Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who graduated from Villanova University with a degree in Business Administration, and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.
In this feature, Lance discusses a recent legislative update in New Hampshire that classifies bitcoin sellers as money transmitters.
If you sell or trade bitcoins in the state of New Hampshire, you've probably heard the big news: as of January 1st, 2016, bitcoin sellers are considered money transmitters under New Hampshire law, and must be licensed and bonded as such.
With this legislation, New Hampshire is following the lead of the federal government, which is leading the push to regulate bitcoin sellers as money transmitters.
Still, it's come as a surprise to many that the home of the Free State Project, and the famously libertarian motto "Live Free or Die," is one of the first states to adopt these regulations.
Users, exchangers, and administrators
Under the new law, anyone who exchanges a digital currency for any other currency (digital or government-issued) is designated as an "exchanger," and must become a licensed and bonded money transmitter.
Administrators, who must also be licensed and bonded as money transmitters, are those whose businesses include entering virtual currency into circulation and have the authority to redeem such currency from circulation.
The only ones not affected by the law are those strictly designated "virtual currency users", or individuals who possess virtual currency and use it to buy themselves goods or services.
New license, bond requirements
These newly-minted money transmitters must have a state-issued money transmitter's license and post a $100,000 money transmitter bond. As it does for all money transmitters, the bond requirement is designed to protect the public and the state from money transmitters who unlawfully withhold, seize, or otherwise misuse the funds under their control.
$100,000 sounds hefty, but the cost of a surety bond is much lower than the bond amount. In the case of New Hampshire money transmitter bonds, that $100,000 represents the maximum level of liability for a bond claim. The cost of getting bonded can be as little as 1% of the bond amount, depending on the applicant's credit and financials.
Of course, the bond requirement is in addition to the various fees and expenses associated with obtaining the money transmitter license. The application fee itself is $500, and the application requires, among other steps, a state and federal criminal history check.
The new provisions specifically exempt retailers who exchange money for store credit or gift cards, as these are not considered virtual currency.
The exemptions also include a much vaguer clause, exempting "other persons not within the intent of this chapter as the commissioner may designate by rule or order." Whether this exemption will be applied to any form of virtual currency sales remains to be seen.
The experts weigh in
In such a tenaciously freedom-minded state as New Hampshire, the new law has predictably stirred up controversy. Virtual currency forums and publications have been buzzing with sensationalist tales of "the end of bitcoin in New Hampshire." Regulators, however, insist that users of the technology will not be burdened by the new rules, and in fact will have greater protection in case of fraud or mishandling of funds.
The big question for many enthusiasts is how individual bitcoin miners will be affected. The law states that anyone selling their virtual currency for cash is a money transmitter, no matter how small their transactions.
Most virtual currency users do sell their bitcoins for cash at some point, but may now be unable to because of the new license and bond requirement. However, some people are skeptical that individual miners will be penalized for small transactions. Moving forward, everyone in New Hampshire will be watching closely to see to what extent the new rules will be enforced.
Critics of the new legislation insist that it sets an unreasonably high cost barrier for small startups who want to break into virtual currency exchange. However, others argue that the new regulation will protect users of virtual currency from fraud or other misconduct. Some experts believe that these new regulations signify a long-term gain for bitcoin holders, as they officially recognize the exchange of goods for virtual currency, and therefore enshrine virtual currency use as legal.
It's early days yet for New Hampshire bitcoin regulations, and there are still plenty of unanswered questions about how this new requirement will be enforced, and for whom.
In general, the laws governing money transmitters are still rapidly changing, as the industry evolves to include new, innovative business models. Virtual currency exchange is still more dynamic, and even more of an uncharted frontier for both entrepreneurs and regulators.
Do you use virtual currency in the state of New Hampshire? How will these new laws affect you? Share your thoughts in the comments below!