Aerosmith frontman Steven Tyler and girlfriend Aimee Ann Preston arrived in Israel on Saturday ahead of a concert scheduled to rock Tel Aviv on Wednesday in Hayarkon Park.
How Five States Are Approaching Bitcoin Regulation
Cryptocurrency should be regulated. Cryptocurrency should not be regulated. Cryptocurrency can’t be regulated. These are all common refrains emanating from the media these days. Now lawmakers across the United States and around the world are at a crossroads as to what is next in terms of this regulatory space.
Bitcoin and other forms of cryptocurrency present a monumental challenge for legislators, requiring a broad understanding of blockchain technology, especially in terms of its impact on tech innovation. Amid assertions that the U.S. is falling behind in terms of Bitcoin regulation, it could be argued that the regulatory picture is becoming clearer in 2017.
Bitcoin Magazine asked Pawel Kuskowski, CEO and co-founder of Coinfirm, and Joe Ciccolo, president of the Illinois-based Bitcoin compliance firm BitAML, to offer some commentary about the regulatory activity taking place in five U.S. states — Washington, Illinois, Hawaii, California and Florida — and what the regulatory landscape may look like in the days ahead.
Washington
Legislators in Washington state are building momentum around new rules for businesses offering digital currency services. Senate Bill 5013 provides a definition of virtual currency along with disclosure requirements of certain information to consumers. It also would require online currency exchanges within that state to maintain a surety bond. Finally, it offers definitional and clarifying changes for how money transmitters and currency exchangers are regulated under the Uniform Money Services Act.
At the time of this writing, this bill, which was introduced in January, had passed both chambers of the state’s legislature, clearing it to be sent to Governor Jay Inslee for signature. While there is no clear indication as to Governor Inslee’s intentions, broad support of the bill seems to suggest that it may pass.
There has already been a bit of fallout, however, as some cryptocurrency-centric startups are now thinking twice about operating in the state, with several firms having pulled out in the past year, noting the increasingly challenging regulatory environment. These include digital currency exchanges Bitfinex, Bitstamp and Poloniex, the latter of which has exited Washington.
“The State of Washington also appears to have applied a relatively heavy cybersecurity component, including broad and sweeping audits of data and other systems,” says Ciccolo. “Cybersecurity is a hot-button issue that continues to remain in the headlines. Bitcoin companies are wary of a regulatory interpretation of cybersecurity fitness, especially given the nascent stage of Bitcoin and the ongoing knowledge gap as it pertains to the crypto space. For some national players, it seemed the obvious and safe choice was to simply exit the state altogether.”
Illinois
In November of 2016, Secretary Bryan A. Schneider of the Illinois Department of Financial and Professional Regulation (IDFPR) announced a new initiative with implications for cryptocurrencies in that state. This “Digital Currency Regulatory Guidance” is Illinois’s attempt to provide regulatory clarity on digital currencies, such as Bitcoin, Dogecoin, Litecoin, Ethereum and Zcash. The proposed guidance provides IDFPR’s interpretation of Illinois’s Transmitters of Money Act (TOMA) related to various activities tied to digital currencies.
Says Ciccolo: “The IDFPR and Secretary Schneider continue to deliver on the state’s promise of encouraging and supporting innovation in FinTech, Bitcoin and blockchain [technology]. What we’re doing in Illinois is quite possibly unprecedented in the area of financial regulation. Our state regulators are listening and thoughtfully engaging with industry while considering the impact of any laws and regulations. I’m very optimistic about the continued growth of financial innovation in the Land of Lincoln, and Chicago as a center for the new era of financial services.”
Hawaii
In a highly publicized move, prominent Bitcoin and Ethereum exchange Coinbase announced that it was forced to cease supporting customers in the State of Hawaii due to what it called “impractical” and “untenable” regulatory policies surrounding Bitcoin in that state. In September of 2016, Coinbase was first notified of a policy that demanded that they and any other other cryptocurrency operators hold case reserves equivalent to the values being held for customers.
