The Golden State may have earned its nickname from the enterprising rush to mine the hills here 170 years ago, but it was a similar sentiment that drove the tech entrepreneurs of the 1970s. A spirit of innovation, risk taking, and opportunity in the fabric of California made it the perfect place for young entrepreneurs to come and work on projects no one thought possible — like the personal computer, the smartphone, and the silicon chips from which the area earned its name.
Less well known, but equally important to the state's entrepreneurial success was the framework of laws that made it so easy to build companies here. And it's thanks to that environment that California is now the world's fifth largest economy with a tech industry that's the envy of the world.
Unfortunately, the nascent but promising cryptocurrency industry might have to strike out for gold somewhere other than California. A bill currently being debated by the legislature, AB 2269 by Assemblymember Tim Grayson, D-Concord, would make it difficult for crypto companies to operate in California and serve the state’s consumers.
The stakes are high and go beyond just crypto-related companies. Californians should have the same opportunities as people living in other states to easily and securely invest, spend, save, earn and use crypto. Fostering the growth of accessible digital assets should be a top priority for California. Policymakers need to create a regulatory framework that protects consumers and still allows crypto to remain accessible.
Under AB 2269, California would create new compliance requirements to operate in the state for both products and trading platforms. In other words, every crypto company would need to ask for a permission slip from a department that oversees financial protection and innovation before they could operate.
New York state implemented a model similar to the one proposed in California seven years ago — and it's been a disaster for innovation and consumers in that state. Strict requirements for crypto companies and trading platforms have locked New Yorkers out of trading markets and limited their access to crypto products that are widely available elsewhere.
In a few cases, strict compliance guidelines in New York have forced companies to spend more than $100,000 in fees, and some smaller startups were even driven out of business completely because they could not afford the fees and legal expenses. New York has had years to make this system work, but its rules now make the state a laggard in tapping crypto’s promise.
California can learn from New York's mistakes and fix AB 2269 to create a pragmatic regulatory structure that works for the state and industry alike. The state should work with other regulatory agencies around the country to grant reciprocity licensing, which would make California a friendlier place to the crypto industry while still protecting consumers.
Legislators should consider implementing a crypto “sandbox” like Arizona or Wyoming have, giving new crypto companies, or companies that have untested features or services, the chance to practice safely. A sandbox is designed to prevent threats from getting on the network and out to the general public and is frequently used to inspect untested or untrusted code.
Sandboxes are a way for companies to initially have limited access to a market to test new technologies and services with a smaller, well-informed group of users before applying for a license to operate. This approach would attract innovative crypto start-ups to California and give them an opportunity to responsibly innovate and demonstrate they’re in compliance with state regulations.
California has an incredible history of fostering innovation, taking risks, and changing the world by leaps and bounds. The state shouldn't give up on the legacy of innovation that created Silicon Valley. Lawmakers in California should amend AB 2269 to encourage crypto innovation, attract crypto jobs to California, and protect consumers.
Adam Kovacevich is CEO of the Chamber of Progress, a McLean, Virginia-based tech industry coalition that promotes a progressive society, economy, workforce and consumer climate.
