In 2014, California Governor Jerry Brown signed into law Assembly Bill 129, which legalized the use of bitcoin and other cryptocurrencies in the state of California. While these currencies are not considered "legal tender," California individuals and businesses are free to exchange it in return for goods and services, and to share it with each other.
Yet now, some California legislators are seeking to restrict the use of virtual currencies. In February of 2017, California state assembly member Matt Dababneh introduced Assembly Bill 1123, which would regulate the use of virtual currency throughout the state. The bill would prohibit a person from engaging in any virtual currency business in California unless the person is either licensed or exempt from licensure. If passed, AB 1123 would be called the Virtual Currency Act or popularly termed "BitLicense-Lite".
The Licensing Requirement
Applicants for licensure would be required to pay a nonrefundable $5,000 fee to the California Commissioner of Business Oversight. However, the bill states that "a person or entity conducting virtual currency business with less than $1,000,000 in outstanding obligations and whose business model, as determined by the commissioner, represents low or no risk to consumers" will be able to register with a $500 license fee. There will also be annual license renewal fees.
The bill details the information that will need to be included on any license application. This information includes details about the applicant and about the business operations of the licensee.
The bill includes a number of exemptions to the licensing requirement, including any government body and any FDIC insured bank. The most significant exemption, however, holds that "a merchant or consumer that utilizes virtual currency solely for the purchase or sale of goods or services" does not need to be licensed.
Criticisms of the Bill
Critics of AB 1123 argue that the law will stifle innovation in California. Many point to the fact that when a similar "BitLicense" law was created in New York, dozens of companies left the state. They also assert that the law does not adequately define what it means to "engage in any virtual currency business," or who exactly might fall into the exemptions. These are valid concerns because ambiguity in the law may lead to many people unwittingly violating it.
Critics have also pointed out that when it comes to state revenue, the fees and fines collected under the law would be offset by the massive cost of enforcing it. Overall, they contend that this regulation would result in a huge waste of resources and an unfair burden being placed on virtual currency businesses.
Contact the Law Offices of Scott Hughes for More Information
If you are engaged in a virtual currency business or use virtual currency, it is important to stay up-to-date regarding this prospective law. If the bill passes, businesses that use virtual currency would need to understand and comply with the law. A failure to comply would lead to the imposition of large fines, and possibly other sanctions.
An experienced California Crytocurrency Lawyer can ensure that your business stays legal. Attorney Scott Hughes regularly aids businesses in licensing and compliance issues. He is a graduate of the Blockchain Academy in London. For more information about this issue, contact the Law Offices of Scott Hughes at (714) 987-2671.