(Note: The item below was posted while I was still writing my newspaper article – the complete article ran in today’s Concord Monitor, and it’s right here. There isn’t a huge difference, mostly more quotes.)
The state’s small but active bitcoin community has been rattled by a cryptocurrency firm’s decision to leave New Hampshire because it doesn’t like our regulations, raising the thorny question of how government can protect consumers drawn to an industry designed to sidestep government.
“I don’t want to be protected by the state. I don’t want what comes along with that,” said Will Anderson of Concord, a self-described bitcoin enthusiast who was among a half-dozen people testifying Wednesday in front of the nation’s only legislative committee on cybercurrency regulations. That same viewpoint was expressed by several other speakers, many of whom are associated with libertarian groups or movements.
This crowd – unusually large for a standing committee pondering an obscure topic with no bills on the table – was stirred up by the decision of Poloniex, a Washington D.C.-based bitcoin exchange, to shut all New Hampshire accounts as of Oct. 6 “due to changes in New Hampshire’s regulatory statute as it applies to cryptocurrency.”
Poloniex’s Chief Experience Officer, Michael Demopoulos, told the Committee to Study Cryptocurrency Regulation on Wednesday that his firm was in discussion with the New Hampshire Bank Commission and hoped to resolve the matter.
Three other bitcoin exchanges – Coinbase, CoinEx and Circle Internet – have registered with the state bank commission. Demopoulos said Poloniex is different because it deals only with cryptocurrency, not with dollars and other “fiat currency,” a term for legal tender backed by a government, although it’s not clear if that is the reason for Poloniex’s withdrawal from New Hampshire.
Bitcoin is the best known of a number of types of digital currency created in recent years on the back of a technology known as the blockchain. The blockchain, an encrypted online ledger that is shared by as many computers as necessary, holds the possibility of altering many industries – not just finance and banking but also insurance, real estate, supply chain management and even local government record-keeping.
Blockchain, however, is not the issue here. Maryam Torben-Desfosses, a hearing examiner for the Consumer Credit Divison of the Bank Department, emphasized Wednesday that the state does not regulate blockchain. “It’s not the technology that is regulated, it’s the use to which it is put for virtual currency,” she said.
The current situation came about when the legislature overhauling the state’s banking and credit union laws in 2015. One change involved the term “convertible virtual currency” when describing what is regulated.
The state Bank Department began looking at cryptocurrency exchanges, which are companies that that hold bitcoin and other virtual currencies owned by other people. Depending on the details of their business model, Torben-Desfosses said, these may be subject to the same regulations as money exchanges like Western Union, or of holders of what is known as “stored value” items such as debit and credit cards.
The goal, she said, is to protect consumers. She pointed to high-profile failures such as a Japanaese bitcoin exchange known as Mt. Gox, which cost customers hundreds of millions of dollars worth of lost bitcoin when it was hacked, but said more mundane concerns are also important.
“If I’m going to use the exchange to send money to Alaska, how can we make sure it gets there, that the (exchange) is not going to pocket it,” she said.
The fear expressed by all the speakers, however, is that regulations designed for an established industry like banking were too heavy-handed for a brand-new industry like cryptocurrency and could strangle it, or at least tarnish New Hampshire’s reputation as a home for innovation.