Headline: What is the progress so far with California trying to regulate cryptocurrency?
Date: 11/3/2022
Body: I remember when I was little, I loved watching gameshows, especially The Price is Right. Whenever there was a car at stake, there would be a huge reaction from the crowd, followed closely by the announcer’s voice. Rod Roddy would intone all of the features of the vehicle, and always, he would mention, “California emissions.” So, even 30 or more years ago, California was in the vanguard of states trying to regulate pollution more vigorously than the federal government. They seem to be continuing that progressivism, as they try to regulate some cryptocurrencies. Perhaps we can profit by looking closely at their example.
The governor of California signed an order that calls for the state government to consider cryptocurrency regulation along a similar reasoning as the federal government. (This was after 2 attempts at legislation were shot down or stalled.) He also seems to want to explore the advantages of using the blockchain model for several state systems. Per the governor, “Too often government lags behind technological advancements, so we’re getting ahead of the curve on this, laying the foundation to allow for consumers and business to thrive.” Even prominent individuals disagree on the correct role of cryptocurrency. Elon Musk supports cryptocurrency, and Warren Buffett opined that he would not pay $25 for all of the world’s Bitcoin.
Why is this so important?
As the Constitution was set up, all states were seen as laboratories of democracy, where things could be tried out in a relatively small area. If the idea works out well for the state, the Federal Government can then consider whether Federal Law should be changed to match the state regulation. Well, to put it bluntly, if California were a laboratory, it would be a laboratory that Gill Grissom would just salivate over. It has 39,000,000 residents and boasts an economy of more than $3.1 Trillion. More than 400 businesses in the state will take cryptocurrency in exchange for goods and services It is clearly a big deal. So, if we get good lab results from California, it seems likely that the Federal Government might try to cheat off of their paper, in an effort to craft reasonable regulation of cryptocurrency.
California is particularly important because of the technology culture that is native to the state. Ohio tried to start a program where cryptocurrency could be used to pay taxes, but the program was discontinued because so few people used it, that it was prohibitively expensive. Given that California is the home of Silicon Valley and many tech firms, it seems likely that there will be more interest in utilizing cryptocurrency to meet everyday obligations like taxes. In an effort to further these advances, the state of California has christened a Departmenet of Financial Protection and Innovation to supplement the findings of the California Blockchain Working Group. The Department will take enforcement actions as necessary and create educational resources for the general public on how to avoid frauds within cryptocurrency. The Working Group is tasked with aggregating ideas of how the blockchain model might be leveraged to help state agencies.
What specifically does this order do?
- They have to gain an idea of what state agencies and stakeholders want to see from the installation of the blockchain
- Obtain Public comment and aggregate this into a report.
- Begin enforcement of consumer protection laws relevant to cryptocurrency.
- Develop, manufacture and distribute educational resources relevant to digital assets.
- Aggregate, review and remediate complaints relevant to digital assets.
The Verdict
In so many different arenas, California is in front of many regulatory attempts. Some might grumble about “granny states” but to me, it seems that California might have gotten it nearly right. Per a spokesman for the Department, “The consensus among staff is that the department and commissioner could regulate virtual currency, to some extent, under current state law. Consumers would be the prime concern of any regulatory structure we build—making sure they are fully aware of the risks associated with virtual currency and providing effective, reasonable safeguards against those risks.” This seems to be a well thought out middle ground to regulation: allowing investment, but requiring the buyer to carefully research what they are putting money into.
REFERENCES
https://cointelegraph.com/news/california-becomes-second-state-to-try-regulate-bitcoin
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.