. In Calderon
and I wanted to first of all
welcome everyone here to this
hearing I it's been several
years since the California
legislature has taken up this
topic and it seems appropriate
for us to re engage when I was
appointed chair of the banking
committee at the beginning of
twenty eighteen big coin was
trading at a all time high
relative to the U. S. dollar. I
was hearing stories about a
surprising number of people
buying bit coin is some of whom
I would have never expected to
be interested in virtual
currencies. I would also hear
stories about people falling
victim to fraudulent practices
by hackers or or French
companies in the industry. As
the price a bit coin fluctuated
some of the media attention
around virtual currencies. At
subsided. Then this summer.
Face an ounce this plant
caliber. And once again media
attention it refocused on the
relatively new and interesting
and interest based in our
financial markets. Well the
media attention has and didn't
load. Had conversations with
colleagues in the legislature
and the state's financial
regulator. When it is plain the
proper role. In virtual
currency activities and I think
this is a difficult question.
Some of these appear to fall
and the purview of our federal
securities regulator the
securities and exchange
commission. Other activity your
to fall under the purview
arrestees finance regulator
department of business
oversight. And still other
activities do. Clearly fall
under the purview of any
existing federal or state laws.
While I have had a number of
companies come to my office to
explain can use your own state
laws some of them ask for very.
Occasions to be provided I the
new laws. My colleague. Leader
cal on has introduced number of
bills related block. Business
over the past few years this
year he introduced assembly
bill four nine which proposes a
uniform law firm states across
the country should be
regulating virtual currency
businesses. To be clear the
committee well the ladies will
not be taking any action on
that fill up or any other bills
to date this is just a
description. It is believed to
a former all the relevant
issue. Now with the right to
act on the ledges as the
legislature reconvenes in
Sacramento. Is hearing the will
hear the perspective that
businesses and users the
interact. Virtual currency
markets today. We also state
regular regulatory ext on the
recommendation how California
should be position today both
businesses and users a virtual
currency is can help the market
place. I will now turn over my
time to majority leader Ian
Calderon a who is the chair of
the committee on technology
technological advances. Thank
you manager when I cant thank
you for a- assembly district
we're very proud of real Honda
and so proud that we were able
to host this event. This
hearing he today at this great
location. Or you start with my.
Remark I just wanna say that
I'm more on these issues. Much
as I possibly can. I'd are
blotching working group to get
a start being at. Hi this past
week with the organizer of the
block. What we want out of the-
group that you know as a
analysts at least my
perspective là I want to see
what the reports when we
deliver that report to the
legislature I am really about
all the different possibilities
and today we're talking about
one facet of you know the of
watching technology which is
you know that the more central
facet of action technology when
it comes digital currency but
there are a lot of different
applications when it comes to
that technology. Real I were
able to start for a lot more
attention on this topic. I
innovative plays a role. In
pants economies in it is
necessary for long term. Growth
as the fifth largest economy in
the world. Investing in
technology fostering innovation
means credit to cal economic
prosperity this is the on
technological techno. Dance is
with this year sure that
California's ready dot
utilized. Rap the emerging
technology with the help of
industry experts such as
experts. Have you. We will be
able to understand best
practices with the state
government a businesses
identify potential benefits. To
legal patience the bill and we
have to ask ourselves is how
can we preserve our leadership
in the world in in a- techno.
And provide opportunity is to
our own citizens take part in
new innovative a copy.
Fostering innovation. Requires
creating a competitive bid.
Firemen getting pop thank
innovation. This is why care
eight twenty six fifty eight
and twenty eighteen a measure
that the final chain and
created working. To explore how
our stake in from the
deployment of blockchain. I
knew that I know that it will
two five. The Tory. Technology
can ensure the goal of the
blockchain working group is to
develop a legislative and
regulatory. The record stations
on California can courage
innovation. And invest in this
technology as it is crews will
take well Gee usage. Current I
want. I wanted introduced them
but before I do that I'm I
would like our estimate if you
can just come up really quickly
to them phoning a couple brief
remarks he is from real hundred
college and he is our. The
Majority Leader Calderon and
thank you for just under
college. Share the mon.
Panelists. On behalf of the
real Han real on a call unity
wanna thank you for here we are
happy. Post the Civic Center
and hearing Charlie months. The
fed ex. Chance to see democracy
up close to hear about
federalism up close and to be
able to understand what our
role is the virtual currency
and we're very grateful they're
going to be hearing. The
business at the of the consumer
perspective in the rate the
purpose of as well and so on
behalf of a doctor to yes Sir
we welcome you and- doctor
Reyes. And so if he does. Sure
to in some the staff I want him
to enter of flow. I wanna make
sure to let you know. He will
milliliter today any sense
regard as the other poor
fifties and I'll just finish up
about housekeeping I. Is what
legend but we have a water in
the back. And if you have any
questions about the facility.
Here the whole time right here
up here in the corner again I'm
Russell casting a- stricter
governments in committee
relations. I thank everyone for
being here today. A path over
the majority county. Just how
many here today. And if your
student thank you students from
being here we applaud you. And
we're so that you can be
informing yourself and you'll
be here when imagine the.
Thanks Russell I appreciate
that now I'd like to welcome
our first panel. The
perspective of the business we
have alley Medina is the exact
direction. Out of a coalition
Brian Brooks who is the chief
legal officer corps. And Stuart
elder elderly. They say that
right. All the ready general
cal at rebel. Thank you so much
for having us here trailer down
in the majority around and also
thank you so much this college
for hosting us. I am the
director of the blockchain
advocacy coalition and a former
community college to California
myself I'm looking out to see
co Litt formed about a year ago
when a group mailbox the
current is in the. Bay area
realize there is no prize
advocacy after. Street in the
state. Of. An industry to give
high level overview of what it
looks like California. Hundred
and thirty four block. State
which sounds like really
healthy growth once you compare
that to the global increase
which went up three and a half
times over the same time period
so last year the United States
the seven point 2% a global
market share in California
accounted for nearly 12% What
has twenty. 9% California has
dropped to under 10% of the
global market share. Virtual
currency. Her that against
other. California mostly hold
around 2225% of the global
market share across other tech
industries which means we have
a disproportionately small
amount the blockchain
cryptocurrency community here
and you look at her I did
that's an ongoing trend since
two thousand twelve with the
law market share compared.
Global a critical. More
consistently losing the
industry. Point probably
Facebook's libra that and maybe
the business analyst. Is a lot
of other products being
California the to use this
technology for example propping.
Streamlined the transactions on
blockchain Vegas creating your
identity platforms. Last year
IBM and sweet I. What did areas
that are over drafted from
offers to trade water on
blockchain and platforms the
vast majority of businesses in
the state are not extremely
large I did two thirds of them
have ten or fewer and fees and
the median funding of two point
five million dollars. The
industry average for tech
companies and four point five
million dollars for compare.
You will have an over represent.
And the reason is pretty
obvious it's regulatory
uncertainty. Okay Stanley
report indicated that the
greatest predictor of where a
blockchain a virtual currency
business will locate is. We
don't have thirty nine states.
Definitions. Level aye CCC's
that security to see it.
Currency the IRS tax that at
the property in addition to
obtaining necessary even
federal licenses companies that
wish to engage the entire place
have to comply with licensing
requirements all fifty states.
This is. An inordinate amount
start ups resources and time.
There's those requirements
really onerous them into Mrs
bit license new York's two
thousand fifteen bill the first
three years of the BET license
program only five companies
actually obtained a license to
operate in the state of New
York. They make the DMB look
expeditious. Headlines about
agreed the queen accidents and
many companies chose to leave
the state rather than pushing a
regulatory bottleneck. In
Washington two thousand seven
they passed SB fifty thirty one.
Companies again by the leave
the state of Washington record
look into states like Colorado
for example issues that were
cited were on the bonding
requirements in data collection
require pretty more of a
security hazard the consumer
protection. Blocking businesses
leave our state country they
mostly get your hands are
placed as- one does California
company to register. You bring
government entered watching
companies and investment
aggressively their taxation
agency is proposing to drop
their step percent. In services
tax on project is a virtual
card. He's ordered of con. They
all I never clear fine which
specifically digital assets
presenting and please contact.
When a different billion asset
tokens. Please with this remark
and recently with the banking
license recorder company not a
country standards if que YCA
under your- anti money what.
Clear is the tracking business
as in April of this year taxes
please guidance for virtual
currency companies to the
crypto currencies as currently
implemented cannot be
considered money or money teary
value under their money
services. It goes on the clerk
I. exactly which sorts of this
is might be considered a money
transmitter and which sorts.
I'm currently this are not
clear. Extremely helpful. Culp
but meant Montana Wyoming.
Actually a lot of blockchain
register legislation recently
I'll have the difference
between tell the tokens and
other asset types. Okay I'm
this is a step towards the
structures that we see in
Singapore and sweat better
track of and he- came business
says. So I would applauded.
Engaging in a complex world
regulate. I'm and this bill
they were talking today eight.
For more commission
supplemental act it's all been
introduced in states like
Nevada Hawaii and Oklahoma it
currently is based blocking all
of those states. The goal of
streamlining reciprocal
licensing system across state.
Being able to apply just for
one license across all fifty
states we get significan easy.
To operate in the US and reach
US customers. However passed
that only when you're the plan
for state specially month and a
to be honest on the top of any
business use less. Have a
customer base is not going to
do with. Now even if possible
for states it would. Still
because I am a signature. Block
California this is the find
these requirements too onerous
to comply with. I'm gonna read
comparison she to the committee
of state parks and rec since
tech. Compare against plans in
New York as well as others
require. Here's some things I
think. For the K. sure. That
are. Already has a look since
our money transfer. State would
also apply license if it covers
their business. And should be
clear five I it. To this day
consider defining there's a lot
of fun to regulate them
separately as others. Have done
our wallets transaction. Under
this framework second capture a
ton of business as- are the
surety bond in personal wealth
requirements prohibitive to
small businesses I know there's
a five thousand dollar
exemption in the bill that is
that small amount in two. Rooms
of the state I don't know the
companies I would be able to
take advantage of that
successfully. It are the.
Consumer protect living. Tend
to security risk in this
industry. So thank you so much
for your attention I look for
to engage on this bill with you
throughout the next year. Thank
you all right now we will hear
from Brian Brooks is chief
legal officer from going. Well
up the first of all let me
think a little Calderon and
surely for convening this
really timely and important
hearing. Mister Alvarez for
coming from start to talk about
the regulatory perspective I
think this is a group and-
just. Have it. I want to let
three messages of this morning
in just a few minutes first of
All I Want to land the message
that. This is not a small
industry. I often people from
my of traditional to believe
the tub blockchain encrypt.
