The ULC’s Uniform Regulation of Virtual Currency Businesses Act has come under recent fire by advocates who maintain that the regulation will only stifle innovation and create uncertainty due to legal inconsistencies.
On July 14, 2017, Llew Claasen, executive director of the Bitcoin Foundation, asked the Uniform Law Commission (ULC), to withdraw its proposed Uniform Regulation of Virtual Currency Businesses Act. According to Claasen, the proposed model statute would discourage inclusive financial innovation for both blockchain technology and virtual currencies. Claasen argued that the proposed regulation should be abandoned because of the lack of coordination between states on how to regulate virtual currencies, as well as its relation to New York’s dubious BitLicense.
“Adopting a model act with the characteristics of the New York regulation is sure to threaten the existence of the fintech industry nationwide. Just as the fintech industry’s use of cryptocurrency was stifled in New York, it is highly likely that this proposed model act will have a similar negative impact across every state adopting this approach. These innovative businesses will migrate to more welcoming jurisdictions and weaken America’s ability to compete in the emerging field of fintech.”
Claasen’s plea comes just in time for the ULC meeting that is to be held in San Diego between July 14 and 20, 2017. The proposed act claims that virtual currency business activities are similar to money transmitter services, and would require comparable regulations and licensing in order to fulfill consumer protection requirements. It would apply to businesses that offer the following services:
- The exchange of virtual currencies for cash, bank deposits, or other virtual currencies;
- The transfer from one customer to another person of virtual currencies; or
- Certain custodial or fiduciary services in which the property or assets under the custodian’s control or under management include property or assets recognized as “virtual currency.”
Although the idea of uniform regulation seems sensible to the ULC, it’s perceived as obtuse by innovators. While states like Illinois, Connecticut, and New Hampshire have already taken independent steps to regulate virtual currency activities under money transmission laws, New York’s Department of Financial Services established a virtual currency framework in 2015 that has been scrutinized for its oppressive requirements. According to New York entrepreneur and plaintiff in Chino vs. NY Dept Financial Services, the ULC’s proposed statue only mimics New York’s rigorous and overbearing BitLicense requirements. To date, only a handful of BitLicenses have been granted by the state.
"This proposed model statute, which is inspired by the New York BitLicense, will not only make it impossible for a small Bitcoin business to survive, but also will discourage the public to use Bitcoin. One does not have to look very far to understand why Bitcoin's adoption is so low and so poor. This kind of arbitrary and negative intervention must stop," said Theo Chino.
Despite the backlash received by advocates for virtual currency use, others argue that the formulation of a universal regulatory framework could be the facilitator for innovation and growth in a number of markets. However, US lawmakers should take heed to what innovators in the cryptocurrency space suggest. At the end of the day, ambitious endeavors like the Uniform Regulation of Virtual Currency Businesses Act can only be profitable for American consumers and entrepreneurs if both US officials and innovators can get on the same page.