A California Senate committee overwhelmingly approved a bill Wednesday that would officially legalize Bitcoin, cryptocurrencies and other alternate forms of money in that state.
The Banking and Financial Institutions Committee voted 7-1 in favor of repealing a section of the Corporations Code that currently prohibits self-made currencies and anything else that isn’t the “lawful money of the United States.”
The bill, dubbed AB-129 Lawful Money, previously passed the California Assembly with a unanimous 75-0 vote. Now that it has been approved by the Senate Banking Committee, AB-129 moves forward to a vote on the Senate floor. After that, it will need to be signed by Governor Jerry Brown before it becomes law.
California law, as it currently stands, is less than friendly toward alternative forms of currency. Section 107 of the Corporations Code reads:
No corporation, flexible purpose corporation, association or individual shall issue or put in circulation, as money, anything but the lawful money of the United States.
The rule paints with a fairly broad brush. Under Section 107, practically all cryptocurrencies are illegal because they are “money” put into circulation — sometimes by associations, but more often by individual developers. There are over three hundred cryptocurrencies in existence, and technically they’re all banned in California.
Through the original innovation of Bitcoin and the subsequent cryptocurrency explosion, technology is completely changing what it means to be “money.” Now, state politicians are taking notice — if the California legislature succeeds in passing AB-129, it will effectively negate Section 107. This will open the floodgates for legal, alternative currencies in California.
While some could argue that the bill is unnecessary in practical terms — many people using cryptocurrencies likely don’t care whether their government approves it — the new California law will make life a little easier for large companies that want to deal in Bitcoin.
San Francisco-based Coinbase, for example, would stand to benefit from AB-129 because their main business is managing Bitcoin. The law would clarify that their business is legal in California, putting investors’ minds at ease and improving the company’s image to the public.
With this effective legalization of all alternate forms of currency, the legislators are attempting to paint California as friendly and welcoming to new technology trends. They are undoubtedly aware of Bitcoin’s rise to prominence, and want to make companies like Coinbase feel comfortable operating in the state.
Going All The Way
A previous version of the bill would only have legalized currencies with “value based on” the dollar — meaning Bitcoin is fine as long as it continues to have an official dollar exchange rate. However, the bill was amended in assembly to completely repeal the ban on alternate currencies, regardless of whether their price is pegged to the dollar.
This development means that if Bitcoin ever grows enough to where its dollar value is irrelevant — what enthusiasts refer to as reaching “the moon” — then the USD exchange rate can be dropped completely, without users having to worry about complying with state law. All currencies would be legal, regardless of whether their value is pegged to a certain amount of dollars.
Theoretically this law won’t just apply to cryptocurrencies, but also other forms of exchangeable value in the new digital economy — rewards points, coupons, and gift cards, for example. For the first time, corporations will be allowed to create their own currency and have it be legal under California law. It’s even possible that a company like Facebook could create its own legal cryptocurrency for circulation on its network.
Politicians Like Bitcoin
The proposed California law is just the latest example of a trend in the American government overall — that politicians are actually open to the idea of Bitcoin, and may even outright support it. The Federal Reserve has issued multiple positive assessments of Bitcoin’s future, and the U.S. Senate famously held a hearing on November 18 that was shockingly positive for Bitcoin.
In addition, the FEC issued a ruling in May that officially allows political campaigns to accept Bitcoin donations. Several candidates in this year’s election cycle have announced they will accept Bitcoin as campaign donations. Examples include Oakland mayoral candidate Bryan Parker, Colorado Congressman Jared Polis, and California Lt. Governor Gavin Newsom.
For Newsom, his openness to the idea didn’t come naturally:
I came from a place of absolute confusion and cynicism on Bitcoin. If anybody started talking about cryptocurrency, I’d start rolling my eyes and yawning and going, ‘Give me a break.’ Now I find it fascinating.
It’s clear that many politicians realize digital currency is the future — or at least part of the future — and they are better off embracing it than trying to fight it.