Bitcoin and Virtual Currency Regulation: The State (by State) of Affairs

Almost every federal financial regulatory agency is closely monitoring virtual currencies, and many have expressed concerns related to the stability and integrity of virtual currency markets. The federal agencies expressing interest in the regulation of virtual currencies include: the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission (FTC), and the Consumer Financial Production Bureau (CFPB). Indeed, several agencies have brought enforcement actions and issued warnings to consumers regarding the risks associated with virtual currencies.

Despite the concerns of federal regulators, the U.S. Congress has not exercised its constitutional power to preempt blockchain regulation to the exclusion of states. As such, each state may develop its own rules and regulations. Because of this, the Uniform Law Commission has promulgated a model state law, the Regulation of Virtual Currency Businesses Act.

For now, however, virtual currency regulation lies within the domain of our 50 laboratories of democracy, and as would be expected, some states have enacted friendly regulations, have taken no position on virtual currencies, or adopted regulations that impose additional regulations upon virtual currencies, or denied virtual currencies existing protections.

As of January 2018, the state (by state) of affairs is:

• Alabama: Requires a license to transmit “virtual currencies.” Ala. Code § 8-7A-2(8).

• Alaska: Proposes to require the licensing of virtual currency transmission. H.B. 180, 30th Legislature, First Session (Introduced Mar. 14, 2017).

• Arizona: Recognizes the validity and enforceability of “smart contracts” on the “blockchain” as electronic signatures and records. Ariz. Rev. Stat. § 44-7061; Prohibits the use of blockchain firearm tracking. Ariz. Rev. Stat. § 13-3122.

• Arkansas: No position.

• California: Proposes licensing all “digital currency businesses”; Prohibits the purchase of raffle tickets with cryptocurrency. Cal. Penal Code § 320.6.

• Colorado: No position.

• Connecticut: Requires the licensing of virtual currency storage and transmission. Conn. Gen. Stat. § 36a-598.

• Delaware: Authorizes the use of blockchain for corporate record storage and stock trading. Del. Code tit. 8, §§ 219, 224, 232.

• Florida: Prohibits the laundering of virtual currency. Fla. Stat. § 896.101. Introduced legislation to recognize the validity and enforceability of “smart contracts” on the “blockchain” as electronic signatures and records. H.B. 1357, Regular Session 2018 (filed Jan. 8, 2018).

• Georgia: Requires a license to transmit “virtual currencies.” Ga. Code § 7-1-680(26); Authorizes virtual currency transmission regulations to encourage economic development. Ga. Code § 7-1-690(b)(1).

• Hawaii: Requires a license and fiat reserves equal to value of virtual currency held. Hawaii Division of Financial Institutions Application. Proposes to exempt virtual currency transmission from licensing requirements. S.B. 949, 29th Legislative Session (introduced Mar. 24, 2017). Proposes working group to examine blockchain technology. H.B. 1481, 29th Legislative Session (introduced Jan. 25, 2017).

• Idaho: Exempts the sale of virtual currency via Bitcoin ATMs from licensing. Idaho Dep’t of Finance, No Action Letter (Oct. 10, 2014). Requires the licensing of the brokering of virtual currency sales. Idaho Dep’t of Finance, No Action Letter (July 26, 2016).

• Illinois: Exempts the exchange of “digital currencies” from “money transmission” licensing requirements. Illinois Dep’t of Financial and Professional Regulation, Digital Currency Regulatory Guidance.

• Indiana: No position.

• Iowa: No position.

• Kansas: Exempts the exchange of “virtual currencies” from “money transmission” licensing requirements. Kansas Office the State Bank Commissioner, Guidance Document MT 2014-01 (June 6, 2014).

• Kentucky: No position.

• Louisiana: No position.

• Maine: No position.

• Maryland: Advises the sale and exchange of virtual currency is money transmission and should be federally regulated as a money service business. Maryland Comm’r of Financial Regulation, Advisory Notice 14-01 (Apr. 24, 2014).

• Massachusetts: Exempts Bitcoin ATMs from “financial institution” and bitcoins from foreign currency transmission regulations. Mass. Division of Banks, Opinion 14-004 (May 12, 2014).

