California Bitcoin Bill Sponsor Responds to EFF Concerns

In a press release California assemblymember, Matt Dababneh dismissed all of Electronic Freedom Foundation (EFF) critisisms, saying they have “little expertise in the area of financial regulation.”

The EFF have spent decades campaigning for the protection of free speech on the internet and rights to encryption. The foundation expressed its view that if passed the Digital Currency Act, AB 1326,  would stifle innovation in the still young digital currency industry in California. “Bitcoin creator Satoshi Nakamoto would never have qualified for a license under California’s proposed virtual currency regulation,” opened a post by EFF’s Activism Director Rainey Reitman, detailing the organization’s concerns.

“We have philosophical issues with A.B. 1326—both the type of regulatory scheme it’s proposing as well as the timing of this regulation in relation to the development of new virtual currency technologies—and we also have concerns about how the bill is technically written.”
— – EFF

Dababneh respond to the EFF’s concerns, which were the group’s first comments on the legislation, dismissing all of their points and stating that the regulation was crafted with input from several members of the state’s bitcoin companies. According the the assemblymember the current version is one many of them are happy with. He went on to say that despite any apparent flaws, it is a vast improvement over New York’s BitLicense, a controversial regulatory license that was implemented earlier this year. Dababneh said that the bill that he’s sponsored was designed to attract the digital currency companies “fleeing New York.”

“I have met with individuals and companies from the largest virtual currency trading platforms to individual hobbyist developing apps while at coffee shops.  Every suggestion they have provided has led to a direct change to AB 1326 or we have otherwise resolved their concerns.”
— – Assemblymember Matt Dababneh

One of the organizations Dababneh has been working with to draft the bill is the digital currency public policy organization Coin Center, which has received funding and backing from numerous industry investors and companies, including California-based bitcoin exchange Coinbase, Silicon Valley venture capital firm Andreessen Horowitz, and digital currency storage vault Xapo, who has offices in San Francisco.

Coin Center’s Head of Research, Peter Van Valkenburgh, came out in support of the California assemblymembers response, saying that despite room for improvement the bill will help foster innovation and protect consumer rights. “Everywhere where the BitLicense overreaches or fails for vagueness, AB 1326 offers an improved approach,” wrote Van Valkenburgh in a blog post.

“The Bitlicense uses a four-pronged, metaphor-laden definition of virtual currency business in order to specify who must be licensed; AB 1326 clearly and succinctly states that only those maintaining full custody or control of bitcoins on behalf of others need license.”
— – Peter Van Valkenburgh, Coin Center’s Head of Research

Dababneh also highlighted that over half a billion dollars worth of bitcoin has been lost or stolen in recent years, and that it is time to protect consumers. Coin Center founder Jerry Brito chimed in on a different note, saying that California regulators were already moving towards regulating the industry. Brito specifically cited the government agency responsible for issuing money transmission licenses, the Department of Business Oversight (DBO), and stated that although this bill might not be perfect, proposals from the DBO could well be worse.

The Digital Currency Act is will be voted upon by the California State Senate later this year, after having passed the State Assembly last month in a 55-22 vote in June. If it passes the Senate it will move on to the state’s governor, Jerry Brown, who can either pass the bill into law or veto it.

In the meantime, Dababneh, who is also chairman of California’s Banking and Finance Committee, says he open to discussion about the bill and improving it. The bill was amended in July to include provisions for smaller digital currency firms that can now receive conditional approval, which lessens the regulatory burden on them. A similar amendment was written into the BitLicense later in its drafting process.

Dababneh was clear on his approach to the draft process, “my door remains open, yet it is clear that AB 1326 is a model, not for how we should regulate virtual currency, but how we should make legislation across the board.”