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Amazon, Apple, Google, Intuit, and Paypal just asked Congress for a unified federal alternative to state money transmission licensing.

In a letter to congress, their industry group, Financial Innovation Now, explained how state-by-state money transmission licensing is a major impediment to innovation in financial services here in the US:

Payment innovators currently must obtain and continually update money transmission licenses in nearly every state. Consumer protection is a critical part of payments regulation, but it makes no sense for different states to regulate digital money differently from one state to another, especially if that process significantly delays entry to market and prevents consumers and businesses in many states from having equal and consistently safe access to cutting edge payments technologies.

We've been highlighting the inefficiencies of this state-by-state approach since our inception; it's probably the biggest hurdle to operating a cryptocurrency exchange or hosted wallet in the US, and (given how vaguely the definition of money transmission can be in various state statutes) it's even a potential landmine for open blockchain developers working on non-custodial apps and infrastructure. So we are very happy to see that Financial Innovation Now, with companies like Google and Apple as members, is also disatisfied with the patchwork regulatory landscape for financial technology. And we're thrilled with their suggested solution, a unified federal money transmission license issued by a new sub-branch of the department of treasury: 

Establish an optional federal money transmission license,managed by the Treasury Department, that: 1) oversees application and licensing, safety and soundness, BSA/AML compliance; 2) incorporates a number of existing state money transmitter laws and Uniform Money Services Act requirements; 3) preserves the current state structure for those wishing state licenses; and 4) offers uniform federal law only for an applicant choosing a federal license.

We've previously talked about how the OCC's fintech charter could be the vehicle for that unified approach. A fintech charter wouldn't require new rulemaking or legislation, so in some ways it could be an easier road. But! An entirely new approach would also be a great way to reach that end result, and if the bigger players in the tech world push, a legislative solution might be viable. Exciting times.

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Save the Date: The 2018 Coin Center Annual Dinner with be on May 14, 2018.

The Blockchain community’s night out is coming back to New York City during Consensus 2018. We hope you will join us once again to rub shoulders with some of the best and brightest in the industry, all while supporting Coin Center’s critical policy advocacy mission.

Monday, May 14, 2018 - 7:00 PM

The Plaza Hotel

768 5th Avenue, New York, NY 10019

Tickets will be on sale in early 2018. For sponsorship information please contact antonie@coincenter.org.

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The SEC today has said that some tokens can be securities.

That comports with the analysis of securities laws and crypto-tokens we issued two years ago. What the SEC did not say is that all tokens are securities. Rather, they suggest a facts and circumstances test but only analyze the facts and circumstances surrounding last year’s DAO token sale.

We believe that applying the same facts and circumstances test to other tokens will mean that some do not fit into the definition of securities, particularly tokens with an underlying utility rather than a mere speculative investment value. Our securities framework and other research explains why this is the case. We hope clear guidance from the SEC to that effect will be forthcoming.

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The judge in the Coinbase/IRS case just granted a motion that’s a win for privacy.

Late last year the IRS petitioned to file a “John Doe Summons” for all Coinbase users active between 2013 and 2015.

Coin Center was quick to respond, calling out the dangerous precedent that that such a petition would create if granted:

The Fourth Amendment to our Constitution protects "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures[.]" It aims to accomplish that, in part, by prohibiting general warrants that give government agents broad authority to search unspecified places or persons. While the courts have weakened Fourth Amendment protections when a third party like a bank or business keeps your information, the tide has begun to turn back. Courts have begun to recognize that there must be some limits as more and more of our private data is stored not in our homes, but in "the cloud." If the IRS can get a summons to search all users of bitcoin, it may only be a matter of time before it can get one targeting all video gamers or all eBay shoppers and sellers.

