New Coin Center report: How lawmakers can protect consumers without harming digital currency innovation.
This updated framework gives regulators the tools they need to develop sound policy around open blockchain networks like Bitcoin.
Last weekend I attended what will probably be the final meeting of the Uniform Law Commission’s drafting committee for a model Regulation of Virtual Currency Businesses Act (the RVCBA!). The bottom line report is that the commissioners are in agreement with all of our major suggestions. That means there will be no dual licensure requirement, even clearer definitions of covered activities (that don’t include anything non-custodial), and a single comprehensive exemption for anyone buying, selling, transferring, or hodling bitcoin for personal reasons (i.e. not on behalf of another). This is a big win. We won’t relax until the full ULC votes on the final draft this summer, but there’s good reason to celebrate today.
Today we’re also announcing Version 2.0 of our State Digital Currency Principles and Framework. This comprehensive report now includes a round-up of the various approaches to virtual currency regulation that states (and the ULC) have taken so far. We break down these approaches into seven categories:
- Do Nothing Remain publicly silent on the question of whether virtual currency businesses (or which VCBs specifically) must comply with money transmission licensing laws.
- Guidance (narrowing) Explain that only VCBs that also deal in traditional currencies (e.g. a virtual-currency-for-dollars exchange) are money transmitters and clarify that businesses dealing strictly in virtual currency are not money transmitters.
- Guidance (broadening) Explain that any VCBs that have control over virtual currency on behalf of their customers will be treated as money transmitters and will need to be licensed (regardless of whether they also deal in traditional currencies).
- Rulemaking (sui generis) Promulgate a rule that creates a sui generis licensing regime separate from MTL for VCBs that have control over virtual currency on behalf of their customers.
- Legislation (narrowing) Pass new legislation codifying approach 2, above.
- Legislation (broadening) Pass new legislation codifying approach 3, above.
- Legislation (sui generis) Pass new legislation that creates a sui generis licensing regime separate from MTL for VCBs that have control over virtual currency on behalf of their customers.
We’ve also subtly altered portions of our model legislative language to match the excellent approach we’ve developed working with the Uniform Law Commission over the past two years. That approach will ensure that only custodial virtual currency companies will ever be required to get a license.
The new Framework is also more clearly structured. After the state-by-state round-up we deal with five essential policy and legislative drafting questions:
- Who should be required to obtain a license?
- How can startup businesses be encouraged while keeping consumers safe?
- How should new virtual currency law interact with state MTL law?
- How should capital requirements be structured?
- What other important considerations remain? (AML, exemptions, etc.)
In these sections you’ll find our proposed exemptions for non-financial uses, de minimis (e.g. small dollar-value) uses, and licensed money transmitters (so that no one needs to get two licenses in every state). We’re happy to report that these provisions also match the approach that the ULC is likely to adopt in the next and possibly final draft of their model Regulation of Virtual Currency Business Act, which should be voted on and made official this summer.
On that subject we are today also submitting what may be our final comment letter to the ULC that addresses a few minor drafting issues that remain. None of this is exactly sexy bitcoin news, I know, but if you’ve followed these issues over the last year, you’ll know how important it is to get this stuff right. Only with good, sane definitions of things like “control of virtual currency,” simple and comprehensive exemptions for non-custodial and non-financial activities, and regulatory requirements sensibly calibrated to the unique technical and business concerns raised by these technologies can we expect the US to be a welcoming home for innovation.