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Author: Yaël Ossowski

If Brendan Carr is reconfirmed to the FCC, how will consumers fare?

CCC Managing Director, Fred Roder (left), FCC’s Brendan Carr (middle), CCC Deputy Director Yaël Ossowski (right)

On Monday, President Joe Biden re-nominated Brendan Carr to the Federal Communications Commission. For consumer advocates like us at the Consumer Choice Center who work on many issues related to tech innovation and the protection of our rights online, that’s welcome news.

Now, the US Senate must confirm Carr’s nomination. It would be a welcome opportunity to continue efforts and opportunities to both support and defend consumer choice.

Throughout his tenure at the chief telecom regulator, Carr has chiseled out his space as a principled voice and worthy fighter for many consumers issues.

His dedication to the expansion of rural broadband access, smart investment in telecom and Internet infrastructure, and common-sense rules to help facilitate American ingenuity and entrepreneurship stand out as some major achievements.

Whether it was the repeal of Title II classification for Internet Service Providers (net neutrality), the protection of free speech, or his desire to address the influence of the Chinese Communist Party through TikTok and other platforms, Carr has never missed an opportunity to an evidenced-based approach vital to policymaking.

We hope to continue working with Commissioner Carr in his new tenure despite some disagreements on the nuances of specific policies because we believe he is earnest, sincere, and willing to hear arguments and policy cases from all sides of the aisle. There will be many opportunities to ensure policies are in the interest of consumers.

Issues such as online free speech, upholding Section 230, and how best to avoid government interference in content moderation will prove to be pivotal issues in the next term, and it will be of great benefit to a wide spectrum of American consumers to have someone like Brendan Carr at the helm.

If US Senators confirm Carr for another tenure, we look forward to working together for smart policies to benefit consumers around the country.

Here is a clip of our conversation with FCC Commissioner Carr on Consumer Choice Radio:

EU’s whopping $1.3 billion fine shows it’s becoming a lonely island of restrictive regulation and rule

DUBLIN, IRELAND – On Monday, it was revealed that a 1.3 billion euro (1.3 billion USD) fine will be levied against the American tech firm Meta for GDPR violations stemming from the lapsing of the EU-US Privacy Shield in 2020.

The Irish Data Protection Commission is responsible for levying the fine, even though it disagrees with it, but must follow the binding decision of the European Data Protection Board, which evaluates violations of the General Data Protection Regulation (GDPR).

Though negotiations between the United States and the European Union on a privacy framework are still ongoing, the EU decided to impose this record fine regardless.

Yaël Ossowski, deputy director of the global consumer advocacy group Consumer Choice Center, responds:

“This retaliatory fine imposed by the EU — in the midst of privacy shield negotiations with the US — reveals the bloc is more interested in shaking down tech firms who deliver value to their users all the while providing no clear direction for global companies that already have millions of European users. 

“A good faith effort to work with US officials on a privacy deal, who are constrained by their own institutions and laws, would have yielded a much better result for consumers on either side of the Atlantic,” added Ossowski.  

“Instead, the EU is using ex-post-facto policing power that will likely diminish the online tech experience for European users and initiate a chilling in tech innovation on the continent.

“Once again, it seems the EU is responding to the changing face of innovation with bureaucratic committees and fines, rather than responsible and clear rules that anyone can follow.

“Rather than making Europe ‘fit for a digital age,’ these record fines and inability to work with global innovators demonstrates that the European Union is becoming an lone island of restrictive regulation and rule — and that’s at the expense of consumers,” concluded Ossowski.

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The Consumer Choice Center is an independent, non-partisan consumer advocacy group championing the benefits of freedom of choice, innovation, and abundance in everyday life.

We champion smart policies that are fit for growth, promote lifestyle choice, and embrace tech innovation for tens of thousands of our members and society-at-large, using research and educational outreach to policymakers and the broader public. Learn more at consumerchoicecenter.org.

Would Lina Khan’s real-life FTC break up Succession’s fictional Waystar RoyCo?

The truth is often stranger than fiction.

In this season of the hit HBO show Succession , viewers are subjected not just to the business antics of the troubled Roy family but also to politicians and regulatoryagencies using their power to rein in the firm’s activities and acquisitions.

Though it is a work of fiction, the writers obviously take inspiration from the present: a CEO patriarch, a global media empire, anti-corporate populist politicians, and crackdowns from agencies such as the Department of Justice and the Federal Trade Commission.

As a thought experiment, how would contemporary regulatory agencies deal with the ascension of the Roy clan and their many businesses? If the latest season is any indication — cue the standard spoiler alert — there would be as much activity in the fictional Roy boardroom as in the halls of the very real FTC.

