Calif. to Bitcoin: Drop Dead

by Will Allen

The Bitcoin Foundation, the D.C. nonprofit that serves as the principal advocate of the eponymous online alternative currency, has received a cease-and-desist order from California regulators. On Sunday Jon Matonis, a Forbes contributor who sits on the board of the Bitcoin Foundation, published the letter from Paul Crayton, counsel for the state’s Department of Financial Institutions. Crayton states that the Foundation “may be engaged in the business of money transmission without having obtained the license or proper authorization required by the California Financial Code.”

Matonis flatly denies that the Bitcoin Foundation is a money transmitter, a category which includes wire services such as Western Union and online-payment processors such as PayPal. Referencing a similar letter sent by Illinois regulators to the San Francisco-based company Square (creator of a popular card-reader app for smartphones and tablets), Matonis warned, “If this practice grows among states, it could have a potentially significant ‘chilling effect’ on financial services innovation, especially upon lawful businesses that are designing infrastructure to support and grow the Bitcoin technology. Freedom of choice in currencies is probably the most important free speech issue of our time.”

Bitcoin Foundation general counsel Patrick Murck told Wired that the letter comes amid increasing scrutiny by several state regulators of the growing market for Bitcoin-denominated transactions; the currency is also under investigation by the Federal Reserve. However, he emphasized that the Foundation is neither a money transmitter nor a business of any kind: “We’re essentially a community driven organization that seeks to promote, protect and standardize the Bitcoin protocol.”

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