Bitcoin Foundation Bites Back: Says We Don't Need No Stinkin' Licenses

As noted here at Reason by Mike Bruschini in June, the state of California leaned on the Bitcoin Foundation (not, of course, the inventors or or in any sense owners or operators of the decentralized digital currency), insisting that it needed to be licensed to operate under the California Money Transmission Act.

Now the Foundation has responded, as reported at American Banker:

In a July 1 letter to the California Department of Financial Institutions, lawyers for the Bitcoin Foundation also clarified that the nonprofit does not itself sell bitcoins to consumers or run an exchange. But even if it did, such activity would not be regulated in California, the foundation says, arguing that selling bitcoins does not meet the state law's definition of "money transmission."

The response to California's June 25 "cease and desist" letter thus makes a case for the state to lay off not only the foundation but also its member companies that exchange bitcoins for dollars and other currencies. It comes as federal and state regulators have been cracking down on such businesses, saying they must follow anti-money laundering and know-your-customer regulations, including registration and licensing requirements.

Last month the department accused the Bitcoin Foundation of defying the California Money Transmission Act but did not say how the nonprofit had done so. Many observers surmised that the regulator either sent the warning by mistake as part of a mass mailing to Bitcoin businesses, or that it was trying to pressure the foundation for information on actual transmitters....

The Wall Street Journal reported that at least two other bitcoin-related organizations have received similar warnings from California and that other states have taken actions against such firms....

The state law defines money transmitters as firms that sell or issue "payment instruments" or "stored value" or "receive money for transmission." Hansen cited a 2001 ruling in which the department said it defines an "instrument" as "a written, signed document … similar in nature to a check or a draft."

"This confirms that a product can only be an 'instrument' if it involves a writing," Hansen wrote, and since bitcoins are digital, they aren't instruments. Stored value is defined under California law as "a claim against the issuer that is stored on an electronic or digital medium," but Bitcoin has no issuer, Hansen noted.

The full letter from the Bitcoin Foundation.

Big deal Bitcoin exchanger Mt Gox has given into federal leaning on the "register with us" thing, as noted on Reason 24/7.

My May article on how regulatory chipping may blunt what's awesome about Bitcoin.

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  • Hugh Akston||

    Now the Foundation has responsed

    Brian, when was the last time you renewed your California Writer's License?

  • MasterDarque||

    good thing government is here to help

  • Duke||

    What do you mean? “Responsed" is a perfectly cromulent word.

  • Dweebston||

    Is the fact that California didn't bring any charges against these dispensaries bitcoin exchanges evidence that their attorneys couldn't come up with a legal pretext for doing so, and instead fired a shot across the bow? Or just that the filing comes later? Honestly, I'd like to see some pushback against this sort of technocratic law enforcement: issuing letters threatening action on flimsy legal pretexts should be treated like the extortionate tactics they are.

  • Dweebston||

    Issuing letters... tactic it is. BLERGH.

  • Fluffy||

    Sorry, but Bitcoin is now obviously dead. The Winklvoss twins are involved.

    Wait until those guys get cut out of the deal. That's your sign to invest.

    BTW, I have been following #Snowden off and on for a while, and I'd say 80% of the messages today are in Spanish. I think South America is officially fucking pissed.

  • Tonio||

    Good.

    Sorry that the government which my tax dollars support did that, but I'd love to see some pushback against this.

  • Dweebston||

    First I've heard of them. What's their deal?

  • Dweebston||

    Oh God, these two look like the dweebiest pair of 60s-era Harvard graduates ever to have lettered in rowing. I don't see what harm they can cause besides losing a fair bit of money setting up an unworkable venture.

  • Fluffy||

    I like that it only took you two minutes to COMPLETELY UNDERSTAND THOSE GUYS.

    Fist bump.

  • Dweebston||

    I tried reading a little into the subtext of what they're proposing but I'm not familiar with investment lingo. I guess my question, and I hope it cuts to the heart of it, is whether they know this thing is unfeasible and hope their investors don't, or they think it will give bitcoin a front of legitimacy it can't afford as a gray-market currency and make the overhead worthwhile to cautious investors.

  • An0nB0t||

    It's called crew, you unwashed heathen.

  • Raston Bot||

    Pissed at what? The whole detaining of their head of state thing? I'd like to be the boss of the snooping analyst who greenlighted that one. Warm up the asskicking boot!

  • ||

    Bad move on our part, but still, it is Evo Fucking Morales, arguably a bigger POS than Chavez or Obama.

    Couldnt have happened to a nicer guy. Next time maybe they will shoot it down.

  • Matrix||

    isn't one of them playing The Lone Ranger?

  • Ken Shultz||

    What is California's interest in this?

    Is it just that they want to tax this? Just like they recently went after Amazon?

    They're afraid taxable transactions are happening, and they're not getting their cut--isn't that the issue here?

  • mr lizard||

    And teh drugs monies and stuff

  • ant1sthenes||

    Yeah, they're also worried they're not getting their cut of the drug money.

  • Matrix||

    drugs are big money makers for law enforcement.

  • Dweebston||

    This could be a money-losing venture and California would still be interested in poking fingers into it. Any unregulated, unbureaucratized medium of human involvement must look a ripe plum to the technocratic class.

  • Ken Shultz||

    Sounds to me like they're trying to rewrite case law, the legal definition of "instrument", etc. simply because they're too lazy to go after any end users--who are actually failing to pay their taxes.

    I guess the Bitcoin Foundation makes a big easily identifiable target.

    'cause going after sellers for not paying sales tax would be simple if cumbersome. You get a cop to go to someone who accepts bitcoins, have him buy something, and if they don't charge him tax, BOOYAH!

    They act like technology is there to make it easier for the government to enforce the law, but this shouldn't be any different from going after any other retailer that isn't paying sales tax, etc.

  • Juice||

    who are actually failing to pay their taxes.

    whose taxes?

  • Eduard van Haalen||

    Incidentally, the "steeking badges" quote which the headline is referencing was by a bandit who was impersonating a police officer.

    Yet the quote is so good it transcends its origins.

  • Redmanfms||

    He wasn't impersonating a police officer, he was being deputized by a man fully authorized to do so; he was a police officer.

    Blazing Saddles is easily one of the most brilliant movies ever made, on multiple levels.

  • Generic Stranger||

    "Stinking badges" originally came from the "Treasure of the Sierra Madre", and is what Eduard was referencing. The scene in Blazing Saddles was a homage/reference to that movie.

  • Emmerson Biggins||

    It's so cute that they think that actual law matters to law enforcement officials.

  • ||

    That is what I was just thinking. We have come so far down the road to tyranny that government at nearly every level deals with any and every situation with an iron fist. Crushing and grabbing whoever and whatever they want. Sure, you can take them to court, after you put out the fires and pile up the bodies.

    If they want a cut of bitcoin, they are going to get it. In the end bitcoin will die from the poisonous touch of government.

  • Cytotoxic||

    Oh Christ dry up and do try to understand how BTC actually works. The government can't just 'take it' that's impossible.

  • Auric Demonocles||

    You don't need a license for alt-text, either.

  • ||

    Ignorance of the law is no excuse Doherty.

  • Warrren||

    Yeah, where's my alt(currency)-text?

  • pan fried wylie||

    accused the Bitcoin Foundation of defying the California Money Transmission Act but did not say how the nonprofit had done so.

    Isn't the How a vital component of any legal accusation?

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