UPDATE: This story was written Wednesday. The bill passed and will go to Gov. Sununu, who I image will sign it.
Among the geekiest of potential new state laws – one that would exempt some types of bitcoin transactions from oversight by the state banking commission – is about to get its day in the Senate.
The bill passed recently out of the Senate Commerce Committee on a 3-2 vote, and is slated to be voted on by the full Senate on Thursday.
It is the latest step in a long tussle over how, or even whether, consumers should be protected when using virtual currencies like bitcoin.
“Do you want the FAA examining the airline on the ground before it takes off, or do you want the TSA examining the black box after it crashes?” is how New Hampshire Bank Commissioner Jerry Little put it in testimony earlier this month before the Senate committee.
New Hampshire is one of the most active states in the country in usage of bitcoin and related technologies, thanks in part to advocacy by those related to the Free State Project. Even so, the virtual currency remains a minuscule part of economic activity and its future remains cloudy due to technical and legal issues and disputes within the international bitcoin community.
The banking commission opposes the bill, HB436, which narrowly passed the House last month. It wants to retain oversight of currency exchanges, which handle other people’s bitcoin transactions, including when the currency is converted to and from dollars. The bill would not affect direct purchases of items made with bitcoin or other virtual currencies.
Without regulation by the banking department, Little argued, people who lose money to a bitcoin exchange would be out of luck. “You would have to spend the money on a lawyer and go through the Superior Court system, where you may or may not get your money back, if you can even find the company.”
Bitcoin advocates, however, support the bill, saying banking commission oversight is unnecessary and restrictive. They point to last year’s decision by Poloniex, a start-up bitcoin exchange firm, to pull out of New Hampshire because of the regulation. That company paid an $891 fine for operating without authority and has not applied for a license.
Three other companies that are bitcoin exchanges are registered with the state banking commission, although they also handle real-world currencies, and applied before an earlier bill specifically put virtual currencies under state money transfer regulations.
“I want to go around and talk about how New Hampshire is the best state to start a blockchain business. … There is an incredible amount of interst here in blockchain,” said Jeremy Kauffman, founder of Lbry, a Manchester-based firm for publishing content online. Blockchain is the technology that underlies bitcoin, although it has many other uses that in virtual currencies, and he argued that the bill would stifle its use.
“The only companies you will find in favor of this legislation are the banks, basically, because they are threatened,” Kauffman argued. “This legislation is not going to prevent any possible harm but it does send a very bad signal.”
Others argued that it was too soon to regulate virtual currency.
“The industry is so young, so immature, shouldn’t we wait until we know … what kind of problems we want to look for before we get the banking department regulating it?” said Rep. John Hunt, R-Rindge.
The bill would not affect individual purchases using bitcoin, but only those that pass through a third-party exchange.
Depending on their business models, these firms are currently subject to the same state regulations as money exchanges like Western Union, or of holders of what is known as “stored value” items such as debit and credit cards.