Each side. We should be very
careful about what problems are
trying to solve. And then
finally I want to echo alleys
comments there is a co op unity
for California to lead. In in
fact it's a little bit of a
travesty California which birth
this industry. Leader. The
little girl talk a little bit
about those things when you
start with the first point that
this is not a small industry so
the market cap of crypto
currencies globally as. Of
yesterday was brown two hundred
twenty five billion dollars
that's not a large amount to
the banking assets in the world
a relic right to circulating
fiat currencies but the-
street. To exist ten years ago
and now the- that's today. It
is true that bit coin is off of
its all time high and yet bit
coin alone has returned a two
hundred and fifty percent
investment return in twenty
nineteen alone. That outstrips.
The next aspect by a factor of
roughly. Right and there about
two thousand crypto currency.
This is not a small industry.
And my company is not a small
company so coin company.
Accounts that's right double
the number of accounts Charles
Schwab to get of comparison so
of for people. Over a certain
age like he points a little bit
weird virtually. Any in the
under thirty said. Many of them
have a. When they saw one we've
completed a hundred fifty
dollars of asset trades in our.
Seven years of existence we
have eight hundred four years
we have twenty billion dollars
of. I and we have a per. The US
Dahle. Out which is a top
twenty five token with four
hundred and seventy five
million units in circulation
fully backed by dollar at in US
FDIC insured banks the point is
well we made. Early is we are
not completely mature. This is
not a small business. Me talk a
little bit about mark torture.
Action in the world crypto you
have to the little out where
this fits the sting financial
regulation and I begin with you
give it most financial
regulation is back on right
wing intermediaries so by.
Placing his large. Banks not
about. Tumors and so we
regulate intermediaries same
thing is regular we largely a
rate issuers and. Broker
dealers we regulate that's
right. Broker dealers who you
from every security. What's and
understand in the world of
crypto the mission of crypto
technology is to remove it
Aries one emphasized remove
intermediaries. See crypto es
to banks what email to the east
office right there was a time
when the only information to
other people and- go through a
single central. Pay them a lot
of money and we long for the-
purpose of. The letter and then
one half. So with Val the point
of crypto currency ultimately
is by our me to try exact with
Allie in a way that doesn't the
bank doesn't touch a broker
dealer the mission we based
give these assets out into the
ecosystem so. Joint mice work.
But I see the. In crypto is
about get rid of intermediaries
that's the- so having that let
me talk about regulatory
structure and the environment
in which we find ourselves
today the- switch the
legislature is considering.
What is. This is not a light we
regulated industry as alley
mentioned we have regulation by
most multiple federal
regulators who quite active in
space protect both can send
investors I start with this
exchange commission with
delays. Which asset. In that
matter because yes it is a
secure. Closure from the asset
issuers so that they understand
what they're buying what effort
the man at and T. as providing
and how that might rise and
fall in value in the future.
The SEC also regulates changes
it requires that exchanges
provide certain protections for
people who are trading on the
platform to make sure the
assets are. Be traced can be
the best execution basis.
Addition hold your assets to
make sure that the assets don't
go missing. One issue we have
today which I talk about in my
written submission has to do
with the clarity or lack of
clarity the SEC level. And
there are some things the
commission's been very clear
about and others have been less
clear ample. Toto concert
qualify as securities. The
queen bass took the lead just a
few weeks ago establishing an
industry group called the creek
rating council. And the crypto
reading cancel has built score.
To operationalize see guidance
and to help make clearer to.
Which. Sharp black could not be
securities so I think Rivas.
You can do on that front. The
federal commodity if you can
commission also regulates other
ask crypto as does the federal
trade on the consumer
protections. In each of its
agencies has a good serve
pursued investor protection and
consumer protection issues.
Found them. I say this is
because it would be a mistake
to believe that this is an
unregulated or lightly
regulated industry where people
are getting away with murder.
In fact SEC announces lawsuits
against crypto project
developers almost weekly where
they see scams and they
purposely done where they've
been informed of projects in
cat. Values so we're not
legislating in a vacuum here.
At the state level the story is
a little different. At the
state level what we have is
straight. Gold to be of
different regulation laws
across. Areas it's- it's have
money. License that. Certain
say act. This licenses the
governor to come like mine can
make margin loans to allow by
crypto currencies. The states
have tried licenses that
separately gov. The opportunity.
In this kind of a tangled
regulatory climate. We would
argue a coin bass what is
needed California. To lead is
not another later of chin on
top of regulation that are you
this California does the
transmission law to have
banking laws and other laws
that of. Where California could.
New York state because New York
currently is the hub of Creek
deregulation at their fourth is
California could do to get the
industry back to this. The
first. Single charter which
which group. Major activities
trading. Of those act to be
done cal today except each of
those requires a sprint. And
licenses granted and supervised
by the same regular. Please
supervised by the seat by the
by. Second New York is made the
mistake of issuing licenses
that don't our licensees to do
a thing. Let me just say that
again don't allow licensees to
do anything. In New York when a
company but license it can't
trade a simple crypt
occurrences until it sec it's
approval. This can be done
Carter. And that we're ready
will I assure you drop. Yeah
and my company to draw more
business work in the morning.
Find out next let. Charter and
next custody powers side of the-
to sing. In by the B. B. O.
that level of clarity would
allow my business to move
faster and it would allow the.
Doing so the and private so
just are really. With industry
on these kinds of issues and I
am confident within the bill's
existing authority things can
be done. Let me just say one
last word before I promise. I
will shut up that should draw
applause right. The virtual
currency this act we have
engage with the you're talking
mission over the last two or
three years I am pleased. This
have taken some up to just. But
we can't believe that what is
required is not a nother layer
of regulation alright to pull.
Elation. If the legislature
seriously considers act we urge
three things one is make sure
that you are already since
their money. In or H. some sort
separately require. The license
under. Second to the except
there are collateral
requirements in the in the
currency business act please
make sure that the collateral.
Matches the one trading with.
Crypto trade. By fiat currency
for obvious quality the reasons
and find me say that are
fundamental issue. This is act
idea that this thing should be
run article eight CC article
eight of the sea. Security not
securities does of the
securities laws so the
confusion that would be created.
Square peg round hole
securities laws will create
unintended consequences both
for the securities market and
the market thanks for having
this record really appreciate
the- to be here. Thank you
Brian. But that to get to you
Stuart elderly who the general
counsel for rebel. Man I'm sure
phone and Majority Leader
Calderon indistinct member to
the committee and select
committee thank you for the
opportunity to are you today.
Do already unchecked reform.
Apple is a global enterprise
blockchain company
headquartered in San Francisco
we have actual products in
commercial you. We're working
with not against regulators
governments and central banks
their the world to improve the
way the world moves my. Rebels
global payments network
includes over two hundred
customers across forty could
use and so on. Rippling Jan
here yeah over three decades
practiced law in New York where
I was a partner with a global
law firm in where I held their
leadership positions. Accounts
are roles with financial
institute. In such as American
Express HSBC. It is our firm
belief having a- pourtant for
innovation in this space to
flourish bringing industry
participants consumer advocates
and regulators together as
you've done today. Is precisely
what is needed to reach. To
that end we believe there's no
better place to this cop to
take place than California. As
the birth. And must many of the
start ups that at the heart of
the- every day line. Cap
understands well the promise
challenges that new technology
can hold. It's recently
established blockchain working
group but one ample of how
California is using to take a
leadership role and reckless
how to be part of that working
group. And this is why we are
so very not to sure. Given the
potential transit permitted
impact that it in these tech
she's. Particularly in the
space not only first since of
California but world why is
needed first days global
payment system is well off
taking days please. The
quickest way for me to send. To
place it in a suitcase drive to
LA airport and physically take
it with me to the test. Second
the proper says expense.
Average globally currency
conversion fee and is equal
approx proximally 7% of the
total amount three medic
finally cross border. You're
free to. Little communication
invisibility to either the
sender or the recipient of the
file. Blockchain technology and
digital assets can change that
by enabling faster cheaper and
more trade and payment systems.
Rep net space we do what to buy.
Quiddity solution use virtual
currency called X. P. and that
the British to facilitate fiat.
Sanctions. Partner with bank
financial institutions
including payment provide first
to remedy the final. Across for
payments. In the Civic student
wiretaps to displace or replace
fiat currency or compete with
central. And the rest mention
report works with regulators
got. Banks globally to improve
the way the world moves money
so what this means California.
It is currently estimated that
approximately eight hundred.
For one in nine are the
recipients of funds sent home
by migrant. As many of you are
person where California news
home to multiple counties were
migrant workers who are in any
in threes in from our culture
to technology. Comprise more
third of your could stick
including and to Clara San
Francisco. Matteo reporter
specific so the banks financial
institutions in payment
providers can help immigrants
send money home cheaply and
efficiently where can then be
to cover living essentials even
where remittances represent a
small portion of what a
migrant. These funds once. And
a lifeline for millions and
lease worldwide. To date as may
invite alley and Brian neither
Congress nor US regulatory
agencies have established a
clear regulatory framework for
assets. The space is ripe for
leading states like California
said a workable policy that
would provide an example for us.
And regulators to follow.
Framework we believe it start
with token taxonomy a clear and
simple category patient of
tokens defining whether can is
for example a since he security
token does the token represent
company is the token until the
token the token right access to
color service for a reward or
is it a payments token that
helps bridge payments and
remittances. Or perhaps a
simple story value like to goal.
With that clear to content on a
me as a foundation the history.
Public and the regulators with
which digital and small.
Regular you can then figure out
which existing laws apply to
which took an asset class for
example. Which token should be
regulated under securities law
with the track. How. Asian
supply how to protection laws
apply any to in Texarkana me
should retain flexibility
recognizing the fact that
digital assets can and do move
between classifications
overtime as technologies evolve
taking steps along these lines
as the United Kingdom has
switch one hand Singapore have.
They've all done this recently
have all done this quickly one
not only foster innovation and
protect consumers but it will
how California to continue to
recruit new company. And
promote emerging technology use
that poster and as as a world
class destination. And will
bring the jobs tax rates that
will follow. If that does
happen there is a real risk and
we're already seeing it
technology will simply move all
your. California has already
started the process of trying
to provide direction
introduction of a- teen eighty
nine. We believe that their
study of legislation and any
amendments. Paul we need to.
