Some meat from page 30 about the definition of "digital currency business" for the purposes of this act...
(d) “Digital currency business” means the business of offering or providing the service of storing, transmitting, exchanging, or issuing digital currency. “Digital currency business” does not include the following:
(1) Transmission of digital currency where the transaction is undertaken for non financial purposes and does not involve the transfer of more than a nominal amount of digital currency necessary to complete the transaction.
(2) Online games or gaming platforms that use digital currency that (A) have no market or application outside of those games or gaming platforms, (B) cannot be converted into, or redeemed for, fiat currency or digital currency, and (C) are not redeemable for real-world goods, services, discounts, or purchases.
(3) Customer affinity or rewards programs that use digital currency that can be redeemed for goods, services, or for purchases with the issuer or other designated merchants, but cannot be converted into, or redeemed for, fiat currency or digital currency that is not part of the customer af nity or rewards program.
(4) Issuance of a credit card voucher, letter of credit, or any value that is redeemable only by the issuer for goods and services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.
(5) A person or entity developing, distributing, or servicing digital currency network software.
(6) A person or entity contributing software, connectivity, or computing power to a digital currency network.
(7) A person or entity providing data storage or cybersecurity services for an enrolled digital currency business, if the data storage or cybersecurity services do not store digital currency.
For my part, the wording in #1 looks especially flimsy.
What the hell does "nominal" mean? Is "nominal" measured against some absolute dollar value, or against the scope of the task/services rendered? It's not hard to imagine some massive smart contract transactions that would require a lot of resources to perform, but which wouldn't otherwise have any financial purpose. Would those be deemed too costly, not nominally cheap enough, for this act?
I also wonder about the meaning of "non financial" here. What would this mean for a coin like ETH? ETH does not aspire to be anything more than grease for the Ethereum network. Nonetheless, it's now traded on exchanges for BTC, USD, etc. Does its rising value in trade mark it as "financial" for the purposes of this act, in every ETH transaction on the Ethereum network, even though it's not directly intended for financial purposes?
It's vague on purpose, as vagueness gives the appointed bureaucrats more power in their rule-making processes. Strict, detailed laws don't give them any extra leeway to make rules that favor rent-seekers and friends.
That's one view. Another is that strict, detailed laws without human judgement inevitably creates absurd results.
Law doesn't work without room for judgement. Enforce rules designed for toy models of reality[1] and people won't respect the law, but rather fear the lash. Of course, a certain type of person likes that, but (presumably) those who want to live in democracies don't.
[1] I'd love to believe that someday, certain economists would figure this out, too.
On the flip-side flexible rules allow for regulatory agencies to adapt and respond to changing conditions without having to wait on a legislative body to get around to updating its rules.
No, it makes them into regulatory bodies. Would you really trust Congress to legislate the minute details of FDA clinical trials or EPA pollution regulations? How about transportation safety codes or allocation of NSF/NIH funding for basic research?
This is a fundamental feature of most modern democratic bureaucracies: the power of regulators flows directly from the legislature which sets the goals and scope of each agency but it is up to the individuals in each organization, who have spent most of their lives in the relevant fields gaining direct experience, to decide on the specific implementation of the legislators' vision.
Off the top of my head, I think the Federal Law for Money Transmitter Business (MTB) carves out businesses for up to $100/day so unless a company is registered as a MTB I think that would be the daily cap.
The exclusion from being a digital currency business for online games,
> (2) Online games or gaming platforms that use digital currency that (A) have no market or application outside of those games or gaming platforms, (B) cannot be converted into, or redeemed for, fiat currency or digital currency, and (C) are not redeemable for real-world goods, services, discounts, or purchases.
raises a question. First note that the three qualifying conditions are joined by AND, not OR, so it seems a game must satisfy all three to escape being a digital currency business.
For (A), "have no market or application outside of those games or gaming platforms", is that limited to official markets? Many an MMORPG has tried to keep their game currency game only, going so far as to ban accounts that are caught trading game currency for outside currency, but nevertheless markets outside the game for their currencies have invariably arisen. If unofficial markets are sufficient, I wonder if any significant game will be able to qualify for the exclusion.
Read "The $65 million Bitfinex hack shows that it is impossible to tell a good bitcoin company from a bad one"[1] on Quartz. They can't even find the company's offices. The Hong Kong address is a mail drop. The British Virgin Islands address is a mail drop. The CEO is missing. Looks a lot like an inside job.
