A Slow Awakening
2016 in US Blockchain Policy
At the PYMNTS' Innovation Project 2013 conference, former US vice president Al Gore made waves by speaking out in favor of bitcoin and the potential of the distributed ledger technology that drives the cryptocurrency. "I think the fact that within the bitcoin universe an algorithm replaces the functions of [the government] … is actually pretty cool," Gore said. "I know that there are a lot of innovators that are out there that are trying to … come up with new models and I look forward to that."
And 2016 saw governments on both the local and national levels come to the same conclusion as Gore for the first time.
From the Federal Reserve's declaration of interest to Illinois's embrace of distributed ledgers, this year saw US governments take big steps in evolving their thinking on financial tech. While no major actions have yet been taken, the governments' apparent interest in blockchain tech has been encouraging, experts have indicated.
"I have been in Washington now for many years and what I have observed is an unprecedented effort to catch up if not get ahead of the curve on blockchain technology," Carol Van Cleef, FinTech specialist and partner at financial services law firm BakerHostetler, told CoinDesk.
Van Cleef added:
"It is impressive, the level of effort being made in many areas of the government to learn about blockchain technology – not just to better inform the regulators but to potentially change the way the government operates internally and fix what many find to be broken about the current system."
In this end-of-the-year review, we'll look into the ways government policy has changed toward blockchain in 2016 and explore what we might be able to expect in the new year.
New York's struggles
The beginning of the year saw some of the more notable attempts to regulate cryptocurrencies suffer growing pains. In particular, New York State's 'BitLicense' – created in an attempt to provide clear guidelines on reporting obligations for cryptocurrency businesses in the state – seemed to prove the most problematic.
Once heralded as an advance for the industry, advocates of the law hoped that having clear expectations would remove the uncertainty of doing business in digital currencies in the state. However, opponents argued it created undue pressures on startups and violated the privacy tenets that are key to the technology’s success.
Nearly two years in, it seems like the opponents might have been right. Due to the hurdles involved, by the deadline for license applications in 2015, only 22 companies had applied. Now it seems fewer are being approved. By June 2016, the state has only assigned two BitLicenses, with the other 20 applicants still operating under the regulation's "safe harbor" provisions.
In the wake of struggles in New York, other US states seemed reluctant to begin enacting regulations for the industry. California, for example, flirted with and scrapped its attempt to issue New York-like licenses. Elsewhere, Connecticut's Substitute House Bill 6800 made virtual currency an equivalent to money, but also made a business that transfered it subject to different regulatory criteria than those that deal with national currencies.
This leaves many elements of regulation at the discretion of the state’s Department of Banking, such as the size of the surety bond that must be filed, allegedly to "address the current and prospective volatility of the market in such currency or currencies". Georgia signed into law HB 811 in April, giving state regulators the power to create rules for all virtual currency businesses. But, as it gives no definition in regards to the scope or intended target of this law – short of excluding “software” and “protocols” from the definition of “virtual currency” – the law is ambiguous.
New Hampshire – like other states on this list – also chose to make cryptocurrency dealers in the state money transmitters, subject to the same requirements and rules applicable to traditional money transmitters. This means that those choosing to sell or trade cryptocurrencies in the Granite State must apply for a state money transmitter’s license and pay a $100,000 bond. This is similar to North Carolina's HB 289, passed in June, which defines a money transmission to include "maintaining control of virtual currency on behalf of others" and set the required bond at $150,000.
New Hampshire did, however, exclude individuals using virtual currencies in private transactions from the licensing requirement and defined virtual currencies as cryptocurrencies that could be converted or redeemed for fiat. Pennsylvania passed its long-delayed HB 850 in November, which defined money to include any form of virtual currency, but the bill was temporarily tabled due to a budget impasse.
Finally, Wyoming failed to pass HB 0026, which would have relieved virtual currencies from the state’s current money transmitter rules that require a reserve to be held equal to the amount of the company’s payment obligations. This regulation has effectively kept exchanges and other cryptocurrency businesses out of the state.