Innovation. Thus this dialogue
and conversation we're having
today is important and again we
appreciate the opportunity to
be part of it with you thank
you Sir appreciate everybody's
customizer removes a couple
questions and. Number loan if
you wanna start. So thank you
all for that presentation I'm
gonna start with a ripple in
queen base can you each discuss
the cost involved. Applying for
a bit license in New York and
also if you can talk just a
little bit about the legal
expertise that it may or may
not have required I'm in the
process for companies. Sure
well so I I'm happy to start on
that question the answer is
that it took us more than
twelve months of time. And it
took us to global law firms
worth of legal resources at an
average hourly rate of twelve
hundred dollars an hour. To get
through that process and in in
terms of the total dollar cost
out of pocket to service
providers I can't tell you that
other than to say it was in the
seven figures just to get the
license. But I think of things
not in terms of price I think
I'm of them in terms of value
for money and so it so again
the message I would want to
land with the committee. Is
that once we had spent the
millions of dollars and the
twelve months of time we had a
license that didn't allow us to
do anything and so the average
time it has taken us to get
approval of each individual
crypto token that we try to
trade under that license. Is
between three and six months
which means for most tokens we
add on our platform we
initially have to geo fence New
York which is our primary
licensing state. And only offer
that took in the other forty
nine states so that's a little
bit of a crazy model right a-
lot of time for no authority. I
saw all echo what Brian said
ripple I think was the second
or third. It license granted in
New York state I think it was
the first so first pet license
offered for an actual
commercial use case. On the
time and expense and needed. To
get that licenses just as Brian
described. Subsequent to
getting that bit license. We
are subject to annual audits.
By the state of New York. On in
each of those audits come with
said a scaling up of
requirements of first it's a
baseline of a baseline complain
structure. Which act which
actually in many ways is a good
thing you would want your
company to have that. But then.
I each order brings with it a
new set of requirements and
each new set of requirements
seem to be. Further removed
from the business. That was
initial licensed in the first
place. So while in many ways I
do. Log the department
financial services in New York.
For being the first to lean
into the space. I think over
the many years since the bit
licenses have been available.
There are a lot of lessons to
be learned. From the state's
going forward and I think if
the department. Of services
representatives. Were here.
Today he said the same thing.
This is a follow up to that
gonna had talked a little bit
more about the to from law
commission. Process in the
third panel. Your companies
were involved with its with
that process and- do you have a
sense about how rigorous that
process will be and- also the
impact it will have to
companies of different sizes
and I guess that that's really
where I'm leading to try to
understand. Not all companies
are the same size they can't
all have. They don't have the
same resources to move forward
in a process like this I'm
trying to get a sense of how
realistic this will be for the
long range of companies that
are out there in the space. Not
so I think that's a terrific
question and- what I would say
is the impact on companies of
various sizes depends on how
clear it is. That existing
licensees are exempt right so
at point base. We're currently
licensed in forty six states
with existing money transmitter
licenses. And if it turned out
that we did separate we need to
apply for this license that I
would argue that states that
have that requirement would be
at a disadvantage for our
business because were already
license we have a- Trust
Company New York. License in
New York money transmitter
licenses virtually every other
place. If this was an
alternative licensing path then
I think the issue is a little
bit different a little bit less
onerous. But what I would urge
on the committee is. If it's an
alternative license there's a
real risk of regulatory
arbitrage as companies the side
mmhm do I want a money
transmitter license. Or do I
want the virtual currency
business act license and that
kind of regulatory competition
has had issues and other
sectors for example in banking
were the thrift rate. For the
weakest regulators and that's
what people want. So as I think
that there are pros and cons to
it but I think the existing
license fees would be concerned.
About the need for another
license to conduct the same
business. So the only thing I
would add. I'm sherry is that.
I think your question gets to
the balance of. To the cost and
burden. Or the risk reward of
appropriate regulation. And
while I think Dân well funded
and mature companies like
windows and rebel. On can
afford to go through that
process and Weber talking about
here is innovation. And I think
younger and smaller companies
simply cannot on which stand.
The cost and the burden of
going through a very robust.
Licensing regime which is why
much of this innovation is
moving offshore. That's why I
go back to the theme of a clear
token taxonomy. A
categorization of what the
business is in what. Is the
very purpose of the token. I
think once you have a clear
token taxonomy than can look at
the- inventories of launch that
currently exist. And I think
what you will find is the
currently inventory of Los that
currently exist when our
probably apply to clear
definitions. Suffices and you
don't actually need an
additional layer of. Costly and
burdensome burdensome.
Licensing requirements. That.
Many simply would not be able
to afford to go through the
process. And Allie I just
wanted to see if you can chime
in specifically on the license
you work with a lot of
entrepreneurs in the industry
if you can chime in. On
reactions to a licensing
processing in California. I
really got into main reactions
so my board members already
have lenders licenses and are
in the process of a plane from
any transmitter licenses. Their
little aghast at the concept of
having to go through another
extremely rigorous licensing
process on top of are already
very thorough money transfer
licensing requirements in the
state. I'm in said they were.
There really really hoping that
they would not to later this on
top as has been mentioned by
the other panelists that
another layer of regulation it
would cause in these businesses
to leave the state. The smaller
start ups and entrepreneurs
will not be able to attain this
license as currently written on
the- none of them have licenses
in New York. It's just not
feasible for them financially.
Over the last. I would say
months I've become more
increasingly Mary to the idea
of developing a single singular
regulatory body specific to
this interest industry in the
state of California because
when I look at what other
states are doing when I look at
the federal government is doing
when it comes to any business
certainty. Is paramount. And
not knowing where you need to
go or knowing that you need to
go to several different
regulatory agencies to get
approval to. To administer your
product or to receive any type
of license in order to operate
your business in the state. Can
be extremely cumbersome and
cost prohibitive and
potentially prohibited.
Prohibitive in any sense of
form whether or not they're
even going to decide to. Offer
that product in the state of it
in that particular state. I am
very much considering. Working
with this committee the
committee on banking finance
insure là moan about creating
a specific regulatory agency
that would. Monitor and provide
all. The regulatory. Oversight
specific to this industry and
so of course as a as we move
through that I'd- appreciate
the input. Of all of you. I got
a lot of. I have a lot of
questions and to see if I can.
Keep that. Keep it as short as
I possibly can. It. We have
different flat. Tell tell me a
little bit about what it lease
for coin bass and ripple what
is the platform that you're
using to administer your
product I mean I've and now
there's the theory and there's
a couple of different platforms
of delivery my question is you
know we've we've seen certain
instances where you know we
talk about blockchain as being
something that is immutable but
yet. You know there's this
concern because you have mount
**** coin check bit flex bit
finex pinpoint different
instances where we've seen
people that have been taken
advantage of either from the
standpoint of raising money and
saying that they're offering a
product with that they're not
actually going to offer their
just stealing money to where
they're actually are have been
multiple Tokyo based companies
that have been the platforms
that have been completely
corrupted. So what are the what
other delivery services that
you guys yes. Are using. It
does start. Ups are at X. the
it'll only thank you between
project developers like ripple
and exchanges like Clinton's so.
As to will the more fully I'm
sure ripple has a black it is a
check. When bass does not quite
bass connects to double
different blockchain because
what street. We ourselves don't
administer one so the issue
with things like mount docks
had nothing to do with the
immutability of a blockchain it
had to do with the idea that
mount **** one of the earliest
exchanges. Didn't have what we
would consider to be a real
fast or or industry standard
security system. One of the
things we often say a coin bass
and I almost hesitate. Loud
with cameras rolling. Largest
custodian the world because we
have a patented custody.
Technology that much less
likely that someone would be
able to do to us what about
docs again I'm knocking on
whatever surfaced this this is.
Having having said that the
underlying block chains that we
connect to do have different
security features and one of
the things we look at when
determining what the list an
asset on our platform. Is a
security review of that block
chain and we deem the
underlying token to be T. in
secure that we typically don't
listed in fact just last week
we were looking at an asset
which is a major global asset
that we decline to put on the
platform for that very reason.
I do want to just very quickly
in twenty seconds or less say
one thing about your opening
comment about the. About the
need for a new regulator or
some sort of regulatory clarity.
Revised by a single regulator
to go to market to do Sir.
Subject to regulation. I would
just caution you that the issue
with creating a new regulator.
At least one tried another
jurisdiction. Eight of the are
looking and so I think of for
example see if. Was there
financial protection regulator.
Until the FTC decided to get
back in that business and
compete with them sort of like
once. I am there was a single
competition regular the federal
law. But now the justice
department any see compete with
each other for jurors. Were
different mergers and of the
end of the day. I think the
better approach is to have a
Ste charter so. How do you
know. Prison that's the only
structure. But I don't.
Financial. Shop trying to
answer questions. A lawyer not
a cryptographer so I. Get as
close as it pushed to write it
I can't Chau rebel is a company
that. Two did you since they
can either in a way that's
faster cheaper more
transparently in the legacy
system which is known as the
swift system on one of the
products that. We offer can
lead to the last said called X.
or P. extra piece it's on a let.
The permission list Landry. The
coin ledger but I think that's
with the latter days top a
repetition controller. Terpene
orders it own control the
lecture. Court is the big one
labor is based on a proof of
work so when they're- and the-
there's a map. There's a race
that take off and land a
corporation first individual
who solve the math question
gets rewarded in a pickle.
About moving to some all proof
of cake meetings the more you
own the car you have to.
Transactions on the ledger war
he. Which which for extra
letters the verifiable
corrective training caption.
The X. does he prefer steak hi
it doesn't. There's a consensus
mechanism when you have 80% of
the participants on the ledger
agreed that the transaction
that they're seeing is the
correct and verifiable
transaction match the
transaction because that goes
through so if Allen this and a
thousand dollar do you want to
try to center twice. Centers
mechanism after which is to try.
We need to decide which of
those two transactions was the
verifiable transaction. The
reason the excerpted ledgers
consensus mechanism seems to
work and has never failed and
unlock just is Brian is
knocked. Is because all of the
petitions participants have in
and current common interest in
the integrity of the attack
consensus protocol in other
words we're not competing for a
bit coin rewards risk trying to
race to soften mathematical.
Problem we're not competing to
earn earn or own more easily
can have a greater vote. We all
Hannah old notes on the system
have an equal vote and when 80%
of those no degree it's the
that transaction that's
verified. So we hear a lot
about the 51% of agreement your
E. you require 80% so the X. RP
led her into that we don't
order control requires 80%
consensus so we believe it is
immutable from a 51% hack which
bickering in the Assyrian
lectures have seen in the past.
Thank you. And I think this.
For the interest of time the
focus when it comes to at least
fourteen nine want to be doing
with this bill and I think the
state of California going to be
doing is and we certainly take
with the uniform là commission
to put together very seriously
and are gonna go through every
aspect of that to determine.
