The Californian state assembly is considering legislation that would require all “virtual currency” businesses to acquire a US$5,000 license to operate legally.
Seeking to extend its existing legislation around businesses transmitting consumer money, the West Coast state is now looking to include “virtual currency” companies from the cryptocurrency sector in the regulations.
“This bill 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, as provided.”
Alongside paying the Californian treasury US$5,000, applicants will need to provide extensive background information for both their business and themselves. If these credentials are accepted and their license granted, the successful business will then still face strict money control requirements such as the need for a cash reserve equal to 100% of funds deposited by customers for “transmission”.
“[E]xisting law requires each licensee to deposit and maintain on deposit with the Treasurer cash in an amount not less than, or securities having a market value not less than, such amount as the commissioner may find and order from time to time as necessary to secure the faithful performance of the obligations of the licensee with respect to money transmission in this state.”
If passed, the rules look set to vastly increase the difficulty start-ups face when entering the cryptocurrency sector. Designed to offer consumers financial protection when using conventional money transmission services, the regulation's scope covers nearly the entire of the cryptocurrency space.
Similar in nature to New York's BitLicense, both bills appear to represent lawmakers struggling to get to grips with the nature of cryptocurrencies. In New York, the proposed regulations drew a strong reaction from tech companies, crypto enthusiasts, and the Bitcoin based start-up scene developing in the city.
Cointelegraph spoke to Bitcoin expert Tone Vays about the news, and how he felt the cryptocurrency community should react.
"The Bitcoin community should do what it should have done from the beginning; ignore regulation by building technological solutions that make the laws unenforceable. All regulation until the end of the decade will only be there for two reasons: to slow down the growth of new technology, and to allow the government to catch up in understanding and identify every wallet in order to maximize tax collection."
California made headlines at the beginning of the year when it moved to legalize accepting forms of currency other than the dollar within the state. At the time, this placed California as one of the most forward-thinking states on the issue of digital currencies, although since then we have seen bills in Utah, New Hampshire, and New York, examining whether the state itself could accept bitcoins for service payments.
Back in California, the new bill has been introduced by assembly member Matt Dababneh, who also sits as the Chairman of the Banking and Finance Committee. Talking about his Chairman role on his website, Dababneh highlights increasing consumer protections as one of his aims, a challenge which the proposed Bitcoin bill would seem to fall in line with.
“As Chairman he plans to focus on increasing access to capital in underserved communities, financial literacy in younger generations, increasing consumer protections and combating predatory lending.”
The desire to increase financial literacy in younger generations however could be called dubious, as the US$5,000 cost of licensing a Bitcoin business in the state could now present an insurmountable barrier to entry for many young coders, and developers, building the new cryptocurrency financial world.
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