After the death of the CEO family patriarch Logan Roy, his two sons Kendall and Roman ascend to co-CEO positions at the Waystar RoyCo conglomerate and must deliver (per their father’s wishes) a shaky acquisition of the Swedish tech streaming platform known as GoJo. 

In the show, Waystar is a major corporate behemoth composed of newspapers, video games, publishing, news networks, a film studio, theme parks, a cruise line, a streaming platform, and a telecom company with a less-than-stellar rocket ship launch record.

Even though much of the regulatory heat on the company in previous seasons has been focused on bad behavior regarding its cruise lines, we do see the antitrust hammer wielded by Sen. Gil Eavis, our fictional blend of Sens. Bernie Sanders (I-VT), Amy Klobuchar (D-MN), and Elizabeth Warren (D-MA). In the show, it’s over whether the company’s national news network should be able to purchase local news stations. This senator wants the government to intervene.

On these facts alone, it’s not a stretch to see how FTC Chairwoman Lina Khan would take significant action against Waystar’s acquisitions.

Her neo-Brandeisian philosophy on antitrust, which aims to dismantle corporate power based on market share and business structure, rather than consumer welfare, would mean Waystar’s actions would certainly get forceful disapproval from the regulator, if not a set of punitive rulemaking to try to slow it down.

The FTC under Khan’s leadership has already attempted to halt several high-profile acquisitions on a much smaller scale: Microsoft’s purchase of video game company Activision and Meta’s acquisition of the VR fitness app Within.

Waystar’s significant holdings would not only be fodder for the Khan FTC but would likely make them the chief antagonist of her entire tenure, much like we see with the various actions, consent decrees, and heightened alert around tech giant Meta and its business dealings.

In the latest season, attention turns to the Swedish streaming giant GoJo — a fictional blend of Spotify, Netflix, and Amazon Prime — and whether the Roy brothers should consider selling off Waystar’s assets to the eccentric tech billionaire Lukas Matsson. The brothers, later unconvinced of the deal, aim to stoke regulatory flames to stall and eventually kill the deal.

In truth, if patterns of the present were applied to the silver screen, the FTC’s focus would be exclusively on GoJo rather than the Roys — either for its acquisition by Waystar or the other way around. 

As an innovative tech company with dozens of products, reach to billions of consumers, and a business model that relies on advertising and partnerships, the fictional GoJo (Swedish or not) would represent everything this current FTC, and most in the Democratic Senate, have sought to quash.

In a lasting bit of irony, Lina Khan’s FTC would likely share the same goals as the fictional billionaire Roy brothers: to destroy the GoJo acquisition and make sure consumers are “protected” from innovative companies trying to get an edge. 

Whether it be the FTC’s proposed hamstringing of AI firms to prevent “ online harm ,” blocking acquisitions of companies that quickly screen cancers or provide healthcare data to insurers, or using left-leaning interpretations of antitrust law to stop mergers that would bring benefits to users of gaming, VR, and social media (Activison, Within, etc.), consumers are being kept from real innovations that would improve their lives. When will consumers have a say?

Originally published here

New Florida bill banning CBDCs passes, arguing they’re not money

The Florida legislature passed a bill Wednesday that effectively bans any central bank digital currency (CBDC) from being used in the state. 

The new policy says CBDCs issued by any country will not meet Florida’s definition of money. The provision rejects a specific part of the Uniform Commercial Code (UCC), a widely adopted piece of model legislation updated by the American Law Institute and the Uniform Law Commission.

Certain 2022 amendments to the UCC have rankled cryptocurrency proponents because they put all privately created crypto outside the legal definition of money. Under the updated meaning, a CBDC is the only type of digital asset that meets the UCC standard.

In March, the Biden administration announced it would assess the benefits and risks of issuing such a currency.

Governor Ron DeSantis responded to this announcement with a plan to ban CBDCs in Florida. The bill passed in both houses of the state legislature with overwhelming majorities and now requires only the governor’s signature to become law.

Read the full text here

FTC Chair Lina Khan’s social media crusade is now just an expensive, taxing grudge against consumers who want cool tech

Red X on all your apps (generated by Midjourney AI)

WASHINGTON, D.C. – Extending its crusade against select social media firms, the Federal Trade Commission proposed several scathing amendments to a 2020-era privacy order with Meta on Wednesday, hoping to issue a blanket ban on “monetizing” youth data, a halt on all new innovations or product upgrades, and key criteria on privacy provisions.