This development came as Hawaii was exploring a bill that would establish a working group for examining the potential role of digital currencies and blockchain technology in advancing tourism in that state. According to the bill’s text contained in House Bill 1481: “Digital currencies such as bitcoin have broad benefits for Hawaii. A large portion of Hawaii’s tourism market comes from Asia where the use of bitcoin as a virtual currency is expanding.”
Leaders at Coinbase said they were “heartened” that the bill had been introduced and that they would look forward to working with regulators. In the meantime, Ciccolo remarked: “Given its commitment to compliance and strong resources, the exit of Coinbase suggests few if any stand a chance in the Aloha State. Indeed, the case reserve requirement is overly burdensome and quite frankly utterly impractical. Since Coinbase holds a BitLicense, could it be said that Hawaii is more inhospitable to Bitcoin than New York? Let’s hope not.”
California
California’s Assembly Bill 1123, a version of New York’s infamous BitLicense, has been proposed. It reads:
“This bill would enact the Virtual Currency Act. The bill would prohibit a person from engaging in any virtual currency business, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement, as provided.”
Says Kuskowski, CEO and co-founder of Coinfirm:
“In relation to this particular proposed bill in California, any bill with strong similarities to New York’s BitLicense is obviously not the direction to go in, as we saw the effects of that particular regulation result in New York’s loss of prominence as a crypto hub. But with California’s unique position as the technology innovation and startup capital of the world, this would have an even more catastrophic effect than the N.Y. version.”
Kuskowski goes on to say that the costly fees and bureaucratic administration associated with this legislation would likely hinder innovators and startups from applying or even operating in the state. Moreover, he says it would provide another segmented regulatory structure that limits the national and global growth of companies operating in the space.
If there is any place in the world where this could have the largest negative effect it would be California.
Florida
Florida House Bill 1379 recently passed, clarifying what virtual currency is and prohibiting its use in laundering criminal proceeds. The term “virtual currency” was added to the definition of “monetary instruments” under Florida’s Money Laundering Act. The legislation is currently with Florida’s governor and is expected to be signed soon. Ever since a Miami judge dismissed a criminal case involving Bitcoin, policymakers have been intent on establishing guidelines to curb cryptocurrency use.
Says Kuskowski: “In relation to what’s been going on in Florida, a lot of regulators, especially local ones, tend to be more in the crowd profiled earlier that catches headlines, and they go a bit far. But there needs to be a balanced approach from the other side as well. People need to realize that a clear regulatory environment allows companies and creators in the space to make concrete strategic decisions that they [otherwise] can’t when the regulatory environment isn’t clear; it just has to be done properly. Once there is a clear regulation in place, businesses have the confidence to make certain strategic decisions and further grow.”
The post How Five States Are Approaching Bitcoin Regulation appeared first on Bitcoin Magazine.
Op Ed: How the Market Is Deciding the Block Size Debate … and the Marketing Lesson for Us All
The battle over block size has consumed the Bitcoin community for a while now. At the core, the question comes down to this: Is Bitcoin a “store of value” (i.e., digital gold) or a “currency” (i.e., digital cash)? That determination informs the decision about bigger blocks vs. smaller blocks.
Bigger blocks contain more data, which yields smaller transaction fees and thus are more conducive to small payments, thus facilitating the use of Bitcoin as cash, relevant for any payments.
On the other hand, smaller blocks have less data contained within them, so space is at a premium and you pay a higher transaction fee to be included. As a result, it starts to make sense only for much larger transaction sizes. The bottom line is if you are transferring $10,000 worth of value, you’re fine with a $1.50 fee, but the same fee added onto a $3 cup of coffee seems a bit crazy.
If you are of the opinion that Bitcoin’s value rests primarily in its usefulness as an everyday currency — or digital cash — then you probably want a system that will have the lowest possible fees to move your funds around.
If you are of the opinion that Bitcoin’s value is more like that of gold — a long-term store of value — and aren’t concerned about the rising fees, then changes to the protocol that will increase the block size right way are probably lower on the priority list for you.
