to be representing smaller companies and opposes the law’s $5,000 license application fee and extensive reporting requirements. “Unfortunately, the bill’s language is so vague that it’s unclear what companies are, in fact, ‘virtual currency businesses’” So in spite of carve-outs for smaller companies and for software developers who don’t exercise control over the currency, the proposal threatens the future of virtual currency experimentation and innovation in the state,” EFF states on its website.
“The biggest problems with this legislation aren’t for large, established Bitcoin companies that have the resources to engage in Sacramento,” EFF activism director Rainey Reitman said in an e-mail to Bloomberg. The rules would impact “all the other creators and innovators in the virtual currency space … who would have to go through the application process, and who would be completely at the whim of a Commissioner with total power,” Reitman said.
Coin Center backed the California measure after lawmakers added an amendment saying only businesses with “full custody” of currency need to be licensed. This stipulation exempts players such as software developers.
Peter Van Valkenburgh, research director of Coin Center, said his group is not looking out for the bigger players. “Coin Center has been transparent from the start when it comes to AB 1326: while the bill began its life unfriendly to Bitcoin and blockchain innovation, it has evolved into a model for sound regulation in this sector, even if it can still be improved,” he noted in a blog.
“If the big companies—and it’s a good question what qualifies as big in the Bitcoin space because they are all young start-ups—but if these companies wanted to keep out the competition then AB 1326 wouldn’t be the way to go,” Van Valkenburgh said in an e-mail to Bloomberg.
Everyone, big or small, would benefit from legal certainty. The existing money transmission law provides no company or individual with a sense of whether they will need to license, and only the big companies can pay a lawyer to find out.
Coin Center Executive Director Jerry Brito said in a blog that without the law, California companies would find themselves subject to the state’s transmission laws. These laws would require bitcoin firms to hold securities equal to the value of the virtual currency they secure.
The proposed bill also exempts software developers from licensing requirements and enables startups with less than $1 million in outstanding obligations to acquire a provisional license for $500 as opposed to $5,000 for other bitcoin firms.
EFF’s Reitman countered that the exemption for startups would still leave them at risk of having to meet licensing requirements they cannot afford.
Jad Mubaslat, CEO of BitQuick, told Bloomberg he opposes the California bill because it is “rushed, vague, and an overall negative for innovation.”
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Last modified: March 4, 2021 4:45 PM