The FTC has already attempted to halt several high-profile acquisitions by tech firms since Lina Khan’s ascension to FTC chair, including Microsoft’s purchase of video game company Activision, and Meta’s acquisition of the VR fitness app Within.

Yaël Ossowski, deputy director of the consumer advocacy group Consumer Choice Center, responds:

“These retaliatory actions prove the FTC is now subsumed by a hyperactive crusade against all mergers and acquisitions – and effectively consumer choice, especially when it comes to new technologies. This has a chilling effect on any and all new innovators and remains incredibly paternalistic to tech-native consumers who want robust competition.

“Business models come and go, and consumers should be the ones rewarding or punishing firms and services they want or don’t want to use, not the federal agencies temporarily in charge of competition policy,” added Ossowski.

The accusations by the competition agency that Meta has failed with respect to privacy also seem a bridge too far, especially considering the convoluted patchwork of state privacy laws and federal agency mandates that exist in lieu of a comprehensive federal law to safeguard consumer privacy.

“As consumer advocates, we regard privacy and data security as the most fundamental elements of a consumer’s online experience. But while there are true bad actors that exist and are actively committing offenses right now, the FTC is dead-set on pursuing an ideological agenda against a handful of American tech innovators, all the while excusing or remaining blind to the real privacy violations committed by foreign apps that have much larger reach and sway among young people.

“The FTC’s social media crusade is now just an expensive, taxing grudge against consumers who want cool tech. Consumers would prefer the agency punish bad actors and bad behavior rather than corner American tech companies into a labyrinth of compliance no one could ever reasonably pass.

“We as consumers deserve a vibrant online marketplace where the winners are chosen by us instead of whichever political faction happens to control a federal agency,” concluded Ossowski.

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The Consumer Choice Center is an independent, non-partisan consumer advocacy group championing the benefits of freedom of choice, innovation, and abundance in everyday life.

We champion smart policies that are fit for growth, promote lifestyle choice, and embrace tech innovation for tens of thousands of our members and society-at-large, using research and educational outreach to policymakers and the broader public. Learn more at consumerchoicecenter.org.

SEN. CRUZ, COLLEAGUES REINTRODUCE BILL TO ELIMINATE CHEMICAL TAX

WASHINGTON, D.C. – U.S. Sens. Ted Cruz (R-Texas), John Kennedy (R-La.),  Mike Lee (R-Utah), and John Barrasso (R-Wy.) today reintroduced the Chemical Tax Repeal Act to eliminate the Superfund Tax imposed by the Infrastructure Investment and Jobs Act. Sen. Cruz previously introduced this bill in 2021.

The 2021 infrastructure law imposed roughly $15 billion worth of taxes on 42 different chemicals, critical minerals, and metallic elements that are the building blocks of common household items such as plastics, rubber, concrete, soap, lightbulbs, and electronics. Texas is home to forty percent of the country’s chemical manufacturing plants, and would be heavily impacted by this tax.

Upon reintroduction, Sen. Cruz said: 

“Inflation has skyrocketed under President Biden, and his Chemical Tax would only make things worse. This tax increases prices on Texas and American manufacturers, driving up the prices of everyday household items that families need. Repealing this tax would benefit those most harmed by Washington’s out-of-control, inflation-driving spending: American families and those on a fixed income.”

Deputy Director of the consumer advocacy group Consumer Choice Center, Yaël Ossowski, said:

“In a time of persistent inflation and escalating trade wars, we must do everything we can to ease imposed burdens and costs on consumers. Repealing taxes on necessary chemicals and components — all pivotal to American manufacturing, domestic production, and increased competition — is a great measure that will go a long way in making lives for consumers just that much easier. We praise any efforts that help make products and services more affordable for American families.”

Read the full text here

Arkansas Youth Deserve Better Than Gatekeeping of Social Apps

Dear State Representatives and Senators,

As a consumer advocacy group engaged on digital issues, privacy, and defending technological innovation, representing both our members and consumers, we implore you to consider another path when it comes to protecting Arkansas youth online, specifically SB396, which Gov. Sanders signed into law this month after passing both of your respective chambers.

In its current form, once it comes into force in September, the law would be the most draconian age-verification process for online platforms in the nation, requiring all users under 18 who want to use specific social media platforms to provide exhaustive proof of their age and to seek parental consent. 

It would also require select social media apps to collect sensitive pesonal information that we do not believe should not ever be in the possession of any private entities by government mandate. This is ripe for future abuse or data security issues that could have real harm for young people beginning their life online. It will be a pandora’s box of epic proportion.

