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Digital Rights Groups Team Up With Tech Companies to Fight A.B. 1326, the Virtual Currency License

August 28, 2015

A coalition of nonprofit advocacy organizations and virtual currency companies published a letter today calling on the California legislature to reject A.B. 1326 unless important fixes were made to the bill. A.B. 1326 would create a license for virtual currency businesses in California.

The 17 organizations include nonprofit advocacy groups such as the Electronic Frontier Foundation, Fight for the Future, the Internet Archive, and the Free Software Foundation; Bitcoin startups like Bolt, Blockstream, Gem, Bitwage, and Purse.io; and Automattic, the company behind WordPress.com.

The coalition is asking the California legislature to hold off on adopting a virtual currency licensing scheme until adequate research has been done, critical flaws in the proposed legislation have been addressed, and experts in the virtual currency space have been given an opportunity to weigh in on the proposal. In lieu of a hastily drafted and far-reaching licensing program, the letter asks the legislature to simply clarify that California’s Money Transmission Act does not apply to virtual currency-only businesses.

While the coalition acknowledges the good intentions behind A.B. 1326, they also point to a number of serious concerns with the draft legislation, including technical inaccuracies in the bill, due process concerns for license applications, issues for small startups, and undue impact on video games. The bill has been drafted with only Bitcoin in mind, and it is particularly ill-suited for other virtual currencies and emerging technologies, such as smart contracts.

Right now, hobbyists, innovators, and startups are creating new and exciting uses of virtual currency services and providing value for California consumers. And over 40 mainstream financial services companies have recently started to explore how this technology can increase efficiency and improve financial security. Virtual currency technologies such as Bitcoin, Ripple, and Ethereum are likely to have a powerful impact on the future of technological innovation. It’s therefore vital that California—which has until now been a haven for this type of innovation—does not enact a law that could chill new creations in this space.

Read the letter in full below:

Honorable Members of the Senate
California State Capitol
1400 Tenth Street
Sacramento, CA 95814

August 28, 2015

Oppose Unless Amended: AB 1326 (Dababneh), Virtual Currency License

Dear California State Senate,

As consumer interest groups, Internet businesses, and advocacy organizations, we write to you today to express deep concern over AB 1326 (Dababneh), the proposed virtual currency licensing legislation. We understand your interest in protecting consumers within the state, but this bill, as currently drafted, has serious technical issues, due process concerns, and overbroad language. We ask you not to adopt this legislation until these issues have been adequately addressed.

Part of the problem is that there has not been enough time for the legislature to consult with California’s own digital currency experts. Rather than rush this hastily drafted bill through, we urge you to provide adequate time for informational hearings, testimony, and revisions to make this bill better for all Californians.

The legislature may feel some urge to pass legislation to address uncertainty around virtual currency regulations in the state. We urge the legislature to avoid a full virtual currency license until adequate research has been done in this area and instead clarify that California’s Money Transmission Act does not apply to virtual currency-only businesses.

Virtual currencies such as Bitcoin, Litecoin, and Namecoin are likely to have a powerful impact on the future of technological innovation and online transactions. Right now, hobbyists, innovators, and start-ups are creating new and exciting uses of virtual currency services and providing value for online consumers. California has been a haven for these developments, attracting many virtual currency experts and businesses. But these experts and businesses have not had adequate opportunity to weigh in on AB 1326—a bill which would create an onerous new licensing process for virtual currency businesses.

In particular, we are concerned because the proposed bill:

  • Includes inaccurate technical descriptions about how virtual currencies function;
  • Gives full discretion to the Commission of Business Oversight to reject licenses for almost any reason, with no administrative appeal;
  • Requires detailed and irrelevant data from applicants as part of the licensing process;
  • Fails to adequately protect start-ups, hobbyists and small businesses;
  • Includes provisions focused on a single technology, Bitcoin, that will be illogical and ill-suited if applied to other virtual currencies, and could thus chill innovation around current and future alternatives virtual currencies; and
  • Inappropriately implicates video game currencies.

Perhaps worst of all, the bill will lock California into a specific moment in time—i.e., the earliest stages of virtual currency development—chilling future innovation in the virtual currency space that could benefit California consumers.

This is a complicated issue with serious repercussions for the future of digital innovation both in this state and beyond. Yet, while there have been administrative hearings, to date there has not been a single public hearing focused on the broader context of the bill and the benefits and downsides this legislative effort would have in the state of California. We seek an opportunity for digital currency experts, academics, and nonprofits to testify about the bill's potential ramifications.

We share concerns over the need to protect consumers in the virtual currency space, and to provide much-needed transparency and accountability for virtual currency businesses. This bill, however, fails to provide meaningful safeguards for consumers, while at the same time as chilling innovation.

In conclusion, we urge you to call for robust public conversation on AB 1326, including an informational hearing with testimony from public interest groups and virtual currency experts. Please ensure that the bill’s technical inaccuracies, due process issues, and overbroad language are addressed, and we urge you to oppose this bill if they are not.

This is an important bill for the future of innovation in California. While we acknowledge the good intentions of the bill, the California public deserves to be part of an open process ensuring that innovation, privacy, and consumer interests are upheld.

Sincerely,

Automattic (creators of WordPress.com)
Backslash
BitcoinUnion.org
Bitwage
Blockstream
Bolt
COPIA
Demand Progress
Electronic Frontier Foundation
Fight for the Future
Free Software Foundation
Gem
Internet Archive
okTurtles Foundation
Purse.io
Taskforce.is
X-Lab

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