A North Carolina bill signed into law Wednesday by Gov. Pat McCrory aims to bring mysterious virtual currencies such as bitcoin out of the shadows and into the mainstream by updating regulations on businesses that engage in transmitting funds.
Passed nearly unanimously in North Carolina’s legislature, the Money Transmitters Act puts those who transfer funds using the bitcoin digital system within the same regulatory framework as more well-known transmitters, such as Western Union and online processors, such as PayPal.
Virtual currencies are defined by the International Monetary Fund as representations of value that exist solely in electronic form, as opposed to physical representations, such as a dollar bill. Private developers issue virtual currencies using their own specialized unit and don't fall into the category of legal tender. The units, however, can be exchanged between parties on the Internet.
The North Carolina system contrasts with the state of New York’s new regulatory system, which requires a state agency, the Department of Financial Services, to issue virtual currency licenses. The state issued its fourth license last month to an affiliate of Ripple Labs to operate in the virtual currency marketplace.
States interested in regulating bitcoin point to benefits, such as stopping financial transactions that support terrorism and preventing money laundering. At the same time, consumers can be more assured that money transfers will occur as promised.
The North Carolina law also clarifies that a money transmitter’s license is required only for those who profit from the transmission of funds, not consumers who send money electronically without an expectation of financial gain, according to a state analysis of the bill.
“The (North Carolina) act is a more comprehensive and business-friendly approach to regulating virtual currency on the state level, and starkly contrasts with New York’s separate licensing regime,” Perianne Boring, president of the Chamber of Digital Commerce, told AMI Newswire.
Many other states are looking to update their regulatory systems to cover virtual currencies, she said.
Boring indicated that North Carolina is the first state to pass comprehensive virtual currency regulation into law. The new act will clarify ambiguous language in the old law and take into account technological advances in Internet technologies that have occurred since the law was written.
The bitcoin system uses software that operates like a ledger or spreadsheet, which, in turn, is shared by computers around the world, rather than stored in a central location. Under such a system, parties can transmit money to one another at much lower costs, with no need for a bank or credit union as an intermediary.
The transactions can be verified by all parties to ensure trust in the system. Investors in bitcoin, who purchase specialized computing machines, help to assemble the public ledgers, called "blockchains," and then receive financial rewards
for their work.
“New products and services derived from blockchain technology have the potential to revolutionize entire categories of industry – including global finance, government records, smart contracts, proof of asset ownership, digitization of and encryption of medical records, proof of digital identity, securities trading, anti-counterfeiting services, secure voting systems and countless others,” Boring said.
She indicated that the technology would be as groundbreaking as the invention of railroads, cars and even the Internet itself.
A key federal financial oversight committee, however, last month issued cautions about the growth of virtual currencies. In its annual report dated June 21, the Financial Stability Oversight Committee stated that the distributed ledger system used by bitcoin creates risks and uncertainties that require the attention of financial regulators.
“Bitcoin trade confirmation delays have increased dramatically, and some trade failures have occurred as the speed with which new Bitcoin transactions are submitted has exceeded the speed with which they can be added to the blockchain,” the report states.
The committee also found that some distributed ledger systems are vulnerable to fraud and collusion among system participants.
The North Carolina law stops short of putting Bitcoin in the class of legal tender. The legislation defines virtual currency as “a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account, or a store of value … but does not have legal tender status as recognized by the United States government.”