What’s more, the law makes line-item exceptions to popular social apps like YouTube, Truth Social, and others, which have all the same features as other apps, demonstrating the unequal regulatory position sought by the State of Arkansas, choosing winners and loses, which we would not tolerate in any other industry. 

A solution respecting parental rights, defending American innovation, and allowing online consumers and their parents to choose their apps would not only be more adequate, but would allow the best private sector solutions to emerge, rather than by state decree.

Parents should not have their own authority and decision-making usurped by state law or institutions, no matter how noble the cause. Rather than risk gatekeeping an entire generation from enjoying social connections online, we implore you to provide another solution that works for parents, young online consumers, and the American tech innovators who provide value for each and every one of us in our own lives.

In a free country with a vibrant competitive marketplace, we will not have a competitive global edge if an entire generation is kept from the keyboard and online global village.

Arkansas is inches away from locking millions of young people out of social media

Little Rock, AR – In the name of “online youth safety,” the Arkansas State Legislature this week passed the most draconian age-verification bill for online platforms in the nation, which would require all users under 18 who want to use specific social media platforms to provide exhaustive proof of their age and to seek parental consent.

If signed by Gov. Sanders, SB396 would create a labyrinth of weaponized policies that prevent teens from engaging with friends and family online, would burden future social media upstarts, and would lead to worse precedents that put free speech on the Internet at risk, as well as leading to significant hacker exploits.

Yaël Ossowski, deputy director of the consumer advocacy group Consumer Choice Center, responds:

“Not only does this bill make it more difficult for young people to begin to use the Internet and all the benefits it provides, but it also enshrines into law the idea that governments should pick which social media networks young people can or cannot use rather than parents.

“This bill is paternalistic, sets a terrible precedent for online speech and access, and amounts to nothing more than heavy-handed government control of who is allowed online and when.

“If Gov. Sanders signs this bill, she is aligning with the notion that government should be the final arbiter of whether young people access the Internet at all, and that parents should have diminished say in their kids’ digital lives. That is fundamentally wrong,” said Ossowski.

“The legislation has an exhaustive list of services exempted from these rules — from YouTube to Twitch, Truth Social, and others — demonstrating that instead of trying to “protect kids” writ large, this is nothing more than legislative retribution against certain social media companies, and has more to do with politics than positive discussion on online safety.

“What’s more, by requiring social media websites to collect sensitive photos, IDs, and documentation of Arkansas minors, they are mandating enormous privacy risks that will be a cyberhacker’s dream.

“We as a society should trust that parents have the ultimate right to decide whether or not their children access certain websites or services, not government officials sitting in the state capital,” said Ossowski.

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The Consumer Choice Center is an independent, non-partisan consumer advocacy group championing the benefits of freedom of choice, innovation, and abundance in everyday life.

We champion smart policies that are fit for growth, promote lifestyle choice, and embrace tech innovation for tens of thousands of our members and society-at-large, using research and educational outreach to policymakers and the broader public. Learn more at consumerchoicecenter.org.

To support Oklahoma businesses, Gov. Stitt must match his words with action

In his State of the State speech last month, Gov. Kevin Stitt praised the diversified economy of Oklahoma as an achievement and a goal for his administration. And while the governor strives to make Oklahoma the “most business-friendly state,” it’s not difficult to see how that reputation has wavered.

Oklahoma is ranked 42nd in Forbes’ recent list of best states to start a business and 25th in the State Business Tax Index by the Tax Foundation. But there is hope.

Several bills passed last year led to the influx of Bitcoin companies, such as the data mining firm Northern Data’s new headquarters in Pryor, demonstrating the potential for technology firms eager to find better business climates. 

If Oklahoma provided steady and consumer-friendly rules for the expansion of Bitcoin, cryptocurrency and decentralized finance — whether that is mining, commerce or easing of money transmitter laws — this would represent an entirely new dimension of economic diversity.

Added to that, the Mercatus Center recently ranked Oklahoma as the No. 1 state for drone commerce, thanks to a regulatory environment shaped by the state’s openness to aerospace and defense industries which employ over 120,000 Oklahomans.  

While the oil and gas sector still represents nearly 27% of the state’s GDP and employs just under 10% of Oklahoma’s workforce, the global energy crisis and harsher rules from the Biden administration have made it more difficult for the state’s independent energy sector to strive.

Companies like John Zink Hamworthy and Koch Fertilizer have invested hundreds of millions into nitrogen production, carbon capture and hydrogen refueling in the state, demonstrating a shifting landscape for energy players beyond drilling and refining and more into future climate solutions.

