Opponents of proposed legislation to govern bitcoin currency in North Carolina have wasted little time in asking members of the General Assembly to oppose the law, which is being sought by the state’s banking commissioner.

The banking commissioner is seeking legislative authority to require that companies circulating digital IOUs meet consumer protection, anti-money laundering and other standards. Legislation passed the state House in May and is pending in the Senate.

(Read the proposed law at: http://ncleg.net/Sessions/2015/Bills/House/PDF/H289v1.pdf)

However, opponents at the website http://www.bitcoinregs.org/ have posted a letter asking Senators to oppose it.

The letter reads:

Dear N.C. Legislator,

I humbly request that you vote no on House Bill 289 – the N.C. Anti-Bitcoin Act.

H289 amends North Carolina’s Money Transmitters Act by regulating Bitcoin processors as money transmitters through state statute. North Carolina would be the first state in the U.S. to regulate Bitcoin in statute.

Bitcoin is:

  • property, not money, as defined by the IRS. For federal tax purposes, Bitcoin transactions are taxed like property transactions. If Bitcoin processors are regulated as money transmitters through this act, then gold dealers and stockbrokers should be as well.
  • an economic innovation. Bitcoin was introduced only six years ago, but the industry raised at least $761 million in venture capital through May 8, 2015. Rapid industry expansion should be encouraged, not stifled through first-of-its-kind state regulation.
  • not held in banks at any point in time. Rep. Steve Ross, a banker by trade and sponsor of the bill, introduced H289 on behalf of the N.C. Commissioner of Banks. Bitcoin represents an efficient, scalable alterative to the financial status quo.
  • only one of hundreds of different cryptocurrencies. H289 would regulate hundreds of cryptocurrencies.

With the Bitcoin industry steadily adding jobs, H289 was debated on the House floor for only a minute and a half (starts at 13:30). If H289 is signed into law, those jobs will not be added in North Carolina.

A recently announced $400 million state budget surplus and the repayment of $2.75 billion in state debt to the federal government proved the power of pro-jobs legislation in North Carolina.

Please vote no on this anti-jobs bill that adds burdensome regulation to a burgeoning industry.

Respectfully,

A second letter

The opponents also have posted a second letter that links to the growing amount of venture capital that is flowing to the bitcoin industry. (See details at: http://www.coindesk.com/bitcoin-venture-capital/)

Anonymous opponents of the state law created a website arguing that regulations could restrict financial innovation. A person responding to an Associated Press reporter’s email through the website refused to identify a spokesman or answer questions.

The online-only money allows users to swap cash for online funds using Internet exchanges, then store it in a wallet program on their computer. The program can transfer payments to a merchant or private party anywhere in the world, eliminating transaction fees and the need to provide bank or credit card information. There are dozens of decentralized currencies based on the bitcoin protocol like Litecoin, Auroracoin and Peercoin.

But the new realm of virtual money has come with problems. The Consumer Financial Protection Bureau last summer warned that the currencies are not backed by the government, have volatile exchanges rates, are targeted by hackers and scammers, and that Bitcoin-based deposits are not federally insured like bank accounts.

The difficulty in tracing the currency has led to its use by drug dealers, child pornographers, identity thieves and other criminals.

“There’s two sides to the Bitcoin. One side is the clear potential value of the innovation, and what that could portent for the payment system. Since we’re a business friendly state, we want to facilitate that,” said state Banking Commissioner Ray Grace said, who asked for the legislation.

But regulation was needed to keep bad actors out, he said. “We wanted to mitigate the risk while facilitating the potential benefits down the road.”

Bitcoins and other virtual currencies have been moving into the mainstream with Overstock.com, satellite TV provider Dish Network and travel site Expedia announcing last year they would accept digital money as payment. Legislators in Utah and New Hampshire this year considered whether to accept digital payment for taxes and other payments, but neither state took that step.

State financial regulators started moving after the U.S. Treasury Department’s Financial Crimes Enforcement Network said in 2013 its requirements for money services applied to virtual currency exchangers and administrators, requiring that exchanges register.

Regulators in New York — home of the country’s banking capital, trailed by Charlotte — this year established rules to protect consumers and Bitcoin entrepreneurs and this month issued the first charter for a business that exchanges virtual currency.

State bank regulators in Texas, Washington and Kansas issued guidelines last year outlining their regulation over virtual currency traders.

The North Carolina legislation would revise regulation of non-bank companies that make a business out of transmitting funds for others. The business is regulated to prevent money laundering, cut off terrorism financing, and to protect consumers from the risk that money-transfer businesses fail to deliver the funds as agreed.

To be licensed in North Carolina, companies must:

  • post a surety bond intended to protect customers of at least $150,000 growing to a maximum of $250,000 based on trading volume.
  • have a net worth of at least $250,000, which the banking commissioner could increase if deemed necessary.
  • conform to a clear set of prohibited practices such as never failing to send money as directed.