The ongoing debate has ebbed and flowed and gotten nasty at times, with no resolution in sight. At least, no Bitcoin community–driven resolution.
Yet while the community has focused on the argument, the market has gotten tired of waiting.
In effect, the decision has already been made and the market has spoken.
The market seems to have acknowledged and accepted the reality that it’s more expensive to move value around (higher fees) and combined that with a few other facts to reach the conclusion that Bitcoin’s true value is as “digital gold.”
After all, Bitcoin has
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the most robust and proven network,
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the most understood network (only 21 million coins will ever be mined) and
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growing global acceptance of Bitcoin as a way to protect assets for people in countries with weak economies.
The market realizes that the safety and security of Bitcoin and the associated higher fees mean that Bitcoin is best suited to be a “store of value,” that is, “digital gold.”
The transaction sizes show that people are comfortable paying higher fees to move larger amounts of money. For micropayments, it seems as if the jury is still out as to which currency will reign supreme. Whether it’s pure speculation or not as it relates to altcoins, the supreme use case for Bitcoin is, as Jimmy Song wrote, as store of value.
In this story of Bitcoin’s market dominance decline lies a marketing lesson that any organization, decentralized or otherwise, would do well to heed.
Bitcoin Is Losing Crypto-Market Share and Growth Is Slowing
Let’s look at what has happened since the beginning of the year, as of the time of this writing.
Yes, Bitcoin is on a tremendous upward swing of over 800 percent since January 1 (as of this writing). There’s no doubt it’s still valuable as an asset. I think it is here for the long haul. No “Bitcoin is dead” pronouncements from me.
But the other cryptocurrencies are on a bigger upward swing: Ethereum is up over 800 percent; Dash is up over 800 percent; Litecoin is up nearly 700 percent. And there are others.
As a result, Bitcoin’s share of all cryptocurrencies has fallen from 87 percent at the beginning of the year to just over 50 percent.
Meanwhile, the cryptocurrency market has grown in market cap from $17.6 billion to $52.6 billion. Of the $35 billion in new investments, $22.7 billion (64.89 percent) is non-Bitcoin. In other words, of the total market growth since January, two out of every three dollars invested in the cryptocurrency markets have gone into tokens not named Bitcoin.
The exact numbers change all the time, of course, but momentum for alternatives seems to be increasing, not decreasing.
Key Players Are Migrating or Diversifying
Earlier this month, Coinbase introduced support for Litecoin. The market-leading exchange is sending a clear message. There’s appetite for a crypto-token that is architected as digital cash. Litecoin is also important to the community because of the activation of SegWit and potentially Lightning, as a proving ground for these technologies and where innovation is happening faster.
Say what you will about ICOs, but the fact is that many of them happen on Ethereum. For example, one notable project, Storj, recently announced that they are moving to the Ethereum blockchain, not only because of its active developer ecosystem, but because transaction fees on the BItcoin blockchain are too high.
In short, leaders within their respective verticals are saying the same thing: there’s real life outside of Bitcoin.
Historical Precedents
Where else has a first-mover gained a sizable market advantage only to have it dissipate in the face of its own indecisiveness?
Two examples that immediately come to mind are Nokia and TiVo.
In 1997, Nokia had fully half of the global phone market. Today, it has virtually disappeared in most of the developed world, and has plummeted from 46 percent to 34 percent in Africa — and most of those owners don’t intend to get a new one.
Similarly, TiVo basically pioneered the concept of the DVR. It achieved the vaunted “verb” status, as in, “I’ll TiVo it.” At its height, the stock was trading at $124.75. In 2016, the company was acquired for $18 per share.
So what happened? How and why did these market leaders falter?
As one researcher put it, TiVo “lost sight of the customer,” and as another put it, Nokia lost sight of the market (which is essentially the same thing). In both cases, it led to long periods of indecision.
Olli-Pekka Kallasvuo, former CEO of Nokia, said that “nowhere in business history has a competitive environment changed so much as it did with the converging of several industries — to the point that no-one knows what to call the industry anymore. Mobile telephony converged with the mobile computer, the internet industry, the media industry and the applications industry — to mention a few … and today they’re all rolled into one.”