Now, some customers of Coinbase who would be affected by the summons have petitioned the court to intervene on their own behalf. Yesterday we learned that the court granted their petition. In doing so, the court made some similar points:

[The IRS] contends that “there seems to be a substantial gap between the number of people transacting in virtual currency (for which tax consequences might attach) and those that are reporting such transactions.” (Dkt. No. 28 at 13.) But that argument proves too much. Under that reasoning the IRS could request bank records for every United States customer from every bank branch in the United States because it is well known that tax liabilities in general are under reported and such records might turn up tax liabilities. It is thus no surprise that the IRS cannot cite a single case that supports such broad discretion to obtain the records of every bank-account holding American.

With this motion granted, the users of Coinbase will have an anonymous representative challenging the IRS petition in addition to Coinbase. This means that even if Coinbase decides to drop its challenge, there will still be an interver challenge to the summons sticking up for privacy, and that’s a good thing. We will continue watching this case and advocating for consumer privacy. For now at least, it seems as though the court agrees with our assessment: that the IRS’s petition is dangerously overbroad.

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The digital currency industry supports the ULC’s model state law.

In an open letter to attendees of the Uniform Law Commission’s annual meeting this week, several major digital currency firms and investors called for the adoption of the “Regulation of Virtual Currency Businesses Act” as an official ULC model act, which states may then want to consider promulgating into law. For nearly two years, Coin Center has been working with the Act’s drafting committee to ensure that the model act not only avoids the stifling overbreadth of previous attempts at crafting digital currency rules like the BitLicense, but also creates regulatory clarity that fosters innovation by:

  1. Fully exempting all persons and businesses who do not take control of others’ digital currency
  2. Have simple and reasonable licensing requirements for those firms that do take control of customers’ digital currency
  3. Providing other exemptions and an on-ramp for small businesses

We are optimistic that the ULC will adopt the draft model act when it votes later this week, and we’re glad to see such broad industry support for the act.

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demoday
We demonstrated how Bitcoin works in Congress.

Earlier this month the Terrorism and Illicit Finance Subcommittee of the House Financial Services Committee held a hearing to assess the national security implications of open blockchain networks like Bitcoin. Coin Center testified to explain how the technology works and stress that policymakers must approach them the same way they do the internet--as a purpose agnostic platform that is rich with innovative potential.

Yesterday Coin Center continued its Congressional education efforts by holding a demonstration day event for members of Congress on the full committee and their staff. We partnered with Xapo, Chainalysis, and Elliptic to showcase how a typical user would interact with the Bitcoin network. The demonstration covered the process of setting up a software wallet (BitPay’s Copay) and a hosted wallet (highlighting the important distinctions between the two), the stringent AML/KYC process needed to create an account on a regulated exchange, sending a transaction, and viewing transactions on the publicly available Bitcoin blockchain.

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Pictures from the 2017 Coin Center Annual Dinner are now available.

Our second annual fundraising dinner, held this year after first day of Consensus 2017, was a huge success. Hundreds of open blockchain technologists and businesspeople came out to support Coin Center in what was once again the space’s biggest night out.

You can see photos of the evening here.

Thanks again to our sponsors: Kraken, the Centre for International Governance Innovation, Fidelity Labs, Poloniex, AlphaPoint, Bloq, the Charles Koch Institute, Pantera Capital, Perkins Coie, and ShapeShift.

We’ll see you next year!

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Video: How does multisig make bitcoin more secure?

Coin Center has partnered with the Federalist Society to produce this simple explanation of multisignature cryptocurrency wallets.

Multsig allows users to split up the permission needed to move cryptocurrency held by a particular address. Rather than one person having the ability to unilaterally move funds, a multisig wallet may require two of three (or any m of n) key-holding users to authorize a transaction before any funds are moved.

Read more: “What is Multi-Sig, and What Can It Do?

With this technology it becomes possible for a third party to provide some security for your bitcoins (by protecting one of the keys) without ever having the ability to run away with or lose them. We’ve argued before that companies that use secure arrangements like this do not pose consumer protection risks and therefore should be exempted from money transmission licensing through a safe harbor for non-custodial companies.

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Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permisionless blockchain technologies.