• Michigan: Exempts virtual currency from sales tax and requires that retailers instantly convert the value of the virtual currency to USD as of the day and the exact time of the transaction. Mich. Dep’t of Treasury, Tax Policy Division, Treasury Update (Nov. 2015).

• Minnesota: No position.

• Mississippi: No position.

• Missouri: Exempts Bitcoin ATM transactions from sales tax. Missouri Dep’t of Revenue, LR 7411, Collection of Sales Tax on Bitcoin Transfers Through an Automated Teller Machine (ATM), (September 12, 2014).

• Montana: Authorizes political candidates to accept Bitcoin contributions. Mont. Admin. R. § 44.11.408. Montana also invests in Bitcoin mining. Office of Governor Steve Bullock, Governor Bullock Announces $1.1 Million to Help Main Street Businesses Create Jobs, Train Employees, and Plan for Growth.

• Nebraska: No position.

• Nevada: Prohibits local governments (counties and cities) from taxing “blockchain” use and recognizes blockchain as an “electronic record” for evidentiary purposes in judicial proceedings. Nev. Rev. Stat. SB 398, § 6.

• New Hampshire: Exempts the exchange of “virtual currencies” from “money transmission” licensing requirements. N.H. Rev. Stat. § 399-G:3

• New Jersey: No position.

• New Mexico: No position.

• New York: Requires a license to engage in any Virtual Currency Business Activity. N.Y. Comp. Codes R. & Regs. tit. 23, § 200.3.

• North Carolina: Requires virtual currency transmitters to obtain a license and additional insurance. N.C. Gen. Stat. § 53-208.41, et seq.

• North Dakota: No position.

• Ohio: Prohibits the use of Bitcoin to purchase alcohol. Janet H. Cho, Cleveland Heights merchants banking on Bitcoin Boulevard to draw global spotlight; skeptics warn of risks, Cleveland Plain Dealer (Apr. 24, 2014).

• Oklahoma: Subordinates the rights of merchants accepting Bitcoin to the rights of any security interest in the Bitcoin (traditional money transfers are free and clear of any security interest). Okla. Stat. § 1-9-332.

• Oregon: No position.

• Pennsylvania: No position.

• Rhode Island: No position.

• South Carolina: No position.

• South Dakota: No position.

• Tennessee: Exempts the exchange of “virtual currencies” from “money transmission” licensing requirements. Tenn. Dep’t of Financial Institutions, Regulatory Treatment of Virtual Currencies under the Tennessee Money Transmitter Act (Dec. 16, 2015).

• Texas: Exempts the exchange of “virtual currencies” from “money transmission” licensing requirements. Tex. Dep’t of Banking, Supervisory Memorandum 1037, Regulatory Treatment of Virtual Currencies Under the Texas Money Services Act (Apr. 3, 2014).

• Utah: Studying whether to accept virtual currencies for tax payments. H.C.R. 6., 2015 General Session (Feb. 26, 2015).

• Vermont: Requires virtual currency transmitters to obtain a license. Vt. Stat. tit. 8, § 2500, et seq. Allows blockchain transactions to be authenticated like any other business record for evidentiary purposes in judicial proceedings. Vt. Stat. tit. 12, § 1913.

• Virginia: Requires virtual currency transmitters to obtain a license. Va. Code § 6.2-1900.

• Washington: Requires virtual currency transmitters to obtain a license, maintain fiat reserves equal to value of virtual currency held, and third-party auditing. Wash. Rev. Code § 19.230.010, et seq.

• West Virginia: Prohibits the laundering of cryptocurrencies. W. Va. Code § 61-15-1, et seq.

• Wisconsin: Prohibits virtual currency transmitters from obtaining a license. State of Wisconsin Dep’t of Financial Institutions, available at https://www.wdfi.org/fi/lfs/soc/ (last visited Jan. 22, 2018). Exempts the sale of the virtual currency from sales tax, but requires payment of sales and use tax on the use of virtual currency as consideration for goods or services. Wisconsin Dep’t of Revenue, Sales and Use Tax Report (Mar. 2014).

• Wyoming: Requires virtual currency transmitters to obtain a license, WY Money Transmitter License, and maintain fiat reserves equal to value of virtual currency held. Wyo. Stat. § 40-22-107.