Unlike New Hampshire next month and New York earlier this year, both of whom have put broad, restrictive licensing requirements into place on certain bitcoin transactions, North Carolina took a step in the opposite direction and became a bitcoin friendly state. 

According to the Commissioner of Banks in North Carolina they have moved closer to the Texas model instead of suffocating the small businesses and individuals in the way New York and New Hampshire have chosen to do. 

New Hampshire has regulation going into effect January 1st, 2016 that does essentially the same thing as New York, however, the regulations in New Hampshire are worse and arguably the most hostile in the United States. 

Unlike New York who offered a less restrictive license in the infamous BitLicense, New Hampshire will require a full-blown Money Transmitters license for those wishing to exchange bitcoin in that state. The regulations are so broad that even a moderately traded volume weekly could be viewed as a federal offence. One of the state attorneys has stated they don't intend to go after ATM machine operators however the regulations make a clear pathway if they so desired to and nothing stops the federal government after January if they so choose to take action.

New Hampshire residents caught off guard are reportedly looking to stop the bill before it goes into effect. House Bill 666 passed back in July without little to no attention paid to its existence.

Where One Falls, Another Rises

The New Hampshire news is depressing but North Carolina has a remedy that has put a smile back on allot of faces. Not quite the enterprise approach Texas has taken (which the job creation to show for it) but a positive forward movement nonetheless. North Carolina provided clarity in regards to NC MTA that allows a good portion of bitcoin businesses and transactions to exist and conduct operations without a state license. 

The federal requirement of MSB registration or equivalent (eg. SEC, CFTC. etc..) is still required and they make that clear, but it does what states should do and that is to let the federal regulation govern this activity and leave the small business owners alone to focus on business and job creation. The responsibility required by the federal requirement is an expensive and time consuming process on its own without the additional expense and duplication of effort that comes with a state license.

North Carolina stopped short in that to sell bitcoin (in a buy/sell or third party related fashion) will still be subject to the requirements of a money transmitters license in some cases. However, some exchangers" (as defined by FinCEN), and "administrators" will not be required to obtain a license in which case federal registration will be sufficient.

The most prominent guidance to this affect is in their NC MTA clarifications:

A virtual currency administrator is a person that issues or redeems virtual currency. Although administrators must register with FinCEN and comply with the Bank Secrecy Act, merely acting as an administrator generally does not require a license under the NC MTA

Those clearly in the business of transmitting money and other definitions of activity regulated by NC MTA will be required to apply for a license.

This is difficult in many states. It is not easy to define "money transmission" without including those not intending to transmit money and ultimately subjecting entities to the regulations that govern the activity on a state level, as we saw with the New Hampshire ruling. 

New Hampshire claims that's not the way they intended the regulations to be, but unfortunately what they intended and what they actually did, are two different things. In fact the final version of the bill looked nothing like the original, according to reports, which was presented in favor of bitcoin using different language than that ending up in the final bill that ultimately passed.

It's not a complete win with North Carolina, but its a win and feels bigger coming of the bad news last week with New Hampshire. Most small business models will likely be able to mold themselves into one of the exemptions. 

This puts North Carolina somewhere in the middle between the strict regulations as those of New Hampshire and New York and more bitcoin friendly states like Texas. It leans a bit more toward Texas but certainly still in between.

Federal Regulation

It is important to note that the rulings in North Carolina to not have anything to do with the federal regulations. Under federal regulations, almost anything involving bitcoin is considered money transmission outside of trading on a regulated exchange and even then only if it is bitcoin you or your company owns directly and only for investment purposes and/or personal use.

Those currently working on registrations or renewals in North Carolina do not get a free pass from the federal requirements. The Financial Crimes Enforcement Network (FinCEN) has no known plans to lightening up on this front. In fact, if any indications can be assumed based on actions, they clearly are putting their foot down having handed out significant fines and other actions this year. These actions were the most severe to date. If anything, the motive may well be that the pressure intensify.

Regulatory Headaches

One of the larger issues with regulations like these are challenges placed on small companies trying to scrape by with either development, trading, or other activity in the industry. These entities inadvertently get caught up in the complex web of regulation and end up troubled with the decision to either leave the state or cease operations as we've seen with both New York and New Hampshire.

There was an all out exodus earlier this year when the New York BitLicense went into affect.

The larger digital currency companies aren't really affected at all. The BitPay, Coinbase, and Circle's of the world have more than enough operating profit and investment funding to glide by these new regulations as if the weren't even there. Nobody is too worried about these organizations.

It's Joe Average, the small volume traders selling bitcoin over the counter of on peer-to-peer networks, buying local currency, supporting the community, and promoting bitcoin. New York pretty much ran all of them out of their state, or to the unemployment line, earlier this year. Its sad to see and its unnecessary.

The federal government already enforces regulations governing all of this activity. The added state regulations provide no beneficial service outside of some levels of consumer protection in that they hold a determined amount of money in case of a catastrophe. This could happen in any business of course, but others are not regulated.

All these states really accomplish in the requirement of additional regulatory compliance is cost small businesses more money than they can afford to gamble with and stifle innovation. This ultimately costs jobs, forces companies to close their doors, and drives up unemployment. In some cases, they've even thrown unsuspecting individuals in jail.

That said, this was certainly a positive thing and although not a 100% win in North Carolina, a win is a win. That's good news for bitcoin and great news for North Carolina. After the New Hampshire casualty, we really needed a bit of good news on this front.

by Dale Henry

Article by Dale Henry
Image by dinbits staff
1. New Hampshire State regulations at 399-G:(1)-(4)(XII) as effective 01-01-2016
2. North Carolina Office of the Commissioner of Banks charters N.C. Gen. Stat. 53-208.3(a), 53-208.2(a)(11)(b), and 53-208.2(a)(12) (2015).
3. As governed by the Financial Crimes Enforcement Network, III USA PATRIOT Act 2001, 31 USC 5311-5330, 31 CFR X (31 CFR P.103) ,

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