Ensuring Oklahoma’s thousands of energy producers can continue innovating to power our homes, farms and businesses should be a key priority of Gov. Stitt’s administration, all the while avoiding the costly regulations and higher taxes that other states have proposed.

Beyond energy production, there are several additional areas where Gov. Stitt could provide leadership and direction to provide more value for taxpayers, consumers and entrepreneurs.

As I wrote last year, that would include allowing more competition and innovation in the health care and dental space, giving patients the opportunity to contract directly with their providers at much cheaper rates. 

It also would mean requiring dental insurers to spend most of what they collect in premiums on patients and customers rather than administration, known as a medical loss ratio. The Affordable Care Act requires general health insurers to spend at least 85% of premiums on care, while that threshold doesn’t exist for dental insurers. Unlocking more funds for dental patients would help save families thousands of dollars a year and grant them more consumer and patient choice.

Considering Oklahoma’s top employers are retailers and commerce companies like Walmart, Amazon and Hobby Lobby, and the end of the pandemic means big box stores and shipping retailers are undergoing a revival, it also would be opportune to work with county and local governments to provide more zoning flexibility. 

This would expand these facilities closer to urban centers where most people live and provide yet more value and choice for consumers who shop there.

If Gov. Stitt wants to modernize Oklahoma’s economy, he must recognize that innovative solutions need rules and institutions that grant them flexibility and opportunity. It means giving consumers additional choice and entrepreneurs the room they need to succeed. 

With a consumer and taxpayer agenda, Oklahoma could soar to new heights and finally be a crown jewel of the south-central United States.

Originally published here

The Silent March of Bitcoin Policies Across US States

Because it separates state from money, Bitcoin is inherently a political animal.

Bitcoiners may not want to interact with the state, but the state wants to contend with Bitcoin.

And while there is much at stake at the federal level of the US government – the SEC, CFTC, FinCEN, OCC, Congress, presidential executive orders, agency rulings – there has been a silent march through state institutions, resulting in policies (attempted or enacted) affecting Bitcoin and the people and entities that embrace Satoshi’s innovation.

Documenting fully this is an exhaustive exercise, but it is worth understanding how states are dealing with Bitcoin’s rise. These legislative attempts don’t affect the Bitcoin protocol itself, but rather how an individual citizen will be able to interact with Bitcoin, whether sovereignly or otherwise.

Some states have embraced Bitcoin activities as first-movers (Wyoming, Texas, Montana, New Hampshire, etc.) while others have done everything possible to restrict it (New York, Hawaii). Many others are still to be determined.

KEY AREAS

As a crude summary, there are generally three issue areas where regulations touch Bitcoin at the state level: exchange, energy, and taxation.

  1. Exchange concerns fiat on/off ramps for Bitcoin (think cryptocurrency exchanges, brokerage firms, custodians, and ATMs) and has the deepest regulatory scope of each of the issue areas. This is exercised by selective offering of money transmitter licenses, various fees and liquid net worth requirements for selling digital assets, or reporting rules on both buyers and licensed sellers of Bitcoin. Most of the Know-Your-Customer/Anti-Money-Laundering (KYC/AML) rules are adopted with this in mind.
  1. Energy is becoming a more important issue area for Bitcoin regulation, as a number of jurisdictions are either welcoming commercial digital asset mining firms or making it next to impossible for them to operate locally. This has been both restricted but also explicitly protected at both the state level and local level (counties, towns, and cities). This has been done for environmental concerns (real or inflated) or because of perceived load threats to energy grids. As such, it is proof-of-work itself that drives regulators to act.
  1. Taxation has thus far had a light touch at the state level, mostly owing to the federal government’s unclear or simplified classification for Bitcoin as an asset. Whether Bitcoin is actually commodity money, or can be used as a method of payment at all, also falls into this category and is becoming a growing attack vector. 

Save for Nebraska, every state legislature is bicameral with a House and Senate, similar to the federal government. There is the executive branch, run by a governor and his cabinet, and a number of state agencies headed by either career bureaucrats or gubernatorial appointees.

State House Representatives and State Senators have thus far been the primary movers of Bitcoin policy at the state level. Lately, however, agency heads – especially state banking supervisors and state securities regulators – have flexed their muscles.

Rather than a simple ranking, it is best to examine state policy on Bitcoin through the lens of the various licenses, programs, and tangential laws.

And that brings us to the body of state intervention that interacts the most with Bitcoin and cryptocurrencies more broadly: money transmitter licenses.

Money Transmitter Licenses

A money transmitter or transmission license (MTL) is the primary engagement between crypto exchanges and state regulators. For a Bitcoin exchange or brokerage to legally offer services to residents in a given state, it must comply with state laws on how “money transmitting” businesses are regulated.

