With Bitcoin, Dogecoin, Etherium and other cryptocurrencies making headlines in the past couple of weeks, it’s natural for anyone to be curious about them.
Morbidly curious, perhaps, given the news as of late.
Bitcoin’s value fell drastically last month, prompting a sell-off across cryptocurrencies that by some estimates wiped out $1 trillion in market value.
This latest crash was hardly the worst in Bitcoin history, but it proved the one thing we know for certain about these new financial instruments: They are very volatile, and present as much risk as they do potential.
It is this risk of consumer harm that has prompted some governments to place strict regulations or even outright bans on Bitcoin and other “altcoins” (i.e., any cryptocurrency other than Bitcoin).
Given the decentralized and federated technology involved, however, it’s impossible to ban Bitcoin or other digital currencies. You can only restrict local access to them. While people in some jurisdictions can buy, sell, and exchange Bitcoin freely, others cannot — at least, not lawfully.
Now hard-core fans of crypto have a natural tendency to speak in code or in hushed tones, using an almost alien language made up of acronyms, catch phrases and memes. Given the impenetrability of some of these communities, it’s reasonable to think that dealing in crypto is like trading on the black market.
In fact, I’ve had local friends tell me outright that it’s illegal in Hawaii.
To set the record straight, Bitcoin and cryptocurrencies are not illegal in Hawaii. Interacting with them is, however, complicated.
First of all, it wasn’t a contemporary rush of anti-Bitcoin sentiment that drove Hawaii to regulate cryptocurrencies. It was law already on the books that was written broadly enough to ensnare them.
In 2014, when the biggest Bitcoin crash in history was triggered by the collapse of Japan-based exchange Mt. Gox, then-Gov. Neil Abercrombie turned to Hawaii Revised Statutes Section 489D-4, the “Money Transmitters Act.”
The act addressed entities that received or transmitted “money or monetary value” via check, draft “or other electronic instrument.” The state determined that cryptocurrency exchanges qualified as money transmitters and thus needed a license from the Department of Commerce and Consumer Affairs and its Division of Financial Institutions to operate in Hawaii.
Regardless of whether the square peg fit the round hole, the stage was set.
It would be several years before any cryptocurrency company applied for a license. But when they did, other requirements placed upon money transmitters proved to be untenable.
The problem wasn’t widely known until 2017, when Coinbase, the largest Bitcoin exchange, ran up against those requirements. It loudly withdrew its application and closed the accounts of every customer in Hawaii.
Many other exchanges followed suit. As a result, many Hawaii residents have been excluded from this dynamic (and volatile) marketplace.
Lawmakers and policymakers have not been standing by idly. There have been many bills introduced in the Legislature over the past several years to either exempt cryptocurrencies from the money transmitter requirements or create new laws to accommodate them. Sadly, so far, all have died in committee.
Meanwhile, the DFI partnered with the Hawaii Technology Development Corp. to create a “regulatory sandbox,” which today allows nearly a dozen cryptocurrency exchanges to operate in Hawaii as a pilot. (Coinbase, alas, is not among them.) A few more companies will join the cohort this month.
Finally, the DFI and HTDC are reaching out more to consumers. They are now circulating a survey that simply asks whether digital currency companies should be allowed to operate in Hawaii, and how the state can balance consumer protections with digital currency opportunities.
You can participate in the survey by visiting tfaforms.com/4904796 Opens in a new tab.
Meanwhile, I’ll be working with both agencies over the next year on events designed to demystify and explain digital currencies to the public, as well as to engage with local businesses and financial institutions to explore options for local regulation — including no regulation at all.
Whether you think cryptocurrencies are the future of global finance or just the next tulip mania, these are conversations worth having. Just make sure to get qualified financial advice before jumping in, and don’t take any random nerd’s word for it … least of all mine.
Ryan Kawailani Ozawa hosts the Hawaii Crypto group on Facebook, the #crypto channel on Hawaii Slack, and publishes HawaiiCrypto.net.