You know what works for us and
what doesn't work for us but
whatever we end up doing is can
be very much California is
going to be dependent on you
know. The role we want to we
want to serve a when it comes
to this new burgeoning
industry. Even though it's not
so small so version because it
it is well established and you
know come up with a very
California specific plan when
it comes to these digital
currencies and how we decide to
regulate them and how we-
implement these technologies
and so. I think it'll be
important for all of all of you
to continue to stay engaged in
this process especially as we
work on this bill be working
very closely with the committee
of that banking and finance on
this and so you know as a
process plays out it's gonna
really important to have that
important to have. Your
expertise to help us craft
something that is going to be
not just. Not only California's
Pacific the revolutionary and
how regulation as good at and
how a state or any the federal
government any. Government has
gone about regulation. Of any
type of digital currencies
because- California we are the
leader and innovator when it
comes to technology. Not just
in this country but around the
world. And I want California to
be. A hub and I want us to
continue to be that. To be that
leader and I trust what we do
as a state. Because we are
going to be more thorough. And
more. And respectful of the
idea of creativity and
innovation but also at the same
time focus on consumer
protection to make sure
whatever products being offered
to our to our citizens and to
our consumers in the state of
California the people that we
represent they're gonna be
protected and have that that
confidence to be able to use
these products without fear of
not a without fear of. Feeling
like they're gonna be taking
advantage of at some point in
time sell your businesses are
great. And your advocacy is
amazing. I really appreciated
the partnership we appreciated
your time today but I think at
this point I'm organ we want to
our second panel thank you
thank you very. Thank you
it was great to hear kind of
the business and industry for
spectrum. At the next panel it
is going to focus on the
consumer perspective and I want
to invite to rainy right man.
Chief programme officer for
Electronic Frontier Foundation
and Susan Martin deals in your
policy council for. And western
US states legislative manager
for Consumer Reports
. Thank you
for joining us. And if we want
to start with rainy. The second
off. Thank you thank you chair
woman the mon and thank you
majority leader Calderon it's
an honor to be here and I'm
really excited to be testifying
here today I represent the
Electronic Frontier Foundation
we're a nonprofit civil
liberties law and technology
organization we were founded in
nineteen ninety and we champion
free speech privacy and
innovation we have over thirty
thousand dues paying members.
The majority of the FX funding
comes from these members that's
because our mandate is to
represent the concerns of
technology users both the
technology users of today and
the technology users of
tomorrow. And the chief
programme officer the FF and
I've been writing and speaking
up publicly about the civil
liberties implications of
blockchain technology
regulation sense probably two
thousand and eleven. As you
start thinking about you know
potential regulation in this
space I won offer a few
thoughts to help bring that
conversation. First I'd- like
to talk about the fact that the
impetus behind blockchain
technologies is one that seeks
to empower consumers in
financial systems that have
historically and
systematically. Disempowered
them and rob them of their
privacy. In my role EFF I had
been contacted by individuals.
And small businesses many times
over the years who have had
their financial accounts and
payment systems restricted or
shut down with little recourse.
Based on the whims of banking
institutions rather than the
execution of laws. For example
smashed words is one of the
world's most popular hubs for
self published authors. And
they pay all of their authors
through through pay pal and pay
pal shut down their entire
account because some of their
romantic fiction which to be
clear these are books with no
photos there just fiction books
was too risque for PayPal's
case. With companies like Wells
Fargo fraudulently opening
millions of accounts and
Equifax exposing the sensitive
data of over a hundred and
forty eight million Americans.
American consumers have more
reason than ever to be wary of
sharing their financial
information. Many blockchain
innovation seek to use
technology to protect privacy
in secure conceit data at a
keep financial information away
from corporations. Cannot trust.
Well blocking technologies
alone cannot resolve this
disempowerment technological
advances such as blockchain may
well prove part of a long term
solution that. Consumers. I
think policy may be looking at
may blocks. As no logical
partner to the regulatory fight
to defend consumers against
wrongdoing by financial
companies. Secondly a pile so
I'm hoping to point out how. At
the human right to privacy and
freedom of expression are often
heavily implicated in potential
regulations of block allergy.
For example EFF has pushed back
against those laws that would
prevent every day. Our
financial transaction using
privacy coins which our tokens
that protect the privacy of
their users. We've also oppose
proposed. At including one
recently in. U. K. U. band. To
prevent consumers from
accessing at technology that
protects their individual
privacy or from publishing free
software raises a host of human
rights issues in addition to
being contrary to free
expression and the privacy
protections in trying in the
constitution. We've talked
about it a little but just to
overview a blockchain is a
distributed ledger it's a
database that stores multiple
copies of data across many
computers in a network. The
first application of blockchain
technology was bit coin. The
queen's promise was to
revolutionize value as the
internet revolutionized
information to make it possible
to send values across the globe
digitally and securely without
needing a bank. And
traditionally we know that
transferring values between
participants are required banks
and other third parties that
had to each update their own
ledgers so that they could
record a transaction. And bit
coin basically cuts out the
middle man and made it possible
for. As a single ledger that
could be updated and maintained
permanently by a wide network
of computers it's not
maintained by a single entity
but rather store to maintain by
computers working together.
This distributed ledger is
called. A blockchain because
the ledger permanently and
secures securely stores data by
linking or chaining blocks of
data together through
encryption. So the big queen
blockchain is a record of big
coin transactions but there are
many other applications at that
the distributed ledger
technology as the legislature
thinks about regulations it's
really important to think and
recognize that future
innovation in the space. Might
have be using these distributed
read ledgers for purposes
beyond what we typically think
of when we think of financial
services. To just offer a
single example for the sake of
time is. Point applies là
technology to file storage at.
Huge Ben including. Tools like
slack it has a level for hours
and that is because so much of
the modern web at uses a single
service to back up and do their
file storage Amazon web
services when an Amazon data
center suffered an outage for
several hours multiple popular
online platforms were
unavailable to consumers so
file point sixty decentralized
file storage said there's no
single point of failure like
the current system that is so
heavily rely on Amazon. And
while we can't know if file
point or some of these other
applications of blockchain
ultimately be successful. Ample
of a black chamber correct
design serve consumer needs are
not met a modern tech companies
and to create a more
decentralized there were more
resilient web. Keeping my-
interest knowledge users
especially underserved thing
tech company. From an inmate.
We have a few guiding
principles that we put together
a to help. To help regulators
sort of think about how to
balance the needs for
innovation consumer choice and
consumer protection. At to
summarize these principles the
first we think that regulation
should not undermine privacy
enhancing innovation in this
space the right to privacy is
enshrined in the United States
constitution in international
human rights law and
California's own constitution
and this state as you are well
aware is a leader in can
defending consumer privacy and
has been a bellwether state for
bringing new privacy
protections to consumers. And
we would hope that California
can continue to observe uphold
this consumer protections even
as it starts to think about the
crypto currency space. A second
we- would urge that regulation
should not show future
innovation. At a that will
benefit consumers so at as has
been pointed out the blockchain
ecosystem is still relatively
young. There are up well
established companies right now
though that have the resources
to hire expert counsel and
compliance officers to navigate
state federal and international
regulations. We want to ensure
that these early entrants do
not establish themselves and
then pull up the ladder behind
them. A in the technology spear
when existing services don't
serve the needs of consumers
new products can come along to
try to give consumers better
choices. We want to ensure that
these new services can continue
to try to give consumers
choices and serve consumers and
does and that regulation
doesn't serve to merely
entrench the big players of
today. And part of that is
insuring that there are
adequate on ramps for it new
services coming to market and
also that any regulation is
technologically neutral and
doesn't prioritize one
particular protocol or crypto
currency over another. A and
principle three a we would urge
that regulation should focus on
custodial services so custodial
services are those entities
that hold and trade tokens on
behalf of users. And are in our
opinion out most likely to
abuse consumer trust in fact
they as you. At have already
pointed out at have a sordid
history of fried and sloppy
security practices not all of
them but some of them have.
Been as featured in the news
for this. And these are the
companies that we think need to
be held to account to ensure
that they don't de fraud at
consumers. So regulators could
focus their energies on those
bad actors and at there's youth
we think of the larger
ecosystem there's not just
between companies and blocking
companies. That hold as a funds
for consumers our tokens but
there's other types that maybe
perhaps don't hold funds that
man perhaps we should be a
little more hesitant about and
then there are merchants
there's miners. And there's
individual consumers and so
when you're thinking about
regulation it's important to be
focusing on those bad actors
first and foremost ensuring
that every day consumers and
everyday merchants that's just
a store down the street that
wants to start accepting crypto
currency. They're not the ones.
That are hitting the regulatory
burden. And then my final two
principles I'm almost done as
as a fourth that any regulation
should recognize the important
role of decentralized exchanges
and other decentralizing
technologies and empowering
consumers. The centralisation
of control creates a brittle
digital systems where a single
point of failure can shut down
commerce or communication. Much
of the strength of the modern
web comes from its
decentralization and many of
the problems we see in
technology space are result of
a handful of big technology
companies. Having undue control
over much of our digital
experience watching
technologies were built to be
resilient and decentralized and
future innovation that advances
decentralization. Including
decentralized exchanges should
be protected. And finally our
fifth principle is that
regulation should not punish
those who merely write and
publish code. At my
organization has fought to
establish and a number of
courts have recognized that
writing computer code is a form
of expressing ideas similar to
other forms of communication
like writing books. And music
as that's protected by the
first amendment. We would hope
that policy mage at
policymakers would ensure that
regulations aimed at blockchain
technologies do not prohibit
the publication or distribution
of code. Or otherwise require
parties to a government.
License before published. Judy
mayor Kurt. Bottom is very much
appreciated. This is an- good
morning thank you a Majority
Leader color and children Limon
for inviting me to testify here
today a lot of incredible new
one can meet formation already
been. Provide here I want to
just kind of take a little bit
of a step back and say okay
where we act on this
conversation. It's an it's an
necessary conversation for us
to have. And it's a very
important one for us to have
given that these technologies
in these new products and
services you know represent
what could be you know a
dominant you know if you know
if could be the vanguard the
future of money. But it is also
very apparent that there are so
many different ways in which
virtual currencies and block
chain can show up in our lives.
That it's not always apparent
but you can have a lot of smart
people in the room is not
always apparent to stews point
that people are using the same
terminology you're talking
about the same things and have
the same. Priorities in mind
for how to approach this I'm
going to add a couple on
additional elements here that
are you know in in many ways
evergreen when her consumer
advocate which is you know you
have. A complex market place
here there are existing laws
and regulations the overlap in
some areas may confirm. Whether
it's how we define whatever
meal a virtual currency or
digital asset is verses you
know how they should be
regulated you know who should
bear the risk. For Los
reliability. At the end of the
day. It tends to be pretty
simple for consumers as end
users just a regular person
with a phone. Who just wants to
know if I load money into an
app. And meant to do stuff with
it I'm just gonna you know by
something ominous on my friend
money. Is a gonna work the way
it's supposed to. And if
something goes wrong can I fix
the problem. Who do I go to fix
that problem. And if I lost
money in a shouldn't have can I
get my money back. And these
kinds of evergreen really basic
issues are important for all of
us but especially important for
folks who are using their phone
as their computer as their bank
and maybe living paycheck to
paycheck and can't afford for a
forty dollar Venlo transaction
that goes wrong. To stay a
reversible you know our
organization is a national
research testing an advocacy
organization has worked on
consumer finance issues for
decades. We've seen you know
the passage of right you know
laws and regulations of
regulate our credit cards our
bank accounts or debit cards
more recently prepaid debit
cards now finally have federal
protections. Against fraud and
theft and so every time there's
a new generation on the
standard seem we're always
looking at at the end of the
day have we- addressed release
surfaced. These existing you
know evergreen issues that are
going to hit consumers because
in such a complex ecosystem is
this with you've got. Got
coders you have not developers
you know you've got let's see
institutions who may be using
ripple to move money faster.
