As Businesses Boom, States Must Decide How to Regulate Bitcoin
With its penchant for seesawing values and off-putting headlines, Bitcoin has drawn mixed reactions from local governments so far.
Image: Tayla Layell/Flickr
With its penchant for seesawing values and off-putting headlines, Bitcoin has drawn mixed reactions from local governments so far. In the US, only four states have taken an official stance on virtual currency, and they're split right down the middle.
There's New York of course, which made waves last week as the first state to propose a regulatory framework for Bitcoin, dubbed "BitLicense." The proposed rules outline how businesses based in the state can and can't use virtual currency.
Over on the West Coast, California first banned cryptocurrency completely, and then flip-flopped. Governor Jerry Brown signed in new legislation last month to allow alternative currencies in the state. "Here in California, we're interested in being innovative and cutting-edge," said the legislation's sponsor, according to a new Pew report on digital currencies.
Meanwhile, state banks in Texas and Kansas recently elected to treat the digital coins as property rather than currency.
A chasm is emerging on the federal level too. On Tuesday evening, a trio of Bitcoin-freindly congressmen will host a Bitcoin Demo event on Capitol Hill, where lawmakers will have an opportunity to talk to industry experts and brush up on their cryptocurrency knowledge. Looking back just a couple years ago, this kind of interest from the political top brass would have been unthinkable for the controversial technology.
These legislators are intrigued by the potential of this next-gen financial system—like its ability to process heartbeat-quick, global transactions. Other lawmakers are pushing regulation as a way to stamp out Bitcoin's dark past of facilitating illicit drug deals and money laundering on the deep web. And as the virtual currency industry booms and more and more startups sprout up, entrepreneurs are also calling for clarification through a regulatory landscape.
With the BitLicense framework, New York hopes to curb the illegal activity associated with the currency, but some worry the heavy-handed proposed rules could wind up pushing Bitcoin businesses in the state under the bus. Several key Bitcoin players from a slew of companies signed an open letter requesting New York extend the comment period for the draft rules 45 days.
Many of us are individuals or small startups operating on limited budgets without access to extensive legal resources," the letter reads. "This imposes a substantial burden as we seek to understand the proposed rules and their current and future impacts on our businesses, open-source projects, and educational research." Some even forked the regulations on Github and edited the regulations to their heart's content.
As Pew reported Monday, US states grappling with how to regulate Bitcoin might look to the Conference of State Bank Supervisors' Emerging Payments Task Force for guidance. The committee emerged earlier this year to offer its advice on cryptocurrency regulations and promote a consistency across the country.
The task force aims to make recommendations on how to deal with digital currency within a year, according to Pew. It could suggest, for instance, that states regulate Bitcoin the same as money transfer services like PayPal and Western Union, rather than monetary currency.
Even if each state experiments with its own unique regulatory scheme, it seems a much better than monolithic federal guidelines. It's a patchwork of progress, but it could eventually lead to mass adoption of the volatile and embattled technology.