Washington regulators want to turn around state's bad rep on blockchain and cryptocurrency
Earlier this year, a blockchain company called Mobius undertook an initial coin offering, an increasingly popular method of tech fundraising, but excluded six states because they posed “unnecessary risk”: Alabama, Connecticut, Hawaii, New York, Vermont, and Washington.
Washington state is home to one of the biggest tech hubs on the planet, and a burgeoning blockchain and cryptocurrency community. Washington state officials charged with regulating the industry visited Seattle recently, for a meeting that began as an in-depth look at laws surrounding currency and money transmission and turned into a discussion of image and optics.
Audience members peppered the visiting regulators, from Washington’s Department of Financial Institutions, with questions about laws and what they could do to get the word out to change the conversation about the state within blockchain circles. Regulators said state laws governing cryptocurrencies aren’t meant to rein in the surging business, but instead focus on protecting the consumer while encouraging companies to grow.
“We don’t want to be the roadblock between innovative companies getting their product to market,” said Charles Clark, director of consumer services for DFI.
Following laws passed last year, every cryptocurrency exchange with Washington customers must now operate under the state’s money transmitter laws, which have traditionally applied to businesses like Western Union. That includes an obligation to be licensed by DFI, and to maintain virtual currency reserves equal to the funds they retain on behalf of customers.
Washington has created a multi-state licensing program, meant to make it easier for companies to comply with regulations. A company registers with one state, and that state takes care of the basic requirements like background checks, leaving the more specific parts of laws up to individual states and speeding up the process. Right now, 16 states are participating in the program, and Washington officials hope to get all 50 states to sign on eventually.
Joseph Williams, Gov. Jay Inslee’s director of economic development for the Information and Communication Technology Sector, said at the event that he expects some blockchain-related legislation to come down the pike later this year.
One thing that wasn’t touched on in the meeting or by recent regulations was the controversial practice of cryptocurrency mining. Mining is not a state issue; it is controlled by local utility districts.
While Washington is working to fit the surging industries of blockchain and cryptocurrency into state laws, other states are creating exemptions to try and become hubs for those communities. Wyoming recently exempted many cryptocurrency and blockchain applications from its money transmission laws, kicking off a rush among companies to set up shop there.
“Their legislators and government are looking for any solution to try and bring development to their state,” Clark said. “They really focused on this and it got momentum. Beyond that, I can’t really come up with a reason why they would weaken consumer protections.”
Mark Mueller-Eberstein, CEO and Founder of Woodinville, Wash.-based consultancy Adgetec Corporation, was one of the more active participants at the event. Mueller-Eberstein is a former HP and Microsoft employee who is now heavily involved in the blockchain world.
He encouraged a more “crypto-friendly approach” from the government, similar to Wyoming. He said meetings like this one are an important part of the process too, and the local blockchain community needs to do a better job putting its message out there.
“Raising the profile of our local heroes and for them to actually show up and speak will go a long way,” Mueller-Eberstein said.
Lawrence Lerner, who is CEO of blockchain-focused venture capital firm Pithia and attended the meeting, said the state’s problem is more about perception than reality. Washington has two homegrown blockchain ecosystems here — RChain and DragonChain — something few states can match, Lerner says. The region’s biggest tech companies, Amazon and Microsoft, are also getting into the technology.
Lerner calls state regulations on blockchain “progressive” and said government officials are more than receptive to helping grow the industry here. However, the potential of any government intervention scared off a lot of companies, leaving disgruntled customers in their wake. But those who’ve stayed, like Coinme, which just expanded and opened its 50th Bitcoin ATM, enjoy the predictability.
“You know where the guard rails are in Washington state,” Lerner said. “Could the messaging be better? Yes.”