The Industry’s Critique of Illinois’s Digital Currency Guidance is In
A planned approach to regulating digital currencies is winning praise from industry participants, public documents reveal.
The Illinois Department of Financial and Professional Regulation published its initial guidance in late November as part of a broader push to create a working environment for startups working with the tech (public comments for which the state will be publishing on Monday)
The digital currency guidance notably included language that, if finalized, would apply money transmission rules to companies that exchange digital and government-issued currencies, leaving firms that only deal in digital currency outside of those requirements. Elsewhere, the state said that digital currencies wouldn’t be considered ‘money’ under the state’s Transmitters of Money Act, or TOMA.
Still, published comments reveal that some are questioning elements of the release. That said, the approach being taken by Illinois drew wide support from those who responded to the state’s request for comment.
Peter van Valkenburgh, director of research at the non-profit advocacy firm Coin Center, wrote:
“This is an extraordinary approach, particularly in light of the increasingly convoluted landscape of state-by-state money transmission licensing and the emergence of premature and mis-calibrated digital currency licensing regimes that can stifle innovation here in the US without offering concomitant benefits in consumer protection.”
Others who submitted comment include the Chamber of Digital Commerce and Illinois-based Fornaro Law, among others.
‘Mining’ definition questioned
While supportive, some commentators took aim at the guidance depiction of mining, or the process by which new transactions are added to some public blockchains.
Blockchain Consulting Group founder Taylor Gerring wrote that, as currently written, the description that all cryptocurrencies rely on mining as it is carried out on the bitcoin network falls short of the truth.
“More generally, this process can be seen as ‘validation’ since the participants (‘miners’) are working to finalize the information as quickly as possible, which each subsequent validation provides increased assurances the information will not be reverted,” he wrote.
Conversely, Gerring went on to state that the process by which new coins are created also differs from cryptocurrency to cryptocurrency.
“Although bitcoin is famous for its limit of 21 million bitcoins released at a rate that halves every approximate four years, it is not a strict requirement that new units of currency are generated this way,” Gerring explained.
Other commenters suggested that Illinois think deeper on some of the issues that its guidance raises.
For example, Chamber of Digital Commerce president Perianne Boring wrote that the state should consider relaxing application requirements for Illinois-based startups looking to break into the digital currency space.
“To the extent the Director has the authority to waive portions, if not all, of the application requirements for digital currency companies who are deemed to trigger the licensing requirement in Illinois, such a consideration will prove beneficial to market growth and innovation in a strategic state such as Illinois.”
Philip Fornaro, principal attorney for Illinois legal firm Fornaro Law, suggested that the state consider other solutions for regulating the industry instead of TOMA.
He reasoned that the state, in opting to declare that digital currencies lie outside of the definition of money”, shouldn’t impose money transmission regulations on brokers, for example. While some kind of licensure ought to be required, Fornaro wrote, determinations by agencies like the IRS (which deemed bitcoin to be a kind of property in 2014) should be fully embraced by the state.
“In our opinion, the IDFPR should spend more time observing this emerging market before concluding that the Illinois Transmitters of Money Act is the most appropriate regulatory framework by which to regulate the use of digital currency,” Fornaro wrote.
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