In an editorial for Fortune, Coin Center executive director Jerry Brito lays out three things that the government can do to reduce regulatory friction on the growing open blockchain network ecosystem:
First, some Bitcoin businesses fall under the definition of money transmitters and rightly need to get money transmission licenses, which are handled by the states. The problem is that there are 47 different state money transmission licensing regimes and they all have their own rules. It’s a nightmare for a digital currency companies to navigate, with compliance costs easily reaching into the millions of dollars a year. If a federal alternative, like the Office of the Comptroller of the Currency’s proposed special purpose fintech charter, were adopted, then Bitcoin businesses would have a more streamlined alternative.
Another issue with money transmission licensing is that it shouldn’t apply to every application of Bitcoin. Some types of Bitcoin businesses never take custody of a customer’s funds, which means they can’t run away with or lose them. Those businesses should not need licenses. To protect those companies, Congress could create a federal safe harbor for non-custodial digital currency companies.
Finally, Bitcoin taxation is broken. Since it’s not technically a foreign currency, it is treated as property by the Internal Revenue Service (IRS) for tax purposes. This means a user needs to calculate capital gains tax every time they buy a cup of coffee. That’s pretty difficult to manage. If the IRS amended the tax code to treat online currencies like foreign currencies, they would become much easier to use day to day.
These are the type of sensible policy proposals that we advocate for. During a congressional testimony last week, Coin Center director of research Peter Van Valkenburgh directly called on Congress to enact these solutions to the problems with money transmission licensing. He explained why, if left unaddressed, the inhospitable climate in the United States would likely drive drive financial innovation overseas to jurisdictions with more easily navigable regulatory regimes.