New York and California have reportedly begun to propose legal rules regarding bitcoin and other virtual currencies.
Bloomberg News has recently reported that regulators in New York and California have taken to the task of formulating entrepreneurial rules for the legal use of bitcoin. Rising interest in bitcoin and its derivatives, which began making headlines in 2013, has led individual states to assess existing financial rules applicable to the new currency. It has also prompted them to contemplate future legislation.
Bitcoin, a five-year-old protocol for exchanging money on the Internet, has gained popularity in recent months due to the ease with which it allows certain online transactions. In the past it has been popularly, and not entirely erroneously, considered a storehouse of value for speculators, money launderers, and criminals. But, bitcoin has increasingly begun to gain mainstream traction. For example, as of March 1 of this year the Sacramento Kings basketball franchise will allow its fans to buy tickets and team gear online with the digital currency.
The Bloomberg article examines how bitcoin might challenge established financial institutions such as JPMorgan Chase & Co. and Visa, Inc., which currently conduct the vast majority of online payment in the US. It also collects statements and opinions from numerous individuals in the technology, financial and regulatory sectors who have been carefully following bitcoin.
According to Adam Ettinger, an attorney with the technology-focused Strategic Counsel Corp. in San Francisco,
If a state becomes bitcoin-friendly, it will see a huge increase in companies. That will mean the brightest minds working on some of the most innovative payment technology we’ve seen in awhile. (“New York Vying With California to Write Bitcoin Rules.”)
Some, however, such as JPMorgan Chief Executive Officer Jamie Damon, have gone on record to voice their skepticism of the currency. Damon told CNBC in a January 23 interview that
[bitcoin] will eventually be made as a payment system, I think, to follow the same standards as the other payment systems, and that will probably be the end of them.
Whether something like Ettinger’s optimistic, or Damon’s dour, prognostications for bitcoin are to come true will likely be up to legislators.
In New York, the state’s superintendent of financial services, Benjamin Lawsky, has already subpoenaed bitcoin-based businesses requesting information ahead of a series of public meetings he intends to organize. These will explore the possibility of establishing what he calls a “BitLicense.” The proposed license would be among the first statewide legal regulatory actions taken toward the digital currency.
Officials in California, meanwhile, have taken a softer approach to the issue. There, regulators have held meetings with legal and compliance experts in order to discuss the future of bitcoin and the likelihood of legislative actions that could affect bitcoin-based companies.
Speaking on the subject, Patrick Murck, general counsel of the Bitcoin Foundation in Seattle, praised the Californian approach to bitcoin regulation during a US congressional hearing that took place in November of 2013. Murck encouraged the continuation of a “healthy and respectful dialogue” between bitcoin operators and government regulators as a means “to ensure that the substantial benefits of the digital economy are met.”
The Bloomberg article also quotes Marco Santori, a New York-based attorney with Nesenoff & Miltonberg LLC, who counsels digital currency startups. Santori explains that current legislation regarding the online transfer of money fails to adequately address the new bitcoin paradigm, and that the states and even the US government may not have jurisdiction to intervene in the exchange of bitcoins at this point in time. Says Santori,
These laws are nowhere near what they’d need to be to regulate bitcoin businesses.
Accordingly, the future of bitcoin – if it is to become a legitimated alternative currency, rather than a short-lived Internet phenomenon – appears to be bound up with the agendas of state and federal legislators.
(Note: This article concerns recent legal news on the subject of bitcoin. For interested readers looking for background and summary information on the digital currency, Pippenger Hedberg Law has published an introductory Bitcoin Primer just a click away.)