Crafting regulation

According to Inside Bitcoins, Dababneh’s bill “broadly defines a ‘virtual currency business’ as any activity involving the storage of digital currency on behalf of others; the exchange of fiat money for digital currency and vice versa; and even the exchange of one type of digital currency for another. It applies to all businesses and organizations who perform these activities in relation to a California resident.”

Whereas other states, such as New York, have ensured an open comment period on similar legislation, AB1326 has skipped that step, raising the ire of longtime Bitcoin advocates and users. Capturing the sense of frustration in the air, Techdirt warned that “the bill would reverse decades of how Silicon Valley has lead the world in innovation — by switching from a world of rapid innovation and permissionless innovation, to one in which any startup even contemplating doing anything with Bitcoin would have to go plead their case to clueless regulators in Sacramento.”

Nevertheless, the call for state and federal regulations has become forceful enough that AB1326 may be able to ride its coattails into law.

Going mainstream

As digital currency like Bitcoin has caught on, lawmakers have often found themselves playing catch-up. Legislators nationwide have come under growing pressure to address the regulatory environment around so-called “cryptocurrencies,” which have been used in novel ways to skirt the law. Across the California border in Nevada, for instance, Bryan Micon, operator of the website Seals with Clubs, was charged in Las Vegas Justice Court with “one count of operating an unlicensed interactive gaming system,” reported the Las Vegas Review Journal.

“Defending Nevada’s worldwide reputation as the gold standard of gaming integrity is a paramount concern to tens of thousands of Nevadans employed by the industry and the 41 million tourists who visit the state each year,” said state Attorney General Adam Laxalt, according to the Review Journal. “Laxalt added that the charge, which carries a penalty of up to 10 years in prison and a $50,000 fine, marks the first prosecution of a poker site that used the digital currency.”

At the same time as digital currency has propelled events in criminal law, big finance has strengthened momentum for regulatory reform by pushing into the market. As IEEE reported, “Circle, a Boston-based Bitcoin startup, announced last week that it had completed a U.S. $50 million round of funding.” Investors included Goldman Sachs, marking “the first time that a major U.S. bank has taken the plunge into the Bitcoin startup scene,” according to IEEE.

California innovation

Adding to cryptocurrencies’ relevance in Sacramento, Tim Draper, the venture capitalist known for his Six Californias ballot initiative, recently led a $1 million-plus round of investment in Hedgy, a Bitcoin company with the potential to ensure the currency remains viable well into the future. In order to prevent currency debasement, access to the worldwide supply of Bitcoin was slowed by its creators through the use of a “mining” system. Users hoping to acquire Bitcoin without buying any already in circulation must prospect for it, a time-intensive undertaking increasingly expensive to maintain.

“Because of the increasing cost of mining, some miners are wary of continuing operations,” as VentureBeat explained. “What Hedgy serves to do is give miners certainty that the price of Bitcoin won’t drop so rapidly that they actually lose money on mining. … The elder Draper is very keen on cryptocurrency and on building out a [financial technology] scene on the west coast; he recently launched an incubator called Fintech Connection that resides at Hero City in San Mateo, California.”

Democratic Assemblyman Roger Dickinson, the bill’s author, said earlier this week the bill reflects the popularity of forms of payment already in use in California like bitcoin and that even rewards points from businesses, such as Starbucks Stars, could technically be considered illegal without an update to currency law in the nation’s most populous state.

CNN described Bitcoin:

Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.

Bitcoin has had its ups and downs. A chart from Coindesk shows its value since Bitcoin was created in Jan. 2009:

It reached a high of $979 last November and currently is valued at $621.

Critics say that Bitcon is just a gimmick that will end up being as worthless as Monopoly money. Supporters say that Bitcoin provides real value.

Although personally, for me, the only real money is gold and Long John Silver’s “Pieces of Eight” — which I can hold in my hand. Even the U.S. dollar, which I’m forced to use, is just funny money that someday will go the way of the Confederate dollar, the Zimbabwean dollar and Reichsmarks. Thanks to inflation, the U.S. dollar already has plunged from $20.67 an ounce of gold in 1932 to $1,319 today.

In any case, Bitcoin’s worth, if any, should be determined by the marketplace, not government. So it makes sense that California, still the center of the digital economy, should legalize it.

Now and then the state government does something right.