These license holders must submit information to the state in order to remain compliant, hence firms require Know Your Customer data collection such as your social security number, name, date of birth, and more.

This is separate from the federal Money Service Business license from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which considers money laundering, narcotics, and terrorism funding and usually partners with chain surveillance firms for data retrieval.

State MTLs grant Bitcoin firms the ability to exchange fiat and Bitcoin to customers, and are thus a core part of the regulatory stack for any company that wishes to serve clients.

Recently, when South Dakota and Texas residents were told they could no longer use certain Bitcoin exchanges and brokerages, that stemmed from that Bitcoin firm — or their contracting custodian — losing their money transmission license.

Except for Montana, every state in the union has a procedure requiring registration of entities that offer “money services”: banks, fintech institutions, mortgage companies, money managers, and virtual currency businesses such as exchanges or brokerages.

My organization, the Consumer Choice Center, has drafted a model policy to introduce reciprocity of money transmitter licenses — meaning that if an exchange or firm has one state’s MTL, it should be easily accepted and applicable in another state.

The application process for a money transmission license varies, but often it will usually require a significant amount of liquid assets denominated in US dollars (sometimes up to $5 million) or a surety bond, a debt security held by a third-party in case of future claims by customers on the license holder, which can also range into the millions.

New York state’s BitLicense — the most comprehensive in the country — requires a very high barrier for any firm that deals with cryptocurrencies. Not more than 30 companies have successfully received a BitLicense, and most Bitcoin-only firms have opted to stay out of New York rather than complying with the law, which is a strong enough signal. The bond requirements, net worth stipulations, and various reporting requirements often prove too costly for compliance. Not to be outdone, New Jersey’s version of the BitLicense has thus far sailed through legislative committees, and is expected to pass this session.

These stipulations, depending on the state, mean that an upstart Bitcoin brokerage will need significant cash just to begin legally selling Bitcoin. If an exchange wants to serve customers in all 50 states, it will take significant time and money, lawyer billing hours, and conversations with lawmakers and regulators. It may also require an open review of their operational security and IT.

Ohio and Washington, for example, require third-party audits of computer systems and custodial services if firms deal with virtual currency.

While that may seem rather stringent, some states have decided to sidestep this requirement for digital currency businesses that only buy and sell Bitcoin directly to customers.

The states of Indiana, Kansas, Massachusetts, New Hampshire, Pennsylvania, Rhode Island, Texas, and Utah have independently determined that fiat to Bitcoin (or cryptocurrency) exchange between two parties (company and customer) do not meet the standard for money transmission, and therefore do not require licenses. The same for purely peer-to-peer Bitcoin transactions. Tennessee only requires a money license if an exchange also allows you to sell your Bitcoin.

If you’re a resident of any of these states — plus the aforementioned Montana — you’ve likely had easy access to most Bitcoin exchanges and services.

The rationale for this determination depends on the state. Either they do not qualify Bitcoin as “money” — and thus there is no need to offer a money transmitter license — or they do not consider virtual currency on/off ramps between two entities as “transmission” of money. These definitions, however, are slowly changing due to the influence of a few organizations.

Conference of State Bank Supervisors

In recent years, efforts by state banking supervisors (the principal bank regulators in each state) have aimed to unify the application process of money transmission licenses, namely through the Nationwide Multi-State Licensing System and Registry (NMLS). 

This website serves as the primary application portal for virtual exchanges and brokerages wishing to offer services to customers in multiple states (as well as mortgage dealers). The Multistate MSB Licensing Agreement Program now comprises 31 out of 50 states, giving any applicant a simplified application procedure that is determined by the NMLS governing board.

While it is up to each state’s banking supervisor to review these applications and grant them, the NMLS is the official entry point and communication portal for Bitcoin companies in these 31 states wishing to apply for a money transmission license. 

What makes this application process unique is that NMLS is not a government agency or institution held accountable in any democratic fashion. This registry is technically run by the Conference of State Bank Supervisors, a $120 million nonprofit organization governed by a rotating set of state banking supervisors. 

While the CSBS is nominally a leadership and training organization for banking supervisors and their staff, it has in recent years taken a lead role in crafting model policy to further “regulate and unify” exchange of Bitcoin and other cryptocurrencies through money transmission licenses. Its first model legislation on Bitcoin was proposed back in 2014.

Its latest attempt is the Model Money Transmission Modernization Act. This bill aims to simplify money transmitter legislation in any state that adopts it, establishing rules on the information to be collected, the rights of customers if they are defrauded, and various definitions on so-called “virtual currencies”. It also specifically exempts node runners and noncustodial services. It is fairly boilerplate.