You know you have business and
you just government and use. No
construed and users don't have
a lot of direct market place
power here and the power
information symmetry is vast.
So and even today in today's
world in the long for decades
had. Consumer protections
nationally for various kinds of
legacy ways to pay for goods
and services and people don't
always know the difference I
don't know there's a different
law applies to your credit card
trend. Xin then. The one that
applies to your debit card
transaction their little.
Different and in any case
people tend to expect these
days the whatever financial
service they're using. There
are clear rules of the road it
is a problem they can fix it
they can reverse about
transaction get their money
back. And I can't sitting here
today. Tell you know how many
of the offerings of the
providers of virtual currencies
our platforms are going to be
guaranteeing those same kinds
of protections some may
voluntarily do so some may not.
And so that's the challenge
that we all face here but I
think the main take away. I'm
other than your service in the
fact that there are. Novel
questions of one policy but
they're also unsolved existing
questions of one policy that
always come up. I'm for
consumers when technology at
your moves faster and then the
laws and regulations is to say
that's- stakeholder engagement
like this. Is absolutely
essential I think that we all
want to make sure we're having
the same conversation. It's the
right conversation and of the
right people are at the table.
Are because there's a lot to
take in here and understands
that we can be. Speaking the
same language and speaking of
fluently as we think about
regulatory approaches here
there are some areas where.
California as a state
government you know could look
at some of its licensing of
supervision. And enforcement
you know at a sororities are
but some of this is also quite
frankly gonna go beyond
California. I think that as
we're looking at regulatory
approaches we need. In about
what can we do through the
state regulation. To coordinate
with other government agencies
this guy at the need to because
in coordination with the
federal government as well as
they are looking to. Solve some
of these problems in the
federal reserve for those who
don't know is finally moving
forward. With building out a
new real time payment. I'm just
our existing king system which
is on. Long as into slow at
moving money as well. To clear
for example I and now they're
even bipartisan calls because
of Facebook and we were there
bipartisan calls I'm coming
from Congress to the feds in
maybe the food and help our
virtual. And see so there's a
lot of activity. Partisan. At
the national level as hearing
yeah so what particular
advocating. Order which is
thank that remember we just.
The novel policy questions
verses the pre existing policy
questions we need answered when
it comes to protecting
consumers who purchase funds
are being used in with these
products I and then also make
sure the convening stakeholders
and I think it's of essential
consumer. Advocate we have. A
room. Asians and they are
always in the room a reserve.
In other work groups some very
very heartened that we were
invited today and the consumer
protection perspective was
given room to. Presented I
think that's going to wear this
can affect all one way or
another as the ten part.
Campaign estimates that arm in
the direction. Products and
services take so thank you
again some for the opportunity
to testify today. Great thank
you. The rainy. We thought of
it about the relationship block
and gonna come in January one
twenty twenty with the CPA.
Actions. That is great. As is
so we have I guess the longer
each year to that is. I have a
band state legislative team and
if you would like us to. I do
assisting kind. That I'm happy
to. I haven't been working on
the C. C. P. a and so I hate to
step a in general he to sit to
imagine things I don't know
that much about but I would be
particularly low to step on
their toes. I do know that
there are a lot of questions at
out at about in box chains this
is where you. Can't be here
question out. Of the box. For
example under GPR you might
want to see removed and that's
just an outstanding. The
question that I don't think is
the been resolved yet at least
nine I'm- not. A for the most
part I have. Where you see
block chains to store. His
entrance rather than a what we-
this content. At messages and
so I feel like to be at that is
not entirely true there's
different. Ways that you can
use. Today that would
communicate messages I think. A
some a so that that's the only
question I really dived into a
little bit more than that. Do
you have thoughts on that
question. What in just for
those or not sure what's easy
PACC P. is a Calvary consumer
privacy act that the
legislature passed to give
consumers about more control
over there over their
information more than they've
ever had in the past the
requested take information down
or not have information shared
or Ste the war sold. In ways
that they don't want that
information shared or sold and
sell that's something that we
are we're gonna be having come
in fact in January one twenty
twenty and I'll only reason why
I ask is when you take a look
of watching technologies
they're two different schools
of thought it's the most
transparent. I which is a good
thing but that all some say
it's the most secure because
you have privately in a public
key ad in the public he
identifies you but then the
private key something that you
keep to yourself and the
supposed to be private to you.
And so when there's when you're
when you're working on
blockchain you're dealing a
blockchain make transaction
this. Is information that
anybody can see. Now anybody
can see is important because of
the transparency make sure. You
can. Verify the validity of the
transaction but also at the
same time do I want. To be able
to see. That I made a specific
transaction Mullin I mean Sir.
Criminal I don't want people to
seize stern track. But if I.
Certain medications or the
things. If my employer can see
that in and or or prospective
employer can see that could
they use that against me when I
was the hiring process of
something else. So I'm just
curious to see the real at.
Least in California that's
gonna develop between change
and the CCP a. To consumers
more control of their own
personal information at the
same time how. That have that
control the regulation. Well
one thing I think that's a
really good point and one of
the things that is really
interesting in the blockchain
spaces were seen the rise of
privacy points which I
mentioned so those are things
like Minero and see cash in
these are tools that so the
traditional blockchain as-
ecosystem as you mentioned it's
pseudonymous so it's not
associated with your name but
it is associated with basically
an account number so that. If
it ever got connected back to
you all of your prior
transactions that were
associated with that
pseudonymous account would be
kind of visible in public I've
had it compared to the way. You
know. The stock market is not
it's public but you don't you
know that's all under kind of.
Little acronyms so. With
privacy coins you've got coins
that protects the-
transactional information so
the account it's being sent to
and from and the amount that's
beans. And is still able to
verify things so to me this is
a really interesting and
exciting area of animation.
It's not widespread right now
in its use and I would you know
echo what you said there's a
lot of reasons that everyday
people who were doing nothing
wrong care a lot about their
financial privacy. I personally
care a lot about my financial
privacy if I have to pick up
medication or something I do
choose to do it in cash I don't
sign up for like. The CVS of
rewards program that requires
my phone number. And I. I
deeply sympathize with our need
to go after bad actors who
might be using funds in ways to
basically. Find their bad
activities. But my purpose here
is to stand up for everyday
people who aren't doing
anything wrong who still want
their privacy and making sure
that in our- attempt sick. You
to go after these bad actors we
don't accidentally prevent
everyday consumers from using.
Privacy points and things of
that nature I think it's gonna
be interesting to see this
conversation between the
centralization centralization.
I continue to of all because I
think. The idea originally
behind blockchain the
decentralization was a little
more. A libertarian anarchists
and in its in its inception of
you know I don't want the
government. Knowing or having
any control or any institution
have any control over anything
that I do I want to be
completely a Thomas I think
that there's a lot of people.
That would share that sentiment
maybe not the anarchy said
about sentiment but- aren't
missions as is the libertarian
side of that sentiment but the-
but the idea that I have more
control over my own information
and my own. Finance finances
rather than having to always
deal with some type of
intermediary an intermediary
every time I make a transaction
with they they they charge me.
A fee to make that transaction
and so I think there's a lot
that's going to be discovered
but I just don't. I don't see
at I find it. I think it's
going to be difficult to move
to a more decentralized. System
without finding a way to
implement this technology and
blockchain and centralized
manners to centralize ways with
the with the center with a
centralized administrator. At
because a big part of the
problem is that you have a lot
of folks that. Have no idea
what blockchain is when I'd
when I when I authored the
legislation. About creating the
blotching working group. Yeah I
don't know what this is all
rescue but you know what you
your- in the- heard watching I
don't know what that even means
I and you know when you're
dealing with let us listen our
stay there in with two thousand
issues in a given year yeah
there might not be that time.
To complete. Really understand
what that is and so you were a
lot of different legislators
have expertise is. Two other
legislation in your own
research based on. Never is
trying. Present to you in terms
policy but- you know I think
that. We want. A lot of the
stuff out. To have this to her
side the equation always. Bob
press there because it seems to
get caught up in the excitement
of a lot of it. But there's a
catch to our decisions that
we're gonna making a lot of
people. Apple and if it
eventually be harmed whatever
we choose to rate. Played.
Thank you for being here if I
could just response. I mean at
I think the- date to San made
this really good point. A lot
of the a lot of the people
interacting with the chain
ecosystem today. Are
interacting with it the way
similar to how they were. King
with. King institution passed.
You're dealing with a studio
services. On behalf. People. I
believe the first panel argued
thoroughly regulated already
but I would argue are the most
likely to and really on a-
practices. Because they have.
Out of whack you are right that
right now the initial idea of
blockchain is not like people
are not one to wine interacting
and totally cutting out
centralizing entities. The way
perhaps the originators of
watching had hoped. Days we
actually have no idea what is
look like twenty sure now and
there's a lot of really being
new patients going to make it
much much easier. For people to
do person the person. And so I
went whatever. Today doesn't
prevent those kind of
interesting new more consumer
and brain tools from of being
Burke tomorrow. I think you may
questions thank you and I will
close just one question. I know
we still haven't at an all you
can. Asians I mean are
California regulators can only
start. A so many new programs
and focus on so many new things
and clearly there's a lot. The
space space is this fall a list.
Musicians in terms of things
that the state should be
thinking about. Yeah I think
it's fair to say for Consumer
Reports that are for focus on
sort of emerging emerging pays
me to say merging payments I
mean really like emerging
financial technologies as big
as a core part of our financial
policy teams work. There are a
lot of non profits out there
that focus on a lot of aspects
of consumer finance I think a
lot of people are rightly very
much focused on consumer
lending and cleaning up some of
the things that took a long
time for us to address to begin
with. Kind of isn't it true
traditional banking and lending
spaces but there is I think
there are more advocates are
starting to look into this but
I think it's fair to say that
in many respects a lot of fun.
