Say No to the California Bitcoin License

The Problem with North Carolina bitcoin legislation, and how we can prevent that from happening in California

In North Carolina, due to the enactment of bill H289 on June 30, 2016, the sale or issuance of any payment instruments or stored value primarily for personal, family, or household purposes, or even receiving of money or monetary value primarily for personal, family, or household purposes (including bitcoin or any cryptocurrency) is considered a crime unless you have a permit from the state or fall under one of very limited exemptions. As such, H289 in North Carolina was very similar to California's proposed AB 1326, but the difference was that California's bill failed twice due to overwhelming opposition from both residents of the state and EFF, and H289 (North Carolina) seemed to slip through the cracks and get passed by the Governor despite that the content of the bill makes it so horrible (not to mention unenforceable). Perhaps the only redeeming quality of H289 was that it stated that "For the purposes of this Article, a person is considered to be engaged in the business of money transmission in this State if that person solicits or advertises money transmission services from a Web site that North Carolina citizens may access in order to enter into those transactions by electronic means," so you'd have to advertise a service on a website in order for the act to be applicable to you. However, that also meant that North Carolina residents would be unable to put up a website and advertise that they are accepting bitcoin as payment for goods or services, without running the risk of having someone from the State demand they get a license for money transmission (the cost of which is at least $1,500 for the application, and there are likely other costs for the applicants). Altogether, H289 is a horrible bill, yet it managed to get enacted.
So let's examine how we can prevent such a bill from being passed in California. We managed to kill AB 1326 the first time it was brought up, and the actions of people across California, the EFF, the Bitcoin Foundation, and many others, helped kill AB 1326 the second time it reared its ugly head.
But despite all this, Assemblymember Dababneh in California plans on bringing a similar bill back in January 2017.
So, what are we going to do about this? Really, what are you going to do about this? We can't let the likes of Dababneh create financial censorship for everyone. It's already happened in New York and arguably in North Carolina as well. We have to draw the line here in California or else it will happen everywhere.
Here's my suggestion:
1) Don't wait until January 2017, when Dababneh's legislation comes out. If you are in California, start contacting not only Dababneh, but your state legislator now to tell them what you do and don't want.
How to contact your California Legislator on this issue
As a bit of a backgrounder, it seems there is always talk about the "necessity" to provide certification of one's identity (in a traditional sense, using government-created identification methods) in order to maintain "security" when using exchanges. This notion leads to a false sense of security and actually exposes users to a larger possibility of attack due to the scope of data that might be granted to a service provider in these circumstances.
It is important to remember that the notion that a user should provide some form of identity to a service provides absolutely no additional security to that service. The underlying structure of the service remains just as secure or as vulnerable as it was before. And if it was vulnerable in any way, the additional data you provide if you consent to a request to provide identity of some form, means that this identity information will one day soon be divulged to someone else. It may even happen instantaneously before any hack even occurs, due to provisions relating to how third parties are treated in US law. As many people have conveniently forgotten, the passage of the "cromnibus" bill in December 2014 included a sneakily passed provision of financial surveillance which allows the government to basically do full surveillance on any transaction routed through a bank, credit card company, or any associated 3rd party service to which your data is passed in the process of financial transactions, SARs, or any related processes really. This is one more reason why you should not use web-based exchanges, and should not use web wallets also, but rather should use fully decentralized exchanges and wallets which are installed on your computer and give you full control over both the application and your keys (no service, no corporation, no login required, etc.).
1) As a user, who has no control over what the exchanges will and will not do, and assuming for a moment that the exchanges make no improvements in their security practices, you can nonetheless approach the market in a way that will protect you (and your friends, colleagues, family, etc.) simply by using more secure tools. I've detailed some ways to do this in a recent post here.
You'll note that the above recommendation doesn't require (if you do it right) that you provide anyone with any identification (with the exception of certain circumstances where there is a dispute which would require moderation, I believe) but it will allow you to exchange one currency for another.
2) Now let us assume that you wish to try to make a dent in what exchanges will do. You can write them of course and encourage them to improve their security practices in different ways, but in reality the number of exchanges and the variation in the security practices each one utilizes would make this task meaningless. Fortunately, with the defeat of AB 1326 (CA), twice, the worst possible legislation (which could have been used as a model for the nation, actually) was stopped in its tracks, but similar legislation may be revived in new proposals in California in January, because in California, legislators do not learn. They understand only fascism, and how to oppress and tax people until people flee the state (which has been occurring in California more or less since 1990 in a process of outmigration).
So then, what can you do in the legislative front on this issue? It's actually rather simple. If you are writing California legislators (because CA legislator Dababneh has promised to bring back something like AB 1326 in January 2017), and you should be writing them now on this subject, remind them of the first two attempts they made to pass this bill ended in giant flaming failures, for good reason, because a bill that proposes to add permitting requirements to exchanges, startups / startup accelerators, bitcoin businesses, and individuals, merely for them to use their currency of choice, simply has no chance at passage, ever.
Instead, when they next try to pass a cryptocurrency bill (and they will), they should simply pass a minimum security standard that exchanges would have to meet in order to operate. (The requirement would be applicable to web-based exchanges, which function as MSBs and are already required to be licensed in the US by the US Treasury / FINCEN. There's no need for state level licenses... but if the state passes additional legislation, it should focus only on specifying security requirements for web-based exchanges. The regulation or standards would be required for MSB / FinCEN licensed exchanges and advisory (voluntary only) for decentralized exchanges and exchanges that are not web-based exchanges, because there are limits to enforceability of a security standard. This would not require any permitting or fees, but simply setting of standards for consumer safety.)
Wait, you say. This would be impossible to set a standard. Each state would want to have its own standard and say that its own is best! We'd simply be back in the same situation as we are now, right?
Well, maybe not. Why? Because some of the best minds in bitcoin, including Andreas Antonopoulos and others, have already made some security standards. So those standards could be worked up a bit by the Cryptoconsortium folks who made them, tailored for the purposes of securing web-based exchanges, adopted by states and that could be what the basis would be for protecting consumers. If it proved inadequate (and no doubt any standard will be tested by someone trying to break it) then someone can always improve it.
Also, you can propose your own changes to the Cryptoconsortium standards. Here are a couple (1, 2) that I've proposed. (My proposed changes mostly suggest distinguishing between government-issued ID and background requirements for exchange operators, versus standard users of exchanges who should not be required to provide government-issued ID, but rather should be able to utilize pseudonymous or decentralized (blockchainMe / blockchain ID) identification options.
Again -- How to contact your California Legislator on this issue
Don't wait until January 2017 when Dababneh comes out with his own version of how he thinks you should live your life. Tell legislators now what you want (and don't want) now. Remind them that legislation like AB 1326 won't work and we've defeated it twice -- and that applying new licensing requirements for use of cryptocurrency to individuals and businesses has no benefit for the public. Tell them that security standards for exchanges are what any new legislation in the area should focus on, and they should rely upon experts who have developed open standards such as the Cryptoconsortium model.
Thanks for reading this long ramble.
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