New version of California’s digital currency bill draws flak

The California Legislature recently released a new version of its digital currency bill AB 1326. Initially introduced last year by Assembly Member Dababneh, the bill has undergone some major amendments.

The cryptocurrency community seems to be quite disappointed with the latest version. In an online post, Peter Van Valkenburg, Research Director at Coin Center, and Jerry Brito, Executive Director at Coin Center, have penned down the loopholes of the bill. They contend that the new version of AB 1326 is bad news for anyone who loves Bitcoin and blockchain technology, and highlighted “grave concerns” about the new language.
 

Valkenburg and Brito note that the bill is silent regarding money transmission licensing and instead sets up a new and separate enrollment scheme with which businesses will also have to comply. To that end, they emphasize that rather than a license, the bill has been framed as an “enrollment” scheme.

The latest version states that a person will be prohibited from engaging in the digital currency business without enrolling in the program. For enrollment, a person will have to pay a nonrefundable fee of up to $5,000 and an annual fee of $2,500 to maintain enrollment in the program. Moreover, failing to enroll in the program can result in fines of up to $25,000 per offence.

“The DBO [Department of Business Oversight] can levy fines or revoke one’s enrollment without judicial review. If you are not allowed to do X unless you get Y from the state, then—”enrollment” branding aside—you might as well call Y a state license to do X”, they said.

Valkenburg and Brito say that the bill loosely defines “digital currency business”, which can easily be interpreted to mandate enrollment of several parties beyond the exchanges and hosted wallet providers – such as multi-sig and key-recovery providers who do not have sufficient keys to transact; those who run full-nodes, those who mine digital currencies, and those who participate in off-chain payment channels like the lightning network and others.

Valkenburg and Brito, however, said that they are in contact with the state legislature and are providing them with detailed analyses of the new bill language. They concluded saying:

“We hope that our advice will be heeded and the bill will be amended to cover only those parties who, as custodians of consumer funds, take on a position of trust, and that once covered by this bill they will be exempt from money transmission law. If we can’t achieve these changes in short order, we’ll have to work together to oppose this new anti-innovation bill.”