Also a lot of sources of
funding for nonprofits to do
advocacy work tend to focus on
maybe things that seem more
tangible around income support
or criminal just comparable
justice Gration like life or
death the supposedly seems life
or death. And I think what we
try to do as an organization of
prioritize is financial policy
from a consumer protection
perspectives to point out that
people. Here in California and
around the country are. So many
of them are struggling
financially and it is impacting
their lives in ways that could
just be on what's in their
wallet and that this this.
These kinds of. Is kinds of
issues can really make an
impact your physical health and
so we is always want to make
sure that. Where they were
looking at something that's
emerging or trying to. It you
know and improve a long
standing existing policy issue
that that these financial
issues are seen as an economic
justice issues. That that. On
the impact everybody because we
all use money but and then of
course we must remember. That
whenever there is a problem or
a gap in protections it will
always disproportionately
impact. Those who can least
afford to lose their precious
funds to araneus transaction.
Thank you this is also very
interesting question. I really
enjoyed all these questions I
would say you know it's an
interesting time because. You
know it even three years ago I
thought this was absolutely the
wrong time to try to do any
regulation in this space other
than you know what was already
kind of in place because that.
The ecosystem is moving so
quickly and- I certainly don't
necessarily feel strongly about
that now I can see there's
things have evolved to the
point that you've got companies
of this size of queen based
like there are established
companies that. It makes sense
to regulate that so I
completely sympathize and if
this is the time that
California government decides
it wants the get involved in
the space you know I can
understand that. That said a if
you decided not work on a bill
this year and put it off for a
year I think that would also be
okay. And as far as how it
pulls in our priorities a. I
think there's this big fear
that. Lack of regulatory
certainty creates makes it
really different difficult for
blocking companies to figure
out where they can be and what
they can do and it pushes them
out of the area. But. A very
poorly written law that affects
a consumer's in ways that we
didn't realize or intend. Is it
is much worse than that right
in my opinion and so taking the
time to do it rates which I
believe this process has been
incredibly inclusive and I a
applauded. Is more important
than trying to just get
something out there. Yes I've
works globally we have a lot of
different issues and we also
work on the federal level and
in California on a wide range
of issues so we are definitely
engaged. But I would say you
know we're really working on.
Surveillance encryption issues
are sort of one of our top. And
double speech issue. Thank you.
Time your participation. Thank
you can move on to our third
panel now which is the rate
Tory perspective. Any album
press. Is out with the K. F.
the department of this
oversight and Keith Rowley.
Eight unit. In the craft. Right
to squeeze his mere uniform
regulation of virtual currency
business act
. Madam chair alone
Majority Leader Calderon and
members of the committees as
well as the rear Honda
community college. Community hi
manual Alvarez commissioner of
the California department of
business oversight. The role to
which I was appointed in may of
this year. Thank you so much
for the opportunity to
participate in this hearing
about virtual currency emerging
and rapidly changing industry
my own background is almost
equal parts consumer protection
and fintech so I very much
appreciate the opportunity to
engage in these sorts of
conversations about. The
intersection of a technology
and financial policy. We talk a
little bit about the department
of business oversight first and
then I will share some thoughts
that I have with you all about
virtual currency. The
department of business
oversight licenses and
regulates over three hundred
and sixty thousand. Individuals
and entities a provide
financial services through a
California. The department
licenses and regulates money
transmitters issuers of payment
instruments answered Valley.
Arts as of June this year the
department had written to me
transit unless the- well total
of over forty. Eight banking
securities and commodities are.
Regulated by. That may overlap
with a conversation that we're
having here virtual current.
The he's a bass that I provide
in expertise latest virtual
currency specifically on the
following topics for one
concert. However the fraud you
have a current laws and
regulations apply to virtual
currency businesses number
three requests from virtual
currency business is. For three
thirty number for that part
views on the uniform là
commission regulatory framework
and number five policy trade
offs or implementation
knowledge as a- teacher might
consider. What. Provide I will
offer the permits perspective
on those issues. One to make
plans for virtual currency
fraud. When the department
received complaints regarding
virtual currency. Viewed by our.
In division to. Currently there
are approximately fifteen
education spending and the
departments and four division
and year to date twenty
nineteen the department is
received. Teen of which are
against the same range for
researchers. Past three years
the number the department has
reached about ritual currency
has fluctuated. Generally
speaking complaints come in
waves based on the forgery some
well known see such as corn and
the related customer demand.
Teen the department received.
Sixty complaints. To virtual
currency so which. I'm a
processing of transactions.
That surgeon complaints appear
again appear to be related to
the sharp run up and demand for
virtual currency around this
time last year. Again which
seem to impact customer service
response. But with respect to
the particular comply the
department did not have
jurisdiction take action in
many cases because- service or
good and later to a nation of
security. Other laws. Overseas
in twenty fifteen the
department it desist inner
frame order against a company
called US investment arts Inc
and three of the firms it is
urging that they sold
securities without a Christian
and misled investors. In
selling the securities. That
order requires US hi I a
officers stopper the violation.
Me is based in Arcadia and did
a multi level marketing so the
prop master. Money Gen coin.
TVO entered into settlement
with the opening in December
twenty eighteen or by the
agreed to stipulate to a- it
was estimated that my. The
department may have
jurisdiction over a virtual
operation if what our
securities laws it is being
violated for instance hello
asset. Thirty if is if. Digital
assets will gain và on the
part profit in the future.
Another example. Of a sham
crypto currency. If said and
tell the customer the combined
and on the side in fact they
don't sell bitcoin on the way.
That the cell. Actually when
complaints are received related
to conserve customer service
issues or delays in processing
transactions where there is no
one to defraud. We may refer.
It's the California attorney
general's office consumer law
action for you of deceptive
practices. Commodities laws but
we have no evidence that the
company is acting in
California. Then that may be
referred over to the securities
exchange commission or the U.
S. Camanche. Treating
commission. Number two and St
Los. Yeah the department has
not turned. In a the part the
buying and selling. Under the
money transmission act. Or
other related laws under the
department's purview the money
transmission in. Regulates the
receiving of money for. Issuing
stored value an issue. Under
the my transmission act the
requirement would need include
the virtual currency some sort
of monetary và. It's possible
that some transactions may fall
under the. Virtual currency to
the. A form of stored value.
Online wall a secure
environment for long term.
Nancy we're not too many other
activities related. To that
kind of crap currency and a
more concrete analysis. Whether.
Whether in fact there Sen how
to close those gaps. Number
three separate Tory. Eighteen
perceived twenty request from
virtual currency businesses.
Tory clarity. Question thirty
five of those are still pending.
If the department identified as
an out of the business the
also. Under. We would provide
written guidance to the
requester about the need for
less. This plan does not
include. Xin we generally issue
a lot. Lester and for that the
business model does not appear
to require licensure at this
time that the department use
the study of. American. Written
response letters to request is
are redacted in large part is
this proprietary information
and then Paul on site. Said on
the topic. Letter are meant
does not regular. And sale of
virtual currency such as three
big coin ATM. A risk is are
generally issued the cabbie out
this is an evolving area of law
and the departments in the
subject to change. At any time.
Number four uniform là
commissions model regular.
Twenty seven in the form law
commission created the
uniformed elation a virtual
currency businesses at. To
license businesses that.
Currencies for cash. Brother
virtual sees. Transfer
currencies among customers. For
performs historial duties.
Model act is not propose
repeating for itself for owners
of. Model presents some. And
could provide certainty
regarding what entities and
activities are covered or not
covered. The drive to promote
innovation as a registration
option for lower ball of fur
và falling virtual currency
activity. Is the type of is
approach that I could be part
of a start up companies. The
department does broken.
Questions framework. Any rate
three structure. Must be
tailored California's summer
protection needs. One example
the minimum net worth
requirement of twenty five
thousand dollars the commission
commission framework. Across
the board as a quick compared.
Money transmitters must
maintain tangible shareholder's
equity of at least fifty
thousand dollars depending on
the size. Second this
regulatory framework hasn't
been it did by any state and
therefore is untested which
really makes it difficult to
anticipate how regulation.
Effect the virtual industry or
consumers. Lastly the verge the
end. Allow. As you sit here
today may be outdated or soon
become outdated. That said we
do believe that the unit from
law commission models are
starting for it for
conversation the regulatory
framework. To focus on the
opportunities that we have to
harmonize some of our existing
laws and regulations so is to
leverage the good work that the
department is already doing.
Finally topic area number five
policy trade off some input
implementation challenges. A
predictable and scalable
regulatory framework for
virtual currency would pose
benefits to all stakeholders in
California from consumers and
investors. To the company's on
down to the department as a
regulator. Mr knowing their-
and are regulated businesses
would benefit by focusing.
Collective efforts pourtant
work complying with the
predictable set of Tatian.
Other than crafting. Through
all. SB some challenge as it
stands today the department has
already observed several risks
associated virtual currency.
Some complaints again we have
received. Five areas
implementation budget. There
are other five Lee permission
pernicious reduce the need to
be Medicare and such risks
could include bad actors
funding with customer deposits.
Lack of appropriate
cybersecurity systems prevent
of customer funds black.
Continuity planning to also
persons who hold blocks and
that company assets. You were
tension undisclosed fees taken
their investors. Encouraging
news I think the encouraging
news and such for. Our at all
arts although all and the
department has for some time
been addressing Ste. St
products the case of this. I
think the balance. So
restrictive or priest give
stressed and it apparently
stifled emerging technology in
industry out of California. But
not so hands off Aston bridges
straighten actors that would
take an inch of for the
consumer. Esther's it's also
important to the ways in which
kallus. Exist today might be
hope so. There are merging
treason knowledges as such. I
would prop. Creating a sensible
for. Around a new age around
three. The focus should be on
defining the industry itself
first principles basis. What
are those distinct products and
services that comprise it.
Water the attendant risks of
each type product or service.
How could each attendant risk
or be addressed to three
existing regulations. For
example the features of an
initial coin offering roughly
speaking a method of cap
mission through. The asset the
tech features risks that type
product in not be the same as
those of a stable and which is
itself pay cable currency or
other assets. After the
industry products the comprises
cogent defined we might the
crew. Testing existing laws and.
Help identify legal right for
gas but are tailored to the
risks that again type of crypto
currencies post to cal tumors
and stirs. Close again would
like to thank the good for the
opportunity to discuss the
opportunities challenges that
the department seize
cryptocurrency industry. Some
the end of tape the end. Course
has been born in California
many. Investors and other
stakeholders are located. From
the parts department do we
certainly applaud. Your
leadership and we stand by at
the ready to our top assistant
on any policy duration related
virtual. Currency and certainly
have questions here today.
