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The North Carolina Commissioner of Banks has released a document specifying in plain English what the virtual currency exemptions are according to its Money Transmitters Act (NC MTA): virtual currency miners; Blockchain 2.0 technologies; multi-signature software; and non-hosted, non-custodial wallets are generally not subject to the NC MTA.
The clarification of its position on virtual currency comes at a time when most states have withdrawn from comment nearly altogether, in a wait-and-see-what-everyone-else-is-doing kind of approach. Or, in the case of New York, BitLicense has addressed some cryptocurrency regulatory issues, though some claim the New York regulations make sweeping generalities on other virtual currency regulatory issues, leaving them wide open to arbitrary interpretation by government officials.
However, the North Carolina move toward being more explicit in virtual currency regulation is in part thanks to the efforts of the Chamber of Digital Commerce.
“North Carolina has taken a leadership role in state-level virtual currency debates and is setting an example to other states to take a more thoughtful and deliberate approach to regulating this nascent industry,” said Perianne Boring, president of the Chamber of Digital Commerce (CDC), in a statement.
The CDC sought to improve understanding on the emerging digital currency technologies and does not want overregulation to drive out innovation by the grass-roots innovators that often bootstrap their technology on modest budgets.
In a prepared statement, the CDC offered its opinion on the proposed regulations:
The North Carolina legislature is considering a bill, at the request of the Commissioner of Banks, that would update the state’s existing Money Transmitter Act to expressly include virtual currency businesses. The Chamber has been actively involved in this process, expressing concern over the proposed legislation’s broad language that could potentially be interpreted to capture certain virtual currency business models that are clearly not engaged in money transmission and should not be regulated as such. The Chamber believes that taking a broad interpretation of money transmission would subject small businesses, start-ups, and technology companies to onerous reporting requirements and hundreds of thousands of dollars in fees and bonding requirements.
The exemptions expressed in the NC MTA offer some of the most unequivocal regulation on how miners, Blockchain 2.0 technology and how other cryptocurrency technology will be regulated in North Carolina. Under the NC MTA, North Carolina miners are not regulated as per the NC MTA FAQ section:
. . . the NC MTA regulates the transmission of virtual currency. It does not regulate the use of virtual currency. A “user” is someone who uses virtual currency to buy or sell goods and services. A merchant who accepts virtual currency as payment for goods or services is a user and does not require a license. A “miner” is someone who receives virtual currency as payment for verifying transactions, typically by providing computer resources to process data. Once the miner has completed its work, the miner generally becomes a “user” of virtual currency.
In contrast, the New York BitLicense does not expressly exempt New York miners from regulation, with one particularly broad statement citing any one of the following activities of “controlling, administering, or issuing a Virtual Currency” as falling under New York regulation.
Under this reading, it not only potentially leaves New York miners in limbo, but also Bitcoin 2.0 technologies wishing to be implemented in New York that involve asset or currency issuing technology, such as colored coins and multi-signature technology that involves partial control over virtual currency.
The NC MTA offers a more direct approach to these issues by expressly generally exempting Bitcoin 2.0 technology and exempting multi-signature software. The NC MTA FAQ section states:
... Blockchain 2.0 technologies refer to the use of the blockchain (or other similar virtual distributed ledger system) to verify ownership or authenticity in a digital capacity. This technology includes such software innovations as colored coins (i.e. coins that are marked specifically to represent a non-fiat-money asset), smart contracts (i.e. agreements implemented on a virtual distributed ledger), and smart property (i.e. property that is titled using a virtual distributed ledger). These uses of the blockchain generally do not involve the use of virtual currency as a medium of exchange. As a result, these software innovations are not regulated by the NC MTA.
... Multi-signature software allows a virtual currency user to distribute authority over his or her virtual currency among multiple different actors. This software requires multiple actors to authorize a virtual currency transaction before the transaction can be consummated. Specifically, a multi-signature provider holds one of two or more private keys needed to authorize transactions. Because the multi-signature provider cannot authorize a transaction alone, this provider is not holding virtual currency on behalf of another, and does not engage in virtual currency transmission by signing transactions on behalf of the user.
Also, the NC MTA explicitly states that it will generally regulate wallet providers:
... A hosted, custodial wallet provider is in the business of storing a user’s virtual currency on a remote computer until such time as the user desires to spend or exchange the user’s virtual currency. The hosted wallet provider typically agrees to safeguard the user’s private keys and make them available at some later date. This custodial function is regulated under the NC MTA.
In contrast, a non-hosted, non-custodial wallet is typically outside the scope of the NC MTA. A non-hosted wallet is a piece of software deployed on the user’s own computer or device that makes the user’s private keys easier to use by the user. In a non-hosted, non-custodial model, the software provider never gains access to the user’s private keys and does not agree to transmit the user’s virtual currency at a later time.
For many, the NC MTA serves not only to provide guidance to the virtual currency industry in North Carolina, but also to the greater virtual currency ecosystem in the United States.
Photo Jayron32 / Creative Commons
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