The ongoing debate about the role of governments in regulating digital currencies isn’t going away anytime soon. While the dustup over New York’s BitLicense program continues, another front has opened up in California where a member of the state assembly has introduced a bill to regulate California’s digital currencies businesses.
The Washington, D.C.-based Coin Center and the San Francisco-based Electronic Frontier Foundation (EFF) each have lobbied hard against the New York Department of Financial Services attempts to regulate New York businesses with its controversial BitLicense program.
But with the proposed California law, the two organizations have taken two separate forks in the advocacy road, with Coin Center supporting the California legislation and EFF adamantly opposed.
Coin Center supports while EFF opposes proposed California law
Coin Center is now supporting the proposed California legislation, saying it is the best possible compromise under the circumstances and would prevent a worse law – the current money transmission law – from being the default in regulating bitcoin.
Peter Van Valkenburgh, director of research at Coin Center, told Bitcoin Magazinethe proposed California law is a “model for sound regulation in this sector,” not as flawed as the New York BitLicense regulations, and is much better than the status quo.
“A Bitcoin company that actually holds all of the private keys for some user is acting just like a bank or a money transmitter. It’s very difficult to convince politicians that between two companies with very similar risk profiles, one that holds peoples bitcoins and one that holds their fiat, the Bitcoin business should get special treatment,” he said.
“[T]he losses suffered by customers of Mt. Gox and other failed exchanges provide all the rationale they need to treat bitcoin custodians exactly as they would treat the legacy industry,” Van Valkenburgh said. “So what we’re left with, the sensible strategy, is to make sure that non-custodial and highly innovative uses of the technology, like multi-sig, sidechains, the lightning network, are exempted.”
The proposed law would require digital currencies businesses to obtain a license from the California Department of Business Oversight (DBO).
“Everybody — even Coin Center — acknowledges that this bill has serious flaws,” EFF Activism Director Rainey Reitman told Bitcoin Magazine. “But the biggest problems aren’t for large, established Bitcoin companies like those backing Coin Center. Many of those aren’t affected by this bill, either because they already qualify for a license exception or they have the resources to overcome the regulatory hurdles.”
What happens now?
The proposed legislation has passed through the California Assembly (although the vote was split), and through the Senate Banking and Financial Institutions Committee, and is due to be voted on in the California Senate in the near future.
Meanwhile, Coin Center will work to educate people on how the law will work.
“Coin Center has been transparent from the start when it comes to bill AB 1326,” Van Valkenburgh said. “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.”
EFF will be fighting the proposed bill through its online activism campaign.
Reitman noted the possible repercussions of this law.
“I don’t think this will stop in California. If this bill passes, I suspect it will be replicated in future states, with potentially worse provisions. That’s why this battle is so important,” she said. “Our mission is clear and we will continue to work on behalf of Bitcoin startups, innovators, and users of future virtual currency technologies that may never exist if this law is passed. EFF has to argue for the wider public interest.”
Jessie Willms is a planet earth based former government and political researcher and communications officer helping to document the FinTech revolution and its impact on traditional institutions and governments. You can follow Jessie on Twitter at @WILLMS_.