Commissioner Alvarez. Number
here for rally for me
commissioner commission. Their
job is to the pressure logging
Russian about a school of law I
was in. Both the drafting of
the year curricula sure Kersee
businesses up and the
supplemental act are we what we
will not cover back. That which
are two distinct axle. Press
I'll talk a little bit more
about both. In a minute I've
I've been asked to speak just a
little you will see. Us for the
river for lunch that's what you
all want I. Three lost about
the Aussie in the process this
all try. And make it quick. I
also got to the to say it's
fairly obvious from. The
present. At signally more of
the speakers not including me
are are fairly professional
testify. I tend to have notes
and the from the glass when I
go testifying I never take more
than two minutes to prepare
that's because of about twenty
minutes talk. I'm expecting
questions. That kind of like
Apollo. In in. Everyone at arms
from walking mission is a
nonprofit organization made up
of volunteers who were
appointed by the- state each.
Fifty states the district. For
the Commonwealth of Puerto Rico
and the Virgin Islands. Priest.
A mixture well that's not true
every states the delegations
are made up of mixtures of
practicing lawyers sitting
judges retired judges law
professor. Legislation for
exactly that the exact makeup
of any particular states. Adult
is entirely and how it. Gates
and composes it's you know law
commission delegation son. The.
We significant state Sir are
surprisingly small others I
heard a- little bit of a swipe
at it Montana I won't have a.
The largest delegation of any
state the uniform là
commission which gives them an
outside present in dress
committees and subcommittees
but when it comes to. Taking
the product of drafting
committee is to the floor of
the of the uniform là
commission. For reading and-
Asian each they get. California
where California has a people
delegation eighteen twenty
eight for that matter AB
usually how many of them show
up comes down to. Members. The
commission. Been in business
for twenty years. Of the very
significant uniform acts that
have been very widely adopted
by the Ste it's the bell Weber
are the bell cow we will. Is
what I. Time to. Code AB which
has been adopted in all fifty
states as well as district of
Columbia have with the
exception that Louisiana it's
refused to adopt the sales and
leases provisions because they
like their Napoleonic code
better. But there are other
acts that you'll see is
produced that have not really
met with much success probably
the most notorious at least in
my again fields is called
uniforms information
transactions act. Which was an
attempt to come up with the
uniformed law dealing with
software transactions among
other things I started off as
being part of the used as part
of a new a new article for the
UCC bombed out. The American
law institute bailed out of the
project and left it in the U.
Aussies lab. And once the
you'll see was finished with
that exactly two states now in.
Eighteen years of adopted. And
what I like to tell my students
when we talk about it is that.
What's unique about the act is
the three states of actually
enacted with reporter comma
refer to as you see the bomb
shelter laws. That will prevent
you see to from applying to
their residents. Even if the
governing law for transaction
would point to the law of
either Maryland. The eye of the
beholder. And as I said spend
most my time teaching you from
commercial code in one of the
things that I tell my students
is that. The uniform commercial
code. A misnomer it is not
uniform. Mostly uniform. And
parts of it are the what
anybody. Is in the code base
some would consider to be a-
well it's been codified. Is on
what. Bob sizzled about the you
will see at the center
volunteers we're not we're not
stated in any way although for
our states will remembers.
Acosta ending the annual
meeting which is basically our
hunger if you were. We're a for
a week we- is the completion.
Question suggestions en en dag
occasionally get arguments
about the direction of the
drafting committees. Are taking
that or whether there should be
project. Go forward and only
for the for the acts that are
ready to be. Put before the
body for a vote there the body.
The last day and we both the
mother nay and then both the-
should say. Out to the state's
attorney they've been approved
ago the state actually first
they go to the American bars.
Are sincere. As they- but on
not. After we finished with
them they also have advisors.
On all of our study commission
drafting committees. And then.
This to me is fine with what
we've done which could be
because there's always at least
one AB adviser on the project
at all. The axe become
available the state's. Or at
worst. And raft into actual
bill. In the FAQ section not be
word for word what comes. Out
of the Aussie I am. I from my
perspective. Specially state
law. That seven in in one my
correction it has acted. In
Rhode Island the yeah. A and
the this seven a law. We're
twist to it not sure that. Of a
sign post but read up on that
in fact the. N. the bill in
Nevada earlier this year made
it up. Quite far but because
the internet a legislature only
meeting every other year and
having very hard deadlines on
when bills reported out of
committees. The originating
chamber that before they can
move on to the other chamber in
to a floor vote. I'm were times
as many bills it could possibly.
Gotten through this. It it.
Basically got help. I'm sure
there's a little bit movement.
But it's a slowly. We hope that.
Let's see what all process
Wiest D. S. would want
commissioner has more work and
a member of the executive it
has the notion that there's
something like. In this new
except en worthy. Some benefit
nine in having uniform law that
were at least more uniform law
all of this having less than.
The person sure. I'm in cation
Congress will that take the
horns and solve. Alas at nine a
issue the Switzerland and the
U. K. and Singapore don't have
to deal with this fifty three
jurisdictions with the single
national jurisdiction. The
proposal's may two greatest
medi at again Dodd is as much
background. Move on. A for this
act was created in in it will
for the for the RV CVA was
created. I in January of twenty
fourteen. By telephone mostly.
We're serving up of about
eighteen months there was a
large stakeholders. Person
mostly all tended by up by
telephone the to place in April
of twenty fifteen after the it
already made its recommendation
to the executive of the you'll
get to. Set up a drafting
committee I'm just weird thing
that rebel. The stakeholders
meeting in the drafting process
that followed we have the- a
ripple of the electronic
freedom front cheer from point
base. As well as a number of
other at entities conference
the state banking supervisors
point center visual chamber of
commerce the California
department of business
oversight the entertainment
software says Gen and lots of
others as well as lawyers
private practice the percent
plants. The occupying the space
door wanting to occupy the
space. Writing process took
about two years AB we started
in the fall of twenty eighteen
we presented final act to the
conference in July twenty
seventeen. Yes with the
exception of the next act I'm
gonna mention really briefly
and despite their business
despite and eight in extensive
discussion on the floor. That
spread over five that the seven
days of the meeting ultimately
the vote was overwhelmingly in
favor of approving the act as
amended in response to the
extensive discussion on the
floor. I think it was something
on the order of ninety eight hi
objection nursery. Getting too
many there are a forty eight
highest. Extensions into non
voting's it's been awhile since
Porter Rico send anybody to the
meeting. One thing that we that
we encountered as we were
approaching the end of the
drafting process for the U. R.
V. should be a was. Was this
question of. How this might
integrate with existing
commercial law. We've been so
focused on on the thrust of the
your first BCV a witch's.
Prudential regulation. If you
know the it's perfectly fine if
people want to. Send directly
from one to the other at that
point ether are or- like
pointer does point or whatever
it is that they they're- you
know that they happen to have.
Our act has nothing Greg
gnostic about that it is not a
regulation of virtual currency
act. Is a regulation of virtual
currency business activity act
we only. That are the act only
cares when intermediaries. Get
involved and really more so
when medi intermediaries get
involved right so opinion sure
you probably need. A that means
that something like point based.
Is dead to me and an exchange
to. Carry out the transaction
but if I give my credentials to
someone else to then interact
with point days and- the result
of that transaction the
credentials fall into the hands
you are are directed to the
hands of the of a fourth party.
Who then ultimately is acting
on behalf of the all of it at
the end user there are
increasing opportunities for
things to go wrong and we're
very concerned about. The
transferred the exchange and
the studio functions the that
those intermediaries performing
that's really almost entirely
what the virtual currency
business regulation. Business
to an activity actors about.
Plus consumer protection. The
most so late in the process we
began to worry that because
contrary to what you might of
red and on online fortune piece
earlier this year there is no
opportunity for fractional
reserve banking under the
either the yours CD the CPA or
the supplemental act. Virtual
currency businesses have to
maintain not only 1100% but one
two one. Research if somebody
gives them. Whatever that they
have to keep exactly that not a
dollar equivalent on the day
that the that the virtual
currency comes down. Sing what
is the level and on the day the
virtual goes out. But hold one
one one hundred reserve. I
think if you know the old days
when current based on. I am the
head to keep it cold or think
of Las Vegas if you've ever
seen oceans. In cash in it's a
fault. Another money to cover
every single chip in play for
the casino. Millions and
millions of dollars every night
in cash. Way. We would make
chips that would bills. That
creates a real problem. This is
the to get access to credit.
And the need to earn money to
expand have. Because the
lenders that they might go to
it he sees that the I guess to
are sufficiently familiar with.
This is and how it works. The
general consumer you user right
that the consumer but other
user protection provisions of
section five a to the act. The
supplemental act was created to
replace those general
provisions perfectly fine. And
if you choose to just an act
the RBC via the I will be. Fine
and I think most of will be
fine but- the more sought the
supplement. I am not please.
The broadly brushed can use
your actions and section of two
of the of the fact that with
the extra protections that are
available under article eighty
sixty. I've created this river
known environment. I've known.
Predator fire it will create
opportunities for virtual
currency businesses to attract
capital and expand making their
services more you. All hot this
is I know I've probably gone
over my time I having got close
to where I was going but- how
we for questions thank you and
I just said that it wanted to
ask thank you for that overview
that both of you have kind of
given the history but also just
the role of the D. B. O. as
well if you could respond to
any of the things that you
heard that from the previous
panels that caught your
attention if you could. Just be
very specific on what caught
your attention in in your
reaction to that. Jump start. I
have I have lots of stars. So
one thing that that element in
a said that that a caught. Me.
Off guard was was she made
reference to. Missing via the
supplemental actors no license
in the supplemental actively.
You're to replace the user
protection provisions in
section five oh two and create
a. A more stable credit up
opportunity. For assistance
occupying the space. Something
she said in people's. The did
resonate thank you mean the- we
counted fifty three state life.
For every state has its own
licensing requirements and
that's why we included as a
possible. Your view TV. And
there's also something wrong
actually early something that
could be seen as being wrong
with requiring somebody already
has a money transmitter license
in the state of California or a
bank license back in the state
of California if it's State
Bank were federal bank which
their federal banker completely
exempt from the act but
something wrong with requiring
them to get yet another license
and so we also have reciprocity
across. Types of licensure that
is overseen by the same agency
or by an agency with which the
agency that's assigned the
responsibility of virtual
currency at business activity
regulation is communicating
with so it really you know
creates a possibility not act I
have to be honest the
conference state banking
supervisors initially with
working give very closely with
us on this project. Provide a
lot of input to which you
responded and to be very happy
with where we're going and then
at the you know not even the
eleventh hour because it was a
long after the act been
promulgated but now with the
fifteenth or sixteenth our
we're we're out trying to get
states to enact it they're
balking at reciprocity. That
because they want to be able to
decide who has licenses to do
this kind. Of business in their
state. Me. They still even if
someone is reciprocally
licensed across state lines or
reciprocal licensed within a
state because they have
another. License that that
covers similar activities
they're still subject to all
the user protection
requirements. They just don't
have to get another license.
