California gets hip to bitcoin: Senate banking committee approves bill to legalize crypto-currencies
The state of California appears poised to become a lot more welcoming to bitcoin. A bill to officially legalize cryptocurrencies and other alternative forms of money, recently passed the California Assembly by a unanimous 75 to 0 vote and yesterday was approved by the state Senate Banking and Financial Institutions Committee by a 7 to 1 vote. The next step for the bill dubbed AB-129 Lawful Money is a full vote on the senate floor and then, possibly, a date with Governor Jerry Brown.
Currently, the California Corporations Code Section 107 states that “No corporation, flexible purpose corporation, association or individual shall issue or put in circulation, as money, anything but the lawful money of the United States.”
As written, bitcoin would be deemed illegal money, and thus the bitcoin developers and custodians of the bitcoin protocol could be deemed in violation of the law. The same is true of the dozens of other altcoins that have sprung up in bitcoin’s wake, as well as other mediums of exchange like cupons, gift cards, and loyalty points. AB-129, if passed into law, would override the language of Section 107, making the development, distribution, and use of cryptocurrencies legal in California.
California is already home to dozens of bitcoin startups and investors, none of which have been prosecuted for violating the California Corporations Code – playing fast and loose with Money Transmitter regulations, however, has caught the attention of law enforcement. Given the lack of enforcement, and the overwhelming momentum of bitcoin and other digital currencies, this regulatory change is merely a formality.
Most startups likely were unaware that California law outlawed bitcoin. But large companies – think Apple, Google, Facebook, eBay, and PayPal – surely were aware of the statute. One has to wonder if this law had any impact on their collective hesitancy to embrace crypto-currencies.
The latest version of the bill includes a notable change from earlier drafts. The bill now awaiting a Senate vote removes the requirement that all lawful currencies have a “value based on the dollar,” aka a dollar-denominated exchange rate. Such exchange rates exist for nearly all crypto-currencies today, but it’s conceivable that this may not always be the case. If bitcoin or another altcoin becomes a ubiquitous currency, its users may never need to exchange it into dollars, and thus such an exchange rate could be abandoned. Now, such a future scenario would still fall within the letter of the law.
California isn’t first US state to show a willingness to embrace bitcoin. New York, led by state Department of Financial Services superintendent Benjamin Lawsky, has been the most proactive, holding numerous rounds of public hearings and instituting new regulations and licenses around exchange, money transmission, and mining operations. The US Senate too has held bitcoin hearings while a number of state and local politicians have begun accepting bitcoin campaign contributions.
AB-129 isn’t a law yet, meaning the bill could either fail to get the necessary Senate support or be changed substantially before ultimately reaching Governor Brown’s desk. But given the momentum behind bitcoin, and the landslide early votes, it seems likely that California is about to make alternative currencies legal in the state once and for all.
[Image adapted from School House Rock]