Update: The original text of the bill has been amended. It now only calls for a legislative study to be carried out regarding:
the feasibility and desirability of regulating virtual currency, such as bitcoin.
We’re glad to see the legislature taking a more cautious approach!
The bill defines money transmission with respect to digital currency in a way that is a bit more specific than some we’ve seen (looking at you Bitlicense):
Money transmission … also includes … maintaining control of virtual currency on behalf of others …
and generally mirrors language we saw in North Carolina legislation last year, and which we thought could be improved.
As we said in regard to the NC bill:
A clear definition of ‘control’ written in law—not just in guidance that can change at the discretion of a banking commissioner—has been recognized by the Uniform Law Commission to be of paramount importance to any serious virtual currency legislation. Working with the ULC, Coin Center has helped develop a very precise definition for the draft ULC Virtual Currency Businesses Act:
“(3) “Control” means possession of sufficient virtual currency credentials or authority on a virtual currency network to execute unilaterally or prevent indefinitely virtual currency transactions[.]”
That definition echoes the one we proposed in our State Digital Currency Framework last year, and it’s a legal definition that is important to ensure that innovation on open permissionless networks is not inadvertently squelched.
We urge North Dakota to include that definition in their legislation, so that the law would not be amenable to interpretations treating infrastructure providers (mult-sig wallets, lightning network nodes, miners, or full nodes) as money transmitters thus requiring that these low-risk, non-custodial innovators be licensed.
Additionally, unlike the North Carolina bill, the North Dakota bill does not include virtual currency among the list of permissible investments for licensed firms. This is a big problem because it would mean that a company holding other people’s bitcoin would need to hold an equal amount of value in dollar-form. That’s a 200% reserve requirement and it discriminates against virtual currency firms seeking to get regulated as money transmitters.