California’s Targeting Bitcoin Foundation Reveals An Alarming Pattern

 

 

 

PC World reports that California regulators are targeting the Bitcoin Foundation.

As crypto-currencies have begun making inroads as real competitors to government-backed currencies, California’s efforts represent one more example in a string of governments harassing companies that operate within the Bitcoin universe.

Governments are demonstrating they are increasingly threatened by developments in this space–particularly in light of new efforts to tax internet transactions. The immune response is getting stronger and regulators are waging a battle against crypto currencies in an effort to complicate real alternatives to fiat money propped up by the regulatory state.

California’s regulations regarding money transmission has already come under fire recently for not working as intended and placing undue burden on the state’s sizable tech community.

Now, according to PC World:

The state’s Department of Financial Institutions (DFI) warned the Bitcoin Foundation in a May 30 letter that it is a violation of state and federal law to be involved in money transmission without registering with the U.S. Treasury or California’s Commissioner of Financial Institutions… even though the nonprofit Bitcoin Foundation isn’t a Bitcoin exchange.

The warning came in the form of a cease-and-desist letter, to which Bitcoin Foundation board member Jon Matonis has already responded. As Reason’s Mike Bruschini pointed out, “The DFI’s allegations that the Bitcoin Foundation “may be” engaging in money transmission has supporters of the stateless currency skeptical about the ability for businesses’ ability to comply with state and federal regulations.”

The foundation could face up to $2,500 per violation, per day in fines, and face criminal prosecution and up to five years in prison. But no one at Bitcoin Foundation has broken any laws. The foundation does not buy or sell Bitcoins.

“One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business,” Matonis said in Forbes. “Furthermore, that activity would also be against the original charter of the foundation.” Its mission is to promote the currency and help developers create and implement complementary software programs.

This letter comes on the heels of the government seizure and shutdown of crypto-currency exchange company Dwolla and digital currency exchange company Liberty Reserve. The federal government indicted the founder of Liberty Reserve on $6 Billion money-laundering charges. It was the first time the US government used the Patriot Act to target companies dealing in virtual currencies.

Tech blogger and former Washington Post reporter Brian Krebs wondered at the time whether “the action against Liberty Reserve is part of a larger effort by the U.S. government to put pressure on virtual currencies.” The letter to Bitcoin Foundation may suggest that states are getting in on the action.

In fact, as Matonis detailed for Forbes:

Recently, the State of Illinois also issued a cease and desist letter to mobile payments processor Square for failing to have the proper licensing in accordance with the state’s Transmitters of Money Act. Prepaid card provider NetSpend and six other payments companies also received Illinois cease and desist orders. If this practice grows among states, it could have a potentially significant “chilling effect” on financial services innovation, especially upon lawful businesses that are designing infrastructure to support and grow the Bitcoin technology. Freedom of choice in currencies is probably the most important free speech issue of our time.

Despite constitutionally dubious attacks on companies dealing with crypto-currencies and digital currencies, they’re clearly making an impact.

Liberty Reserve had more than 1 million users worldwide and processed more than 12 million transactions annually when it was seized. Bitcoin was the alternative currency of choice when Cyprus announced that they’d seize a portion of all deposits in the country to prop up their failing banks.

It appears popular digital currencies and exchanges are the same ones governments want to shut down. The benefits of these currencies are precisely what the state doesn’t like:

  • They offer anonymous online transactions

  • They cannot be devalued, so offer advantages over fiat currencies, and

  • They offer an unparalleled ability for holders to evade taxes and regulations.

But are these good enough reasons to shut them down?

The market — the superior form of voting — has spoken. We should resist lawmakers efforts to protect entrenched banking interests and punish entrepreneurs who dare to compete in the currency space.

One Comment

  1. Andrea Castillo

    The California letter was laughable. It honestly looks like they didn’t even google Bitcoin before sending it out – the Bitcoin Foundation has nothing to do with money servicing!

    Once regulators figure out that onerously regulating Bitcoin would simply push illegitimate business to face-to-face exchanges, they’ll probably start moving away from their feeble scorched earth approach and towards a “public conversation.” This is what we see happening on the federal level.

    One nitpick: Bitcoin isn’t actually anonymous, it’s pseudonymous. Bitcoin is basically a huge ledger of all transactions made within the network. It is actually quite easy to trace the identity of Bitcoin transactions with the right software. tbh, it’s really a blessing for law enforcement – derps that don’t know how to mix their bitcoins will leave sloppy digital trails. There is a group of developers working on a truly anonymous cryptocurrency built on the Bitcoin protocol called Zerocoin. Until then, I keep talking up Bitcoin’s pseudonymity to statist types so they’ll cool their tits for a bit.

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