And it's really aren't that we
wish were scratching our heads
collectively. About about why
didn't see as PS deserve change
tax on this. The promises of a
great new you know better
solution to everything. In
September in what they came out
with was state should have been
a money transmitter laws. Which
is as one of the. Short
documents that passed along
from from the you'll see
there's some compelling reasons
why virtual currency businesses
are better regulated as virtual
currency businesses rather than
as money transmitters because
they don't do the same things
they do more things in some
instances and they do some
things differently. At. I
wonder if the commission shall
Reyes or you can comment. First
of all I did a one a think
professor rally for two things
one for the for the correction
and to for invoking oceans.
Ocean's eleven at that. That
that's fantastic. You know what
it would. I wanted to echo a
couple of two comments I heard
and some the prior panel
discussions the first season
martingales call for. Broad
stakeholder involvement
throughout this conversation hi
I completely agree that that
kind of broad based
conversation is really critical
for those of us in California.
To land to achieve the correct
result here mean to be Frank.
There's nothing that. I that I
think I heard in any the prior
conversations there was so.
Broad themes that I heard. The
desire for a robust concert
protection within the space
whole whole the department
wholeheartedly agrees with that
and the desire to. To Claire I
through harmonization. But have
you completely agree with I
don't. However. And you know
the other call that I heard in
the first half as- Brooks
mentioned here is. I were he I
do worry. Form shopping if.
California gets it wrong or
potentially goes down it
correct path yes New York
articulated a. What you might
our perspective. Mark from
California's perspective I
think that's an opportunity to
look to learn from to learn
from what they did well and
what they did what they could
have improved on but the-
Facebook libra. Think it's an
example of. One consequence.
Getting it wrong and space
which is. Actually abdicate our
legal and regulatory authority
to other jurisdictions either
domestically or or broad. I
worry about the outcomes a-
from that. I think in the
interest times get thank both
of you for participating in
this panel I really appreciate
the input and this gets into
newcomer Salinas we continue to
work on my bill AB. Fourteen a
not for too. Often stakeholder
meetings is that process so
much. I am without a do you
also want to thank every single
one our panelists I think we've
very robust com question and it
is clear that. Are different
can. The move forward I wanted
at our- until also think are.
Because it is his bill of cap
prompted this call our station
up eight officially close I do
you want to see if there is any
public comment. We if there's
public we ask that you come to
the microphone and that you.
Comment public comment so feel
free great thanks for having
this my name's mark Levin.
Executive director. Wearing
advocacy group I bet on. We
launched exchange as the
company to others the pivoted
are still around so I
understand the regulatory
environment be doing it we even
played for your bill lays on
this bill right now is.
Theoretically your exchanges to
me that's not really clear in
it and right now the D. B. O.
is not giving money to mission
licenses for exchanges so if
this bill was and- I think.
It's C. in New York state N.
Xing ten which is blocking user
in those. I would really kill
innovate. How come in the U. S.
in general we've already seen a
lot of companies moving out of
the U. S. and blocking American
customers Susan this is. About
more exchanges we talked a
little bit of the other kind
of. Industries like it's I see.
Is so I think like to. Off of
the exchanges and that just
deal with the. The federal
rules would be great but I
don't think the a you'll see
it'll is really great. So
companies. If they operate
without a late it's up to fifty
thousand dollars a day fine
also it says in there that they
have to pay to be regulated.
Which is ext league cost
prohibitive to vote he's not
the queen base but- but- I
would have to hand over a used.
Transaction from which can be
sure there's an foreign
governments so I've I'm really
excited that you guys are
willing to listen and learn
more about the industry and the
idea is an education problem I
also the- nine so it's like
really break. But thank you for
a happiness great. In
additional public comment we
ask that you just line. Behind
the microphone please thank you
for all poll. Good morning.
Times close I visit. Pasadena
resident anybody but myself one
of an. Focus has been on Buck
solution specifically in the
financial space but also in
regulatory space might entities.
So this morning I tried to open
up a website. That whole at a
is required the publisher to
have a license to publish
things. I pulled my email and I
tried to send it to a friend
I'm California gotten L.
fourteen eighty on that said
well. This petition. In
California. For license for
because of the. Open up Skype
tied to place a phone call to a
friend of mine across the
street I got a message that I'm
sorry the call cannot be
completed as dialed L. fourteen
eighty nine. Of this car is not
a place for California in the
kitchen license. Office Lee
not. Was still sleeping on that
would be observed. This will be
as absurd as requiring a softer
provide up to ride by a license
to deploy software to send
instruments at me on I may not
be financial page. Does a lot
of lack. Knowledge in guns in
the space noticed me depend on
us this morning and you to
budget your hands on how to
explain the difference between
currencies among the separately.
In nineteen seventy one. It
being a unit of account and the
default of exchange has and he
bites. 90% all values being
transferred sending bites.
Bloom down rate and then put a
bit con a dollar sign. All
Pokemon in front of it it
doesn't matter. So the larger
point here. The only thing that
should be. They like it.
Currency thing up not should
not be regulated all those
create a are putting eighty
nine for anybody wanting to you.
I'm happy to it's one. I'm
Benjamin Weiss on behalf of
coin a big coin ATM company in
twenty five states including
twenty patients in California
yeah we have locations and has
no. Calexico and the LA and San
Francisco area we provide
crypto access and services to
the unbanked who put cash in
our ATMs to purchase a corner
of the crypto currencies and
for many people without bank
accounts is the only way they
can. Get into the point
blockchain space at all ATMs
are naman shops which we paid
to. Our with. Turned about in a
eighty nine is not the elation
overall because we think.
Necessary to give our
confidence the consumers. It
provide. You to the business so
in support of regulate. What
worried about is clarity of
weather. Eastwood or a light
under the spell we have a legal
we're able legally to operate
in state set new. And if this
is a list. In past have
operating in California well.
As Mister Brooks pointed out
anyone a coin space for a while
which since twenty fifteen
knows the strong of. Patients
from fence. Our compliance
departments are big department
and six. Well support the G. O.
ideas behind the bill what
we're asking for is a
distinction between custodians
those whose whole customer
funds on behalf of a consumer
and those who are just doing
wallet và wallet transactions
we make sure that this bank
that this bill does. The on
bank people who don't have bank.
Taking no company point is the
only place we can by crypto. So
you know worse than burning
small business to make sure
there's no. The fact. And we'd
like to ask for a wallet và
wallet exemption this bill to
separate those who hold
people's funds from those. Sent
to. And I like to as for a
holding this panel and I
appreciate your has been
opened. Thank you. My name is
grant to lessen I'm a faculty
here a three on though and I
guess on behalf of myself and
some of my students I have
couple of comments. And more
like questions. To Mr I'll
drop. The appeal towards
immigrants sending route
remittances to serve. A very
good one considering. That I
mean there's like six. Dollars.
And a lot of it's going to the
student body that we have here
on campus. It depended on two
things right people need to
have access to technology and
does well see vetting this is
the remittances. So I need to
have act. It is a- controlling
interest in being able to
regulated because that's going
to end up the very very
profitable and instead
monogrammed. 20% on every time
you pointed out wait to take
some of the. Two words correct
money. Why recipient is a great
thing but there is a. Blank
problem to it our only goal of
federal trying actions needs to
be regular. Don cherry
transactions between the state
and foreign state that means
regulated anything only not
complete data by. And you can
follow through. Is it the gold.
Very easy to try the
undocumented individuals are
doing the said since then it
would be very. Identify them
five I'm an that could create
yet then additional. Probably
needs to be looked upon and
frankly I think everybody is
aware of it if we have a
singular regulatory body
copying it it's pretty much
like I don't know trip every
department gov regulating the
dollar and we have like a whole
bunch of problems. We need that
evidence. The national business
controlled by were America.
Wait. Having a single body
controlling it sort of defeat
the whole principle and the
purpose be and having the
currency that is not. One
safety not which I think it's
safe there. Thanks make sure.
Take place and I think a
blockchain there was a not
public sometimes gonna have
desi to wrap it up. We know
exactly where legal transaction.
In like fifty. There's still no
if stop. The house this nation
going to address any of it
thank. Please state your name
affiliation and in two minutes
good afternoon. My name is
Chris grow trong I'm the
president and founder
constructive insulting firm
that specializes in blockchain
could. Out of San Diego. He
also and banking professionals
for continuing education I
think the things. I was
actually one of the small that
professor rally man was a. The
initial virtual backed
originally and I think some of
the things that we need to they
are. Talk they are censorship
distance thank you know
initially when we talked about
like encryption and which some
of the things are use and this.
As a legal. I was created
because of its ability to treat
for information. That is a.
First the first amendment right
to have free speech part of
that has to do with your
ability to how you transact I
think that's something that we
should consider I also think
that this model of how the web
is work work and the data
centric model that we have. Is
to switch and seeing this news
about web three users data this
is where this. Is going in
blocking helps enable. So what
I heard also liminal the
limiting of fractional reserve.
That's something that's
definitely very important and I
think the collateral is ation.
Of sets is also very something
that needs to be looked into
especially for the custodians
in the space. But that when we
talk. See see is are a-
committee there the reason.
Looking into I think really
needs to be considered because
when you look at tripartite
agreements with creditors and-
in. In the assets that are
being issued or being sold to
the public and the consumer in
the protections to go on to the
companies you have. Credit and
against those ask. Portantino
two one once a big point or
virtual. In it you you can't
necessarily tiling to that and
I think it can be very Burzum
burdensome for these companies
who are looking to do that so
as a person who came from. The
tech industry and switched over
into fifth tax I see that the
students are I see that client
back to. Was a compliance
officer for. That the
custodianship and
intermediaries that we're all
talking about is definitely one
of the focuses that needs to
happen for the specs so I
really appreciate everyone's
time I think. You know
regulatory certainty that. Not
having. Regulation really does
increase. Angela Burnett
opening. They're coming to get.
I will pave the benefits of
that community need to have a
voice well I'm really excited
to be able to continue taking
apart and being an advocate for
the space thinking. Great thank
you. So with any other
commenting and I want to thank
everyone for purchase. A very
special thank you to real Honda
community college for hosting
us for the students for the
faculty and- an excellent I am.
Waiting and make. Sure that can
have these conversations in the
state of Calipari elder. Thank
you chairwoman alone and thank
you all for coming sharing your
thoughts in your perspectives
again A. B. fourteen eighty
nine produce but the idea to
continue to work on it as a
work in progress is in the
final. Product this is
something that we're going to
continue to work on for time.
Because when. She wary of
there's a- now learning myself.
For a continue discussions with
both industry as well as
regulators and the different
apartments as well see well
uniform là commission again I
want to thank everybody for the
time because I think this is a
really discussion again. On a
call. With that we will adjourn