California Proposes Bill To Ban All Unlicensed Bitcoin Businesses, Without Even Defining What That Means

from the a-mess-in-the-making dept

California, the state that prides itself as the birthplace of modern technology and whose policies such as the unenforceability of non-competes contributed substantially to the innovation ecosystem, recently proposed a law that requires innovators to get permission from the state, or be banned.

Last week CA's State Assembly announced AB 1326, a bill that would ban any unlicensed bitcoin or cryptocurrency business activity. It would "prohibit a person from engaging in this state in the business of virtual currency, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement." Banks, financial institutions, and governments would be exempted under the law, making it even harder for a startup to compete. Worse yet, the bill doesn't even define what "the business of virtual currency'" means, making it both overly vague and counter to the very nature of the trustless, permissionless innovation that bitcoin and blockchain technology enable. So right now, if you're building multisignature technology to better enable people to secure their bitcoin, or developing an open source peer-to-peer remittance app that connects users to send each other bitcoin, the state of CA could very well ban you from operating unless you've received a license.

So for the next wave of entrepreneurs building technology in the bitcoin or blockchain space, the state is poised to say that in order to start your company or release your technology, you must pay $5000 for a license and tens or hundreds of thousands in legal and compliance fees, not to mention requirements such as informing them of your educational background and 10 years of past addresses. That might be awkward for the 21 year old college dropouts working on a cryptocurrency startup. And of course there's no guarantee the state will actually grant the license, or shall we say, permission.

I wrote last summer about the problematic approach that NY state is taking with its proposed BitLicense, an attempt to make virtual currency entrepreneurs demand permission from the state to innovate, and how the even greater danger was that other states would follow suit. I expected a more innovation-friendly approach from California, but this bill may prove me wrong.

The cryptographic technology behind bitcoin itself has tremendous potential to enable more transparency (proof of solvency, real time continuous auditing), and security (multisig, threshold encryption), providing compelling solutions to public policy concerns that licensing regimes only attempt to address. The assumption that the analog-world model of licensing must fit this new and fast-evolving space is ignorant at best and dangerous at worst.

California can and should do better. It can craft policies that enable entrepreneurs to innovate and encourage them to implement good practices on security and consumer protection without requiring licensing and permission. And if California won't do it, there are many other jurisdictions that will. Australia, UK, and Singapore, to name few, are all looking to implement policies to be the crypto Silicon Valley.

Tomorrow, I and others will be discussing the development of cryptocurrency and blockchain policy at the Copia Inaugural Summit. The future viability of this important ecosystem depends on getting it right -- so we need everyone to make themselves heard as the debate moves forward.

Filed Under: bitcoin, california, cryptocurrency, financial institutions, innovation, licensing

Would You Hire Former NSA Boss Keith Alexander For Cybersecurity Consulting?

from the he-knows-where-the-holes-he-buried-are dept

It is, of course, no surprise that former NSA boss Keith Alexander is now setting out a shingle for consulting work in the private sector. While we'd assumed he'd latch on with something like the Chertoff Group, it appears that he's setting up his own consulting firm in which he'll help "financial institutions looking to address cybersecurity threats." Considering this is the guy who, just days earlier, was talking about why the NSA harmed internet cybersecurity, it kind of makes you wonder if he's the person you'd really trust with any sort of cybersecurity consulting. Well, unless, as Marcy Wheeler has suggested, his sales pitch is "I know where all the holes I've left in the internet are." Still, if you were a financial institution, would you rather hire someone who's spent their career trying to make the internet safer... or the guy who worked hard to make it less secure?

Filed Under: consulting, cybersecurity, financial institutions, keith alexander, nsa, surveillance, trust

Congress Happy To Knock Out Patents That Impact Financial Institutions... But Everyone Else?

from the funny-how-that-works dept

For about five years now, we've been discussing the ridiculous rise of "tax strategy" patents. There have been a bunch of them. Three years ago, an attempt was made by Congress to effectively dump such patents. It didn't go anywhere. What I hadn't realized is that this particular provision has made its way back into Congress in the current patent bill, and it seems likely that such tax strategy patents will effectively be killed off as well as one famous patent on digitally scanning checks that the big banks have been trying to get Congress to dump for years.

Make no mistake about it: these are ridiculous patents that have no business existing. So I'm happy that they'd be ditched, but I'm troubled by the fact that Congress seems to see no problem carving out such patents when they hurt financial institutions, but doesn't do it in other cases. Senator Schumer, who is a major backer of this, highlighted the check scanning situation specifically in supporting the bill: "This is a case where one company has made a cottage industry out of extracting legal settlements by exploiting a fuzzy part of the law on patents." But couldn't this be said about pretty much all patent trolling? So why isn't Congress dealing with that?

Again, it's a good thing that Congress recognizes that there are bad patents, but it seems to only cherry pick the bad patents that harm the financial sector. In fact, when people bring up all the bad software and business method patents, all you hear is how it would be "impossible" to reasonably carve those out of the patent system. Yet, for some reason, they seem to have no problem doing that when it comes to Wall Street and other financial institutions?

Separately, highlighting just how ridiculous this is, it appears that this carve out of tax prep patents has a separate negative carve out that says it won't apply to tax prep software patents. Think of it as the Intuit exception. Basically, you can't patent tax preparation strategies anymore, because that hurts big financial institutions... but you can patent tax prep software, because that helps Intuit.

Instead of creating special carve outs in the patent system for big special interests with massive lobbying budgets, how about if Congress actually did its job and fixed a broken patent system to get rid of all bad patents?

Filed Under: check scanning, chuck schumer, financial institutions, patent reform, patents, tax preparation strategies
Companies: datatreasury