The state’s small but active bitcoin community has been rattled by a cryptocurrency firm’s decision to leave New Hampshire because it doesn’t like the state’s regulations, raising the thorny question of how government can protect consumers drawn to an industry designed to sidestep government.
“I don’t want to be protected by the state. I don’t want what comes along with that,” said Will Anderson of Concord, a self-described bitcoin enthusiast who was among a half-dozen people testifying Wednesday in front of the nation’s only legislative committee on regulations for bitcoin and other cryptocurrencies.
That same viewpoint was expressed by several other speakers, many associated with libertarian groups or movements, including a half-dozen people who came from the Keene area.
The crowd was unusually large for the technical session of a standing committee pondering an obscure topic with no proposed legislation to debate. It came together because of a decision of Poloniex, a Washington, D.C.-based bitcoin exchange, to shut all in-state accounts as of Oct. 6 “due to changes in New Hampshire’s regulatory statute as it applies to cryptocurrency.”
Poloniex Chief Experience Officer Michael Demopoulos told the Committee to Study Cryptocurrency Regulation on Wednesday that his firm was in discussion with the New Hampshire Banking Department and hoped to resolve the matter.
Three other bitcoin exchanges – Coinbase, CoinEx and Circle Internet – have registered with the state Banking Department. Demopoulos said Poloniex is different from those because it deals only with cryptocurrency, not with dollars and other “fiat currency,” a term for legal tender backed by a government. It’s not clear whether this difference is the reason for Poloniex’s withdrawal from New Hampshire.
This situation came about after the Legislature overhauled the state’s banking and credit union laws in 2015. One change involved the term “convertible virtual currency” when describing regulated matters.
The state Banking Department began looking at cryptocurrency exchanges, which are companies that hold bitcoin and other virtual currencies owned by other people. Maryam Torben-Desfosses, a hearing examiner for the Consumer Credit Division of the Banking Department, told the commission that depending on the details of their business model, these firms may be subject to the same regulations as money exchanges like Western Union, or of holders of what is known as “stored value” items such as debit and credit cards.
The goal, she said, is to protect consumers. Torben-Desfosses pointed to high-profile failures such as a Japanese bitcoin exchange known as Mt. Gox, which cost customers hundreds of millions of dollars worth of lost bitcoin when it was hacked, but said that more mundane concerns are also important.
“If I’m going to use the exchange to send money to Alaska, how can we make sure it gets there, that the (exchange) is not going to pocket it?” she said.
In response, speakers Wednesday expressed concern that regulations built for an established industry like banking are too heavy-handed for a new industry like cryptocurrency and could strangle it, or tarnish New Hampshire’s reputation as a home for innovation.
“Sending a signal to the rest of the country, the rest of the world, that we’re suspicious of this could prevent new industries from settling here and creating high-paying jobs,” said Rep. Keith Ammon, a New Boston Republican and one of the Legislature’s biggest fans of bitcoin. “My main point is to tread lightly on this, because we don’t know where it’s going to go – it’s still up in the air.”
Rep. John Hunt, a Rindge Republican and chairman of the committee, made the argument that regulation might be overkill because people who lose money can sue for triple damages, and since the state has received no complaints from consumers yet about the field, it’s too early for the government to step in. After the meeting, he said he was making this argument at least partly as devil’s advocate to see what response it would draw from regulators.
Committee member Rep. Susan Almy, a Lebanon Democrat, said that bitcoin use is still “on the fringe” so regulation is less an issue at the moment, but that things might change.
“If it gets out of the fringe movement, we have a problem – and they have a problem,” she said.
Bitcoin is the best known of a number of types of digital currency created in recent years on the back of a technology known as the blockchain. The blockchain, an encrypted online ledger that is shared by as many computers as necessary, holds the possibility of altering many industries – not just finance and banking but also insurance, real estate, supply chain management and even local government record-keeping.
Blockchain, however, is not the issue here. Torben-Desfosses, a hearing examiner for the Consumer Credit Division of the Bank Department, emphasized Wednesday that the state does not regulate blockchain. “It’s not the technology that is regulated, it’s the use to which it is put for virtual currency,” she said.
(David Brooks can be reached at 369-3313 or firstname.lastname@example.org or on Twitter @GraniteGeek.)