Fingerprinting cryptocurrency company management is a good idea.
As someone who has suffered a significant loss from the Bitfinex hack, I still prefer technical over regulatory solutions.
You should also note that Bitfinex used to have a much more secure setup, with most of its Bitcoins being stored in cold, offline storage. However, US regulation required them to use segregated accounts for each user. Under such a requirement, the cold storage variant does not work any more, so they moved to keep everything online so they could physically move the Bitcoins back and forth as they were used for margin loans within Bitfinex. It was too much misguided regulation that made them vulnerable in the first place.
I think the CFTC interference is overstated- BitFinex still could have segregated cold wallets for the whales, and I've heard they made the change primarily in response to the last hack.
I want the CFTC interference to be the primary issue, though- it certainly fits the narrative and would be a great lesson going forward.
Offline combined storage is not a more secure setup if the problem is insider theft. Mt. Gox had offline storage controlled by Mark Karpeles. Given how hard it is to find the principals of this company, this looks like an inside job.
Surely cold storage is compatible with segregated accounts using payment channels or one of the other novel Bitcoin mechanisms. But if not, and cold-storage had to be abandoned, then that would have been a good signal to walk away.
And if accounts had to be segregated then losses should have been segregated too, not socialised.
How would this bill prevent that? I'd argue it wouldn't, because shenanigans like this aren't happening at US-run bitcoin companies.
We already have federal MSB regulations, and should solve this at the federal level. The proliferation of state MSB regulations make it incredibly expensive for new fintech companies to compete against incumbents and internationally.
The MTA was previously used against companies that simply facilitated marketplaces. I worked for a mobile-ordering startup called GoPago that got hit with a suit over the MTA since we were 'storing currency' (i.e., people paid us money for food that we would then pass on to the merchant that made the food). The only way of getting approval for 'money transfer' was to get a 'Medallion' which took around 18 months.
The MTA was awful, and this appears to be gutting the parts that was applicable to its overreach.
I see a lot of negativity in this comment section about the changes, as CA is moving to change the law to be used to regulate digital currencies which I believe was the original intent of the MTA (not specifically digital currencies, but anything fiat used as currency).
So what constitutes a digital currency? I mean, I've heard arguments that BTC is really an asset being traded. Didn't see that
Also: looks like proposed fee has been increased to $5000 from $500 (didn't look for other details).
Amusing that legalese is essentially similar to code, but without variable declarations (ie, $digitalcurrency := "currency that's traded online, including but not restricted to BTC, etc") it's a bit of a nightmare to parse.
“Digital currency” means any digital representation of value that can be digitally traded and is used to facilitate the sale, purchase, and exchange of goods, services, or other digital representations of value among its users. Digital currency does not include fiat currency, e-money, or currency value of which was fixed by its issuer to the value of a fiat currency.
> So do things like Microsoft points or rewards work the same way?
Well, they might be digital currency under the definition, but that kind of rewards program appears to be excluded from the (rather lengthy) definition of "digital currency business", which would mean the regulations would generally not apply to them.
> What about stocks/bonds?
What about them?
> I find it amusing that the exempt e-money while targeting "digital currency". What exactly is the distinction?
Again, from the proposed bill at the link:
“E-money” means a digital representation of fiat currency used to electronically transfer value denominated in fiat currency.
My Bitcoin is a digital representation of the bits needed to solve a particular block. It doesn't represent value, but a numerical solution to a mathematical problem.
Playing dumb only makes you look dumb. Judges/legislators/basically everyone can see right through this kind of pretense and aren't particularly sympathetic to the "b...but I'm technically correct!" stance.
> the rule of law and being technically correct matters
As one of many factors. The rule of law does not suspend human reason and common sense. SCOTUS recently ruled in favour of original intent over a strictly structural in an ACA case, where the later would have meant literally interpreting a likely typo [1].
Laws typically don't incorporate definitions of words used when they aren't used in a special sense in the law.
> My Bitcoin is a digital representation of the bits needed to solve a particular block.
No doubt.
> It doesn't represent value,
The "X needed for Y" have value to the extent Y has value; I would suggest that there is considerable evidence which might be marshaled that solving Bitcoin blocks has value.
So, I would think that your explanation of what Bitcoin does represent supports the conclusion that it is a digital representation of value, not that it is not such a representation.
