If you are anything like me, you too scratch your head in wonder when the topics of Bitcoin, cryptocurrency or Initial Coin Offerings come up. I’ve talked to experts in this area both lawyers and on the business side and I still don’t exactly get it. But, now that I am older I have come to realize that I do not have to get something for it to be real. This point was brought home to me this July in San Diego at the Uniform Law Commissions Annual Conference when the conference approved for promulgation to the states for adoption the Uniform Regulation of Virtual-Currency Businesses Act. Now you don’t have to be a nerdy lawyer like me to get excited about a law that seeks to regulate Virtual-Currency Businesses.
Following are some of the highlights of a potential law to regulate Virtual-Currency Businesses:
The Uniform Regulation of Virtual-Currency Businesses Act (URVCBA) creates a statutory framework to regulate companies or business enterprises that engage in virtual-currency business activity. Virtual-currency business activity means “exchanging, transferring, or storing virtual currency; holding electronic precious metals or certificates of electronic precious metals; or exchanging digital representations of value within online games for virtual currency or legal tender.”
The URVCBA defines virtual currency as a “digital representation of value that is used as a medium of exchange, unit of account, or store of value and is not legal tender.” This meant to a technology- neutral definition that captures as many types of virtual currency as possible. This definition explicitly excludes merchants’ rewards programs or equivalent types of values on online game platforms.
The URVCBA creates a three-tiered structural framework:
- Tier one sets forth a list of businesses and companies that are exempt from regulation.
- Tier two sets forth companies that must register with the state regulating agency with virtual-currency business activity levels between $5,000 and $35,000 annually. This “regulatory sandbox” allows companies to focus on innovation and experimentation during early stages of business development. Tier two virtual currency businesses may operate in this tier for up to two years, so long as they remain under the $35,00 threshold.
- Tier three, the full licensure tier, is for companies with virtual-currency business activity levels greater than $35,000 annually.The URVCBA includes a license application process. An application must include: (1) a description of the applying business’s current business; (2) a description of the business for the previous five years; (3) a list of the money transmission licenses held in other states; and (4) lawsuit and bankruptcy history for the business and its executive officers.
The URVCBA is a regulatory framework. It provides some insight into what can legally be defined a Virtual Currency. It all makes sense on paper if I squint and try to forget why I do not understand the original premise behind virtual currency in the first place.