United States, Regulation 2017, Bitcoin and Blockchain Regulation

Anyone interested to know what states in the USA is Bitcoin friendly, which states are Bitcoin unfriendly, and which states are Bitcoin hostile? The answers may surprise you as it did me. Hawaii!?

An article I'm sharing below is taken from

dinbits news 1/17/2017

The regulatory landscape in the United States for virtual currency and blockchain technology is more defined than ever in 2017. As of January 1st, 2017 there are now 13 states with clearly defined positions and/or regulations in regards to the blockchain and digital currency industry.

Almost all others remain a grey area with the exception of South Carolina and Montana, both of which have no Money Transmission laws. New Mexico is no longer in that category and in fact introduce regulation effective January 1st, 2017 restricting the activity engaged with virtual currency.

There's 15 states total (some grey areas of concern) to be aware of, 5 of which are good and 10 that are not. The other 37 state/territories are grey areas currently. In a nutshell, New York, New Hampshire, Connecticut, Hawaii, Georgia, North Carolina, Washington, and New Mexico have regulations not favorable to virtual currency and should be avoided or addressed.

Joe Ciccolo, President of regulatory compliance firm BitAML based in Illinois spoke² with dinbits.com and provided some professional thoughts on the 2017 landscape.

"For 2017, I'm anticipating that we will see bitcoin exchanges and trading platforms continue to compel bitcoin traders to implement AML/KYC, a phenomenon that appeared to ramp up in the second half of 2016. " - Joe Ciccolo, BitAML.

Here's how they stack up from best to worst and some additional information on corporate formation for small businesses looking to incorporate in one of these states.

Check out our interactive regulatory landscape map for the united states.

United States Regulation Map (interactive)

Bitcoin Friendly
The following states have either no money transmission laws or have bitoin friendly guidance and/or regulation. Note this is only on the state level, most of the following states either recommend or require federal registration for operating within their juridiction or transacting with their residence.

1. Texas
   Texas remains at the top of the list as the best place for virtual currency given it's bitcoin-friendly laws, popularity in the state, and sheer size (about 28 million, 2nd in the United States) and economy (putting that into perspective, Texas would be the 11th largest economy in the world if it were a country). Texas was the first state to release an official position on bitcoin with Memorandum 1037 stating no money transmitters license is required to sell bitcoin. Bitcoin companies that reside in Texas can even run a custodial exchange without a money transmitters license (a license is required for custodial services outside of Texas).

2. Kansas
   Kansas is second and would be tied with Tennessee however they were in place first and modeled their guidance after Texas (in fact they thank Texas in their publication) and they are very similar to Texas. An outside entity might look at Kansas or Tennessee over Texas due to the lower cost of entity organization. Kansas Limited Liability Companies ("LLC")'s can be organized for $160 in state fees. That's less than half of what is costs to form in Texas which is over $300 and one of the highest state fees in the country. The down side is that Kansas has barely 3 million people residing within its jurisdiction.

3. Tennessee
   Like Texas and Kansas, Tennessee has a very similar position on bitcoin and virtual currency in general but has an quite an edge on Kansas with the 16th largest populous at 6.6 million. Tennessee is almost as expensive as Texas in legal entity organization with a minimum of $300 for filing an LLC which includes up to 6 members and $50 per member thereafter capping at $3000. With 7 or more member organizing an LLC, Tennessee would be more expensive than Texas and just about any other state.

4. South Carolina
   South Carolina has no money transmission laws nor bitcoin regulation. It's all out for bitcoin in this state and with nearly 5 million residents and state fees of $110 to organize an LLC, South Carolina is a contender for any bitcoin business. Companies may want to steer clear of SC however, in June of 2017 the states money transmission laws go into effect (New Mexico went into effectiveness on Han 1st) which will cover virtual currency. However, for the next 6 months, this is still a spot to operate.

5. Montana
   Like South Carolina, Montana has no money transmission or bitcoin regulations restricting activity. An LLC can be organized for only $60 as well. However, Montana has only 1 million people residing in the entire state leaving little room for local transactions in bitcoin.

Bitcoin Unfriendly
The following states are unfriendly, but with the exception of North Carolina, the rest can be operating in and to with caution and under certain conditions, at least for now. North Carolina has specific rules and either way you'll need at least federal paperwork to comply.

1. Wisconsin
   Wisconsin's only guidance is that they take no position. However, they do refuse to issue a money transmitters license to any company that desires one and will require an agreement if a company deals in virtual currency stating that they will not use virtual currency to transmit money. Both CoinX and Circle financial have agreements in place with Wisconsin.

2. North Carolina
   Unlike its neighboring South Carolina, North Carolina has money transmission laws and laws restricting the transacting of virtual currency. These are mainly geared towards custodial services where consumers value is at risk. Bitcoin sellers and peer-to-peer ("P2P") traders are allowed to operate so long as they are registered federally with the Financial Crimes Enforcement Network ("FinCEN"), something the friendly states above also required or recommend.

