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

by Elizabeth Stark
Techdirt
Mar. 12, 2015

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.

Assembly Bill No. 1326 (PDF)












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