California: Laws Related to Token Sales, Blockchain, and Digital Proof

The most important laws applying to token sales, blockchain, and digital proof in California come from the federal and not the state level. Please refer to those in detail on our U.S. Federal laws page. Below are some additional legislation that California has passed or tried to lass related to blockchain, to give a sense of the current legal sentiment towards blockchain as of Dec 19, 2017. Most of these bills did not pass and it is reiterated that the bulk of laws in effect which impact blockchain regulation is at the federal level; it’s okay to skim this section.

Passed Laws and Regulations:

(AB 2658)

Status - Passed in State Senate and General Assembly, awaiting Governor signature

In February 2018, the bill was introduced the first time. California’s AB 2658 bill directs the Secretary of the Government Operations Agency to create a blockchain working group. In the group, the participants will be from technology as well as non-technology industries including participants from law background and representatives from consumer and privacy organisations. Blockchain working group will also have one member of Assembly, one member of Senate, State Chief Information Officer, Director of Finance or their designees. The chairperson of the group will be designated by July 1, 2019. All the group members will be then responsible for providing recommendations to the state legislature. More information from BTC Wires

(AB 129)

Status- Passed Repealed a clause in the California Corporations Code, which prevented individuals or corporations from putting into circulation as money “anything but the lawful money of the United States.” After this repeal, cryptocurrencies may be issued and circulated in California as money.

Insurance Funds must be stored in an account insured by FDIC.

(AB 1460, Dababneh)

Status - Passed and active from Jan 1, 2018.

Summary: Modifies the California Insurance Code. Adds the clause that insurance funds [funds constituted by premiums charged by insurance companies] must be held in a bank or savings and loan association whose account is insured by the FDIC. This would exclude all funds that have been raised as insurance premiums from being stored in crypto.

Modification of the California Insurance Code: (f) Any fiduciary funds, as defined in Section 1733, received as cash, lawful money of the United States, or freely tradeable currency of any foreign government, by any person licensed, whether under a permanent license, restricted license, temporary license, or certificate of convenience, to act in any of the capacities specified in Section 1733, shall comply with Section 1734, but shall initially be maintained in a trust account in a bank or savings and loan association in California, licensed by the State of California or the United States government and insured by the FDIC.

See this and this for the effect of the amendment on legislation.

Currently in Legislature as of Jan 2018

“California BitLicense 2.0”

(AB 1123, Dababneh)

A revival of AB 1326, an attempt to enforce license requirements on firms engaging in virtual currency. Currently in Assembly. Seems to have been defeated although this legislative session has not yet ended.

“This bill would enact the Virtual Currency Act. The bill would prohibit a person from engaging in any virtual currency business, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement, as provided.”

This bill would cause an exodus of crypto-startups from Silicon Valley and the rest of the state if passed. In 2015, New York State passed their version of BitLicence laws, which led to an exodus of crypto-related startups from New York. (source)

AB 1123, as well as AB 1326 below and AB 1460 have been proposed by Matt Dababneh, who was a Democrat representing the 45th Assembly District (Western San Fernando Valley). Dababneh has resigned effective Jan 1, 2018. (source) This is good for anti-BitLicence advocates, but it is uncertain whether or not other crypto regulations will again gain traction next year in the California Legislature.  With the central importance of Silicon Valley for blockchain startups, the author things that the passage of California BitLicence seems unlikely at this stage.

Historical Unpassed Bills:

“California BitLicense”

(AB 1326, Dababneh)

AB 1326- California’s “ BitLicense “ Bill. Requires all virtual currency businesses to register with the state, with the state able to decline approval at will. Similar to New York’s “Bit Licence” bill which passed in that state. Defeated twice in legislature 2015, 2016.

(SB741, Mendoza)

Feb 2017 proposed amendment to the California Penal Code. Proposed that regarding raffle tickets in California, “ A raffle ticket shall not be sold in exchange for Bitcoin or any other cryptocurrency.” It did not pass.

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