Due to North Carolina's realistic regulation for P2P traders and small business requiring they only satisfy the federal requirements, North Carolina avoids a hostile perspective for some small companies and individuals. For others, they may argue this state should be on the hostile list.

1. California
   California is currently a grey area state when it comes to bitcoin regulations, however, they have tried to regulate it and are trying again. It's only a matter of time before the largest state economy is a bitcoin hostile state. High costs of entity organization and high taxation makes California lack appeal for a bitcoin business. California sent a cease-and-desist letter to the bitcoin foundation a few years ago and also called out Coinbase stating that they were not regulated in California. Perhaps not completely hostile yet, but it's coming and they certainly are not bitcoin friendly.

"California will all but certainly move forward with its "BitLicense Lite", namely AB 1326, undoubtedly under massive industry protest. Conversely, look for Illinois to adopt bitcoin-friendly regulation." - Joe Ciccolo, BitAML.

1. Pennsylvania
   Much like New Hampshire, Pennsylvania has a bill proposed that will make bitcoin and other virtual currencies monetary value and thus require a money transmitters license to sell.

2. Florida
   Florida regulators are currently tightening up regulation and has made several arrests including two prosecutions, one of which resulted is nothing more than community service, however, due to that very case Florida has begun further regulating virtual currency and we can expect a bill soon. That said, Florida still remains a grey area currently and if carefully executed, a business model can fit into the current framework without a license.

Bitcoin Hostile
The following states, and North Carolina for some business models, should be avoided in 2017 without a money transmitters license or explicit permission in writing from the state. States require a money transmitting license or virtual currency license (New York) to conduct transactions with its residence or businesses. These licenses are expensive and intrusive and why most just left New York when the BitcLicense happened. We saw this again in New Hampshire in 2016 and we may see this in other states in 2017 since the list has grown from 3 to 6 to avoid.

Also note, even in grey area states and states where bitcoin does not require a money transmitting license, with the exception of South Carolina and Montana, you still must contact the state before operating within its jurisdiction or transacting with its residence.

1. Hawaii
   Hawaii has no official regulation on bitcoin but have made it very clear that they consider transacting bitcoin money transmission and that any business selling bitcoin to its residence needs to contact them or obtain a money transmitters license. Bitcoin is also illegal in Hawaii as tender making it the most hostile environment for bitcoin next to New Hampshire.

2. New Mexico
   New Mexico was like South Carolina and Montana. The key word being was. Today's New Mexico not only requires a money transmitters license to transmit money, it requires a money transmitters license to deal with bitcoin and other virtual currency. The new regulation effecting bitcoin went into effect on January 1st, 2017.

3. Connecticut
   Connecticut's new regulation prohibits selling bitcoin or storing bitcoin for others without a license and the bond will be set by the banking commissioner on a case-by-case basis with no clear understanding of how that is going to be calculated. This is a page out of New York's BitLicense book with its bond set after you pay the non-refundable $5000 USD. This is very Accenture-like where they quote a project based on how much money they think they can squeeze out of a company.

4. Georgia
   Georgia, a very popular bitcoin state now requires both sellers and custodians to now obtain a money transmitter license to conduct any bitcoin activity. Georgia House Bill No. 811 amended Code Section 7-1-680 adding“Virtual Currency”. It also revised Code Section 7-1-690, authorizing the Department of Banking and Finance “to enact rules and regulations that apply to persons engaged in money transmission or the sale of payment instruments involving virtual currency.”

1. Washington
   In Washington, digital currency is included in the definition of "Money Transmission" in the Uniform Money Services Act (UMSA), chapter 19.230 RCW¹:

"Money transmission" means receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer. "Money transmission" does not include the provision solely of connection services to the internet, telecommunications services, or network access. "Money transmission" includes selling, issuing, or acting as an intermediary for open loop stored value and payment instruments, but not closed loop stored value."

1. New York
   No who on earth can forget the BitLicense fiasco which cause both an Exodus and spawned one of our most popular Top 10 lists. The Top 10 most ridiculous "gotchas" in the BitLicense Application.

There's even this T-Shirt (exclusively on Purse.io)

On June 3rd, 2015, the New York Department of Financial Services issued its final virtual currency license rule after nearly two years of debate and feedback. August 8th, 2015 ended the 45 day grace period allotted for operations related to transactions involving any form of digital currency to operate without a license.

It wasn't a complete fail. It is better than a full blown money transmitters license in New York. There is that small ray of sunshine.

1. New Hampshire
   Possibly the most hostile state towards bitcoin is New Hampshire. This is amplified given the large bitcoin community in the free state. Regulators slipped virtual currency in under the definition of monetary value and nobody noticed until dinbits.com pointed it out in December of 2015. Despite that whistle, many others didn't notice until Poloniex pulled out of New Hampshire and the mainstream media didn't catch wind of it until September of 2016. In October 2016, New Hampshire held a meeting to discuss bitcoin regulation and dedicated resources to discovery of the necessity of the current regulation which requires a full blown money transmitters license. For now however, New Hampshire remains hostile territory in 2017.

http://news.dinbits.com/2017/01/state-of-regulation-2017-bitcoin-and.html