Where some take issue with the model bill — and the various versions that have been introduced or adopted — is that it takes great pains to claim decentralized virtual currency as “not money” (Section 13.03 (b)(9)). Previous versions of this bill defined “money” to also represent legal tender in foreign countries, but considering El Salvador’s embrace of Bitcoin as legal tender in 2021, this was amended.

The more problematic aspect of this scenario — and one we see all too often in lobbying — is that state banking supervisors are supposed to follow the law and policies written by state legislatures rather than crafting the legislation themselves. That conflict of interest is very clear, and should be made apparent in states where these bills are introduced.

For all intents and purposes, the state banking supervisors do not yet want to consider Bitcoin as legal tender in the banking system. They will have to follow rather than lead.

Uniform Law Commission

Another nonprofit organization with significant sway in the realm of Bitcoin policy at the state level is the Uniform Law Commission, a 130-year-old organization that drafts model legislation to harmonize commercial state law. It is led by appointees from each US state and territory who must be licensed attorneys and counts thousands of lawyers as members.

The ULC partners with the American Law Institute to publish the Uniform Commercial Code, a comprehensive set of policies intended to offer each state a package of universal commercial rules to police business activity.

The latest amendment to the UCC, known as Article 12, is solely dedicated to virtual currencies such as Bitcoin and its crypto offspring. The UCC defines these as  “controllable electronic records” — or CERs. 

The bill section delves deeply into Bitcoin terminology — UTXOs, multisig, self-custody, custodians, etc. It makes clear that CERs — including Bitcoin — may be  a medium exchange but are not “money” per US law.

“Money” means a medium of exchange that is currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization, or pursuant to an agreement between two or more countries. The term does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government.

What this model language means, therefore, is that Bitcoin may be many things, but it is not money. It should still be, however, subject to money transmission licensing requirements.

Since January 1, 2023, 22 states have already introduced a version of Article 12 of the UCC. None have yet passed it.

If these bills make it into law, it is uncertain how it would affect Bitcoin and those who use it, but it likely wouldn’t be anything drastic. 

Unlike previous commentary, these bills would not lay the groundwork for any type of Central Bank Digital Currency (CBDCs) either, but would rather try to restrict what states consider money going forward. This would open the path to more states opposing CBDCs rather than accepting them. Adoption of CBDCs will be a threat at the federal level, but would take significant time, and effort, to trickle down to state policy.

Regulatory Sandboxes

One more hopeful aspect of Bitcoin-specific legislation at the state level has been the introduction of so-called “regulatory sandboxes”. These programs allow firms — mostly innovative companies — to offer products and services for a set period of time before they’re forced to apply for a formal license.

In states that have passed such measures, such as Utah, Nevada, West Virginia, Wyoming, Florida, and North Carolina, that means Bitcoin-only businesses have ample room to quickly scale innovative solutions for customers.

The Libertas Institute was instrumental in pushing for the first-in-the nation statewide regulatory sandbox in its state of Utah, and they have a great write-up here. The rapid growth of regulatory sandbox programs will aid further adoption of Bitcoin and Bitcoin-adjacent firms for years to come.

‘No Action Letters’

Another positive development that has helped Bitcoin brokerages and firms offer more services are so-called “no action” letters issued by state securities regulators. 

These formal letters recognize a firm’s ability to be “exempt” from additional burden of money transmitter licenses according to established criteria. Usually, this is because the firms are only facilitating direct exchange of fiat for Bitcoin (or vice versa) to the customer, or in purely peer-to-peer transactions.

A good number of these have been issued in states like Arkansas, California, and Idaho and have allowed relative ease for Bitcoin companies to operate there — at least where money transmitter licenses are concerned.  

There is no formal process for obtaining one of these letters, but it is generally understood that a legal representative seeks an opinion from the securities regulator 

However, these letters are just “promises” to not enforce particular laws on firms, meaning any particular policy or law change (or change in administration) could render them null and void.

Proof of Work

The effective ban on Bitcoin mining (hashing) in the state of New York in November 2022 is the most notable, but it won’t be the last for proof-of-work. That law was passed using environmental justifications, requiring onerous reporting standards that any commercial mining firm would be unable to meet or afford.

Other states and localities have also heard concerns about energy grid usage, and some public utilities have entertained discriminatory pricing for commercial miners. Preventing energy pricing nondiscrimination via model policy is a necessary step forward for protecting commercial mining specifically and hashrate more generally.