It sure feels as if the decentralization industry is approaching warp speed. Understanding the changing dynamics of the market and responding quickly to them becomes non-negotiable.
Clayton Christensen, the Harvard Business School professor, writes in his book “Competing Against Luck” that the single most important question you can ask to sustain innovation is: “What job did you hire that product to do?”
If you can get to that, you can build and evolve a product or service that has staying power.
What Can Be Learned?
It’s easy in the thrill of new technology to get caught up in the potential of it. Yet, ultimately, if you are trying to create something of true and enduring value, you need to be crystal-clear on a few things:
1. WHO exactly is your customer?
2. WHAT did they hire your product to do?
When Christensen says “hire,” it doesn’t necessarily mean “pay.” It can mean “use,” or “pay attention to,” or “vote.” Still, having a really deep understanding of the kind of person you are serving and WHY they think they need your product (not why you think they need your product) are genesis block-level elements of your marketing efforts.
Not taking the time (it need not be a lot) to answer these fundamental questions can put your project at risk.
We’ve seen huge capital outlays in response to debt crises in countries like Greece, Argentina and Turkey. In the face of a scandal or bad news, there are sell-offs in the stock market. In a decentralized world, the movement of capital away from a project can occur even faster.
As TiVo and Nokia learned, you can’t sit around and wait. The market changes on you too quickly.
The Road Ahead
Bitcoin has held the “top dog” spot for a long time and for many obvious reasons (strength of network, quality of developers, peer review process, brand recognition, etc.). It stands to be a key player for a long time in the crypto-universe.
Yet, the intensity of the fight in the Bitcoin scaling debate shows us that the question of “what did you hire this product for?” has two wide and varied answers.
The inability to satisfactorily answer these key questions has led to paralysis, which gives market competitors and alternatives a chance to differentiate and take market share.
And it risks allowing the market to define Bitcoin instead of Bitcoin defining itself.
This op-ed is a guest post by Jeremy Epstein. The views expressed are his own and do not necessarily represent those of Bitcoin Magazine.
The post Op Ed: How the Market Is Deciding the Block Size Debate … and the Marketing Lesson for Us All appeared first on Bitcoin Magazine.
Pelosi: ‘What Do the Russians Have on Donald Trump’ ‘That He’s Always Catering to Them?’
During a town hall on CNN on Monday, House Minority Leader Representative Nancy Pelosi (D-CA) asked, “what do the Russians have on Donald Trump, financially, politically, or personally that he’s always catering to them?” Pelosi said the timing Trump’s meeting with Russia’s foreign minister and the firing of FBI Director James Comey were “too much of a coincidence to be a coincidence. There’s just something wrong with this picture. All at the same time as people are saying, — and you know, this you have to be careful, because this is its own incident, but it’s about Russia. And every day, I ask the question, what do the Russians have on Donald Trump, financially, politically, or personally that he’s always catering to them?” Follow Ian Hanchett on Twitter @IanHanchett
Bill Clinton Chides Donald Trump’s Immigration Policies in Commencement Speech
Former President Bill Clinton was critical of President Donald Trump’s tough immigration policies during the delivery of his commencement speech at Hobart and William Smith Colleges this weekend.
Police: Man Carrying Human Head Stabs Grocery Store Employee
An Oregon man accused of stabbing a grocery store employee is also accused of murdering his mother, police said.
Was DNC Hack an Inside Job After All?
Pending further evidence, the idea that the DNC hack was an inside job is still just a conspiracy theory — but no crazier than the idea that Russia colluded with Donald Trump, for which no evidence has emerged.
Report: Investigator Says Evidence Showing Deceased DNC Staffer Seth Rich Was Emailing With WikiLeaks
Monday during the 10 p.m. ET news broadcast of Fox’s Washington, D.C. affiliate WTTG, correspondent Marina Marraco revealed an investigation by former D.C. homicide detective Rod Wheeler found now-deceased Democratic National Committee staffer Seth Ri…