> The word is very special to this law as it is the core word defining "Digital Currency":
It may be important to this law, but that doesn't mean that it is used specially (as in, in any but its most contextually-obvious general-use sense) in the law.
I mean, the meaning of "is" is also very important to the meaning of most laws, but is rarely defined in the enactment.
> You can't classify something as digital currency without knowing what value means
True, but that doesn't take a non-standard, law-specific definition.
> or how to measure it.
Untrue -- quantification of value is not relevant to the definition.
If you show me a method of quantification, I can derive the definition.
Value is being discussed (even though you appear to be using an unrevealed definition) as a quantity (maybe, I am wrong, and it is not a quantity), which means there must be a way to quantify it.
Are you seriously trying to argue that Bitcoin is not a representation of value, or are you merely suggesting that there might be more ambiguous cases?
It represents the resource and infrastructure investment needed to calculate the solution to a block. The resource being electricity, and the infrastructure being the computer and any peripherals needed (i.e. expensive video card).
It represents the resource and infrastructure investment needed to produce the note. The resources being ink and paper, and the infrastructure being the machinery, labor, electricity, gas and trucks needed.
You're not really arguing that currency derives its value from the material cost of producing it, are you? Because then everything is a currency. Modern currencies are special precisely because they have much more value than their material cost.
Legalese does have variable declarations, they just look a little different and are used more sparingly. For example, look at section 17 of Facebook's terms of service: https://www.facebook.com/terms
The interesting part about legalese is that you get to argue with the compiler.
I hope this will provide an impetus for more tech businesses to diversify their operations to places outside of California.
It's a bit like seeing your best friend in an abusive relationship. You almost want to see it go too far, so your friend will finally wise up and break it off. Almost.
Yeah, organize and stop this. But also read this pamphlet on how to get help from an abused industry shelter near you.
OCC has recently expressed interest in regulating financial technology startups at the federal level. So far I'm not aware of any bill in Congress that would actually facilitate their doing so, however. But it's about time.
Until then, here's the "Commissioner of Business Oversight"...
Yeah, I don't really understand the anger about this. Financial institutions already have significant regulations. It's not clear to me why the digital currency equivalent institutions shouldn't be treated similarly. If the only argument for digital currency is lack of regulation, it seems that people should be pushing for decreased regulation on financial institutions instead. An end-around regulation just because we're using digital currency as the go-between doesn't seem to make a lot of sense.
Big caveat, I haven't read this bill or about this bill enough to know if it goes significantly beyond the regulations for financial institutions. If so, clearly, that's different.
Can imagine this will be impossible to force with the rise of decentralized exchanges for BTC and ETH like Bitsquare and EtherEx. But still...
"The bill would prohibit a person from engaging in the digital currency business without enrolling in the program and would prohibit the conduct of digital currency business through an unenrolled agent. The bill would require a person seeking enrollment to pay a nonrefundable fee of up to $5,000... The bill would also require the person to provide fingerprints and would authorize the commissioner to deliver the fingerprints to law enforcement agencies."
a law may be not completely enforceable in normal situation, yet it would still provide at least two things: 1. scaring away a bunch of would-be players and 2. once somebody got law enforcement attention even for non-related things the law may provide for additional charge and thus higher pressure and higher chances that something would finally stick.
(d) “Digital currency business” means the business of offering or providing the service of storing, transmitting, exchanging, or issuing digital currency. “Digital currency business” does not include the following:
(1) Transmission of digital currency where the transaction is undertaken for non financial purposes and does not involve the transfer of more than a nominal amount of digital currency necessary to complete the transaction.
(2) Online games or gaming platforms that use digital currency that (A) have no market or application outside of those games or gaming platforms, (B) cannot be converted into, or redeemed for, fiat currency or digital currency, and (C) are not redeemable for real-world goods, services, discounts, or purchases.
(3) Customer affinity or rewards programs that use digital currency that can be redeemed for goods, services, or for purchases with the issuer or other designated merchants, but cannot be converted into, or redeemed for, fiat currency or digital currency that is not part of the customer af nity or rewards program.
(4) Issuance of a credit card voucher, letter of credit, or any value that is redeemable only by the issuer for goods and services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.
(5) A person or entity developing, distributing, or servicing digital currency network software.
(6) A person or entity contributing software, connectivity, or computing power to a digital currency network.
(7) A person or entity providing data storage or cybersecurity services for an enrolled digital currency business, if the data storage or cybersecurity services do not store digital currency.