Will California's move to make bitcoin lawful see other states follow suit?

Saturday 28 June 2014

This week may have marked a new era for the largest state economy in the United States. While countries like Canada are getting more strict in regards to bitcoin, California just took a step in the complete opposite direction.

The wait is now on for California Governor, Jerry Brown, to add his signature to a bill to make bitcoin lawful money in the state. 

The process so far

Roger DickinsonOn June 4, 2014 the California Senate Banking and Financial Institutions Committee voted 7-1 in support of AB-129. Assembly member Roger Dickinson’s bill hoped to recognize digital currencies, coupons, gift cards, points and more as lawful money.

The bill then went on to the Senate for debate. The debate proved no match for the bill that would repeal a law prohibiting commerce using anything but US currency; a law that the lawmakers from California, found to be outdated.

Monday, lawmakers approved the measure which will now make it easier to use alternative, virtual, and cryptocurrencies. The bill has one stop left to becoming an actual law, and that is a stop at California Governor Jerry Brown’s desk for a signature or veto.

Roger Dickinson, the creator of AB-129, is not as much of a bitcoin fan as you may think and has said that California’s approach to digital currencies is a neutral one.

The bill created by Dickinson calls for a complete repeal of Section 107 of the California Corporations Code, which currently prevents companies or persons from creating unlawful forms of money. The bill does not expressly advocate the survival or promotion of bitcoin or any other cryptocurrency, as the law covers gift cards, coupons, reward points and other forms of value trading.

In an interview with CoinDesk, Dickinson, like other assemblymen, believed that changes were needed to the law as it is currently written. These changes would help ensure that the users of various forms of alternative currencies are not subject to future prosecution or, face the fear of possibly breaking any law when using bitcoin or the other methods included in the bill – whether the use was for the purchase of goods and services or used in any transmission of payment.

The law heading to the Governor’s desk does not however treat digital currencies as legal tender. Rather, it treats it as "lawful money" that is legal to accept for goods and services. This means that you can pay your landlord in bitcoin if he accepts it but the only legal tender with required acceptance in California or anywhere in the United States is the US dollar.

In an analysis of the bill, Mark Farouk, the Chief Consultant at the California State Assembly, reported the following and included other alternative currencies currently in use before commenting on bitcoin:

"This bill makes clarifying changes to current law to ensure that various forms of alternative currency such as digital currency, points, coupons, or other objects of monetary value do not violate the law when those methods are used for the purchase of goods and services or the transmission of payments.

Modern methods of payment have expanded beyond the typical cash or credit card transactions. Bitcoin, a digital currency (also called cryptocurrency), has gained massive media attention recently as the number of businesses has expanded to accept bitcoins for payment. Long before the introduction of digital currencies, various businesses have created point models that reward consumers with points for completion of various tasks such as spending a certain dollar amount, or even by purchasing points with dollars. These point systems effectively operate as currency allowing the consumers to buy a retail item or pay for some type of service.

Many communities across the United States and in California have created "community currencies" that are created by members of a community in conjunction with merchants who agree to accept the alternative currency. These "community currencies" are created for a variety of reasons, some of which include encouraging consumers to shop at small businesses within the community or increasing neighborhood cohesiveness. "Community currency" has also become a form of political protest as some communities that use such currency do so in protest of United States monetary policies, or large financial institutions.

The following is a list of alternative currencies:

BerkShares: While bitcoin and litecoin are worldwide currencies, BerkShares are hyper-local: they are only accepted in the Berkshires, a region in western Massachusetts. According to the BerkShares Web site, more than 400 Berkshires businesses accept the currency and 13 banks serve as exchange stations. “The currency distinguishes the local businesses that accept the currency from those that do not, building stronger relationships and greater affinity between the business community and the citizens,” the site reads.

Equal Dollars: Philadelphia is also trying out a local currency with Equal Dollars. When you sign up to participate, you receive 50 Equal Dollars; to earn more, you can offer your own possessions in an online marketplace, volunteer or refer friends.
Starbucks Stars: Use of Starbucks Stars is limited not to a particular geographic locality, but to the corporate ecosystem that is Starbucks. Once you get a Starbucks Card, you can earn Starbucks Stars — which buy drinks and food — by paying with the card, using the Starbucks app, or entering Starbucks Star codes from various grocery store products. According to Kemp-Robertson, 30% of transactions at Starbucks are made using Starbucks Stars.

Amazon Coins: Another company-specific currency, Amazon Coins, can be exchanged for “Kindle Fire apps, games, or in-app items.” You get 500 Amazon Coins, worth $5, by purchasing a Kindle Fire, or can buy more Amazon Coins at a slight savings.

Linden Dollars: Usable within the online community Second Life, can be bought with traditional currency or earned by selling goods or offering services to other Second Life residents. Many people earn actual Linden salaries — some to the tune of a million Linden Dollars."

From: - AB129 lawful Money: Bill Analysis

What this could mean for the US and bitcoin

Map of USA CA

What the passing of the bill means is that shortly, bitcoin will be recognized as lawful money in the largest state economy in the United States.

California’s state economy is so big that if the states were compared with all the countries in the world,

California would rank as the 8th largest economy.

Wikipedia states that as of 2013, the gross state product (GSP) of California is about $2.2 trillion, which is 13.2% of the United States gross domestic product (GDP) as a whole.

The signature from Governor Brown, should be a major step in the ever-evolving bitcoin drama.

If California, which ranks 8th in size in terms of the world’s economies, allows bitcoin, altcoins, gift cards

and more as “lawful money,” it could be setting the pace or groundwork

for other states and countries to do so as well.

Bitcoin in general has had a varied response since its development and release came to light in 2009. Some people are against the cryptocurrency for its use in illegal operations like the ones that were taking place at Silk Road. Others are in favor of the crypto movement because of the amount of freedom it brings the individual user and the facts that it is not being controlled by one entity or regulated by a central bank. Although the future of bitcoin and other crypto or alternative currencies are still unknown, the California State Assembly’s passing of AB-129 declaring bitcoin lawful money is another step towards bitcoin use being expanded across the country and the rest of the world.

California image: Huebi/Wikimedia Commons


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