States such as Rhode Island, Kentucky, Missouri, Montana, Oklahoma, Wyoming and Mississippi have recently adopted various incentives to both protect proof-of-work and to entice Bitcoin miners to move to their states.

Several state-based advocacy organizations have been successful in advancing legislative appeal and model policy for protecting mining, establishing microgrids, tapping orphaned wells, and more, and most of the excitement has been in traditionally red states. These measures will continue to give confidence to commercial mining firms, as well as protecting solo miners.

While various jurisdictions will seek to restrict commercial Bitcoin miners, the healthy balance of states needing both revenue and investment will likely serve as a countermeasure to those efforts. The economic incentives, as well as the larger opportunity for investments and capital, create a more hopeful path forward for proof-of-work in the United States.

Taxation

On taxation, we can see that most states have opted to follow the IRS’ definition of Bitcoin and other virtual currencies as simply “property”. 

Filing for taxes on cryptocurrency transactions focuses more on the Bitcoin-to-fiat conversion than vice versa, meaning that capital gains taxes could apply if there are gains.

Montana, once again, is an exception to these rules, as is Wyoming. Both states exempt digital currencies from taxation and explicitly claim that any digital currency projects or firms won’t be treated as securities.

Thankfully, most states have not issued any other guidance or laws on taxation as of yet, only requiring businesses that receive Bitcoin and other digital assets to report that income in dollar denominations. HODLing without selling remains a tax-free strategy, but that determination is best offered by a tax advisor or attorney in your state.

Model policy that preempts county and local taxation and restrictive regulation, as we have outlined in our Smart Cryptocurrency Policies Act, would also be an interesting way to ensure broad state adoption of good Bitcoin policy.

Friends and Enemies

In my time advocating for consumer-friendly policies on Bitcoin at the federal and state level, as as as in Europe, it has been frustrating to see the hundreds of millions of dollars of “crypto” money spent advancing certain policy goals that would only benefit certain projects or exchanges rather than users of decentralized cryptocurrency protocols, like Bitcoin. 

The millions spent by FTX and Sam Bankman-Fried to gain political influence, specifically with members of the US House and Senate Agriculture and Finance Committees — which respectively oversee the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) — are only the more recent lobbying dollars that come under scrutiny. 

In 2022, over $22 million was spent in the nation’s capital by centralized coin companies, exchanges, crypto industry associations, and blockchain firms — and that only counts spending on lobbying contracts. It does not even consider the hundreds of millions more given to political campaigns, politically-connected foundations, PR agencies, and legal firms fighting various issues in court.

While this is an ordinary process — and one practiced by nearly every highly-regulated industry in the US — the fact remains that much of this has hinged on “classification” of digital assets and who the ensuing regulator would be, rather than how individual consumers and users of token projects or decentralized protocols like Bitcoin could benefit. The same is true at the state level.

On advocacy, we’ve also seen these same centralized coin companies deploy millions to support organizations like Greenpeace, which started a campaign to demand that the Bitcoin network “change the code” to switch from proof-of-work to proof-of-stake because of the carbon footprint of mining firms. 

In all of these instances, the focus has been on elevating particular companies rather than consumers of those companies and consumers more broadly. This is actually where the focus and energy should be. The latter approach, coupled with education by organizations such as the Bitcoin Policy Institute, will end up helping Bitcoin adoption more than any lawsuit or agency letter.

On the other end, organizations such as Greenpeace, the Uniform Laws Commission, the Conference of State Bank Supervisors will use their resources to make Bitcoin adoption more difficult or to change it completely. Luckily, the protocol will continue to stand the test of time.

Conclusion

While various federal institutions bargain for regulatory oversight on Bitcoin and its crypto offspring, many states have led the way on empowering residents interested in owning, holding, and spending Bitcoin. Various regulatory measures, especially money transmitter licenses, do limit one’s ability to acquire Bitcoin from regulated entities, but thus far, greater education among state lawmakers has only led to better rules to allow the Bitcoin industry to grow.

While Bitcoin’s march through state policies is positive so far, there is ample reason to suspect that it could be upended at any time, whether or not the federal government enacts new laws. 

The entrenched interests in state-level lobbying, banking, payment services, and environmental groups will continue to serve as a barrier, and they will likely have some wins, but this will only be achieved at a slow enough pace that will fail to keep up with the innovation and resourcefulness of Bitcoin entrepreneurs. Not to mention the protocol itself.

As states continue to evolve as “laboratories of democracy,” it is clear that those that remain open to the innovations offered by Satohi’s invention will end up better for it. I hope that message will continue to resonate.

Originally published here

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