BILL ANALYSIS Ó
AB 129
Page 1
Date of Hearing: January 21, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 129 (Dickinson) - As Amended: January 7, 2014
SUBJECT : Lawful money: Alternative currency.
SUMMARY : Specifies that current law which bans the issuance or
circulation of anything but lawful money of the United States does
not prohibit the issuance and use of alternative currency.
EXISTING STATE LAW provides under Corporations Code section 107
that no corporation, flexible purpose corporation, association, or
individual shall not issue or put in circulation, as money,
anything but the lawful money of the United States.
EXISTING FEDERAL LAW provides that manufacturing counterfeit United
States currency or altering genuine currency to increase its value
is a violation of Title 18, Section 471 of the United States Code
(U.S.C.) and is punishable by a fine of up to $5,000, or 15 years
imprisonment, or both.
Possession of counterfeit United States obligations with fraudulent
intent is a violation of Title 18, Section 472 of the U.S.C. and is
punishable by a fine of up to $15,000, or 15 years imprisonment, or
both.
Anyone who manufactures a counterfeit U.S. coin in any denomination
above five cents is subject to the same penalties as all other
counterfeiters. Anyone who alters a genuine coin to increase its
numismatic value is in violation of Title 18, Section 331 of the
U.S.C., which is punishable by a fine of up to $2,000, or
imprisonment for up to 5 years, or both.
Forging, altering, or trafficking United States Government checks,
bonds, or other obligations is a violation of Title 18, Section 510
of the U.S.C. and is punishable by a fine of up to $10,000, or ten
years imprisonment, or both.
Printed reproductions, including photographs of paper currency,
checks, bonds, postage stamps, revenue stamps, and securities of
the United States and foreign governments (except under the
conditions previously listed) are violations of Title 18, Section
474 of the U.S.C. Violations are punishable by fines of up to
AB 129
Page 2
$5,000, or 15 years imprisonment, or both.
Section 31 U.S.C. 5103. Declares that United States coins and
currency (including Federal Reserve Notes and circulating notes of
Federal Reserve banks and national banks) are legal tender for all
debts, public charges, taxes, and dues.
FISCAL EFFECT : None
COMMENTS :
This bill makes clarifying changes to current law to ensure that
various forms of alternative currency such as digital currency,
points, coupons, or other objects of monetary value do not violate
the law when those methods are used for the purchase of goods and
services or the transmission of payments. Modern methods of
payment have expanded beyond the typical cash or credit card
transactions. Bitcoin, a digital currency (Also called
cryptocurrency), has gained massive media attention recently as the
number of businesses has expanded to accept Bitcoins for payment.
Long before the introduction of digital currencies, various
businesses have created points models that reward consumers with
points for completion of various tasks such as spending a certain
dollar amount, or even by purchasing points with dollars. These
point systems effectively operate as currency allowing the
consumers to buy a retail item or pay for some type of service.
Many communities across the United States and in California have
created "community currencies" that are created by members of a
community in conjunction with merchants who agree to accept the
alternative currency. These "community currencies" are created for
a variety of reasons, some of which include encouraging consumers
to shop at small businesses within the community or increasing
neighborhood cohesiveness. "Community currency" has also become a
form of political protest as some communities that use such
currency do so in protest of US monetary policies, or large
financial institutions. The following is a list of "community
currencies" in California:
Barter Bucks- Concord, California
Bay Bucks San Francisco, California
Berkeley Barter Network Berkeley, California
Berkeley Bread Berkeley, California
AB 129
Page 3
Central Pound Clovis, California
Davis Dollars Davis, California
Escondido Dollars Escondido, California
Fairbuck Fairfax, California
Humboldt Hours Eureka, California and Arcata, California
Mendocino SEED Fort Bragg, California
North Fork Shares North Fork, California
San Luis Obispo Hours San Luis Obispo, California
Sand Dollars Bolinas, California
Santa Barbara Hours Santa Barbara, California
Santa Monica Hours Santa Monica, California
Sequoia Hours Garberville, California
Sonoma County Community Cash Santa Rosa, California
TradeMarket Nevada City, California
Ukiah Hours Ukiah, California
The following is a list of the largest digital currencies
(cryptocurrencies) that are in use:
Bitcoin
Ripple
Litecoin
Peercoin
Namecoin
Dogecoin
Primecoin
Recently, a new digital currency attempted to emerge, known as
COINYE (Originally called COINYE West) which was modeled after
Bitcoin and implied a connection to rapper Kanye West via a cartoon
picture of Kanye West as the currency's logo. A lawsuit filed in a
Manhattan federal court sought to stop COINYE on the grounds that
it used the rapper's image to cash in on his popularity without his
consent, damaging his reputation and confusing consumers about the
source of the cryptocurrency.
Facing legal action, creators of COINY have ended the project and
COINYE is now Lost in the World, but may have been nothing more
than a Dark Fantasy.
Bitcoin
Bitcoin has garnered the most attention of any other digital
AB 129
Page 4
currency, but even for its increasing awareness in the marketplace,
many people do not completely understand what it is or how it
works. Bitcoin has been called the world's "first decentralized
digital currency" and was created in 2009 by a programmer using the
alias, Satoshi Nakomoto. The idea behind Bitcoin is that it
doesn't have a central clearinghouse or any singular authority and
it is not pegged to any real tangible currency. Its value arises
from the value that people assign to it. It works via peer-to-peer
network where tasks are shared amongst multiple interconnected
peers who each make a portion of their resources (computing power)
directly available to other network participants, without the need
for centralized coordination by servers. The network depends on
users who provide their computing power to reconcile transactions
and keep the block chain. These users in the system are called
"minors" because they can potentially be rewarded for their
participation in the network with the creation of Bitcoins.
Bitcoins are created (mined) as thousands of dispersed computers
solve complex math problems. With the solving of the complete math
problem Bitcoins are created. Bitcoin was designed to be a finite
resources such as gold or silver, thus the total number that can
ever be created is capped at 21 million Bitcoins. It has been
estimated that the last .00000001 of a Bitcoin will be "mined" in
2140.
Transactions occur via public key encryption which generates two
mathematically related keys. One key, the private key is retained
by the individual and the other key is made public. The intended
recipients public key is used to encode payments, which can only be
retrieved by the associated private key. The payer in the
transaction uses his or her own private key to approve the transfer
to the recipient. Every Bitcoin transaction is registered in a
public, distributed ledger called the block chain. New
transactions are checked against the block chain to ensure that the
same Bitcoins have not already been spent.
Is Bitcoin completely anonymous? No, it has been described as
pseudonymous as it is somewhat like cash in that once Bitcoins have
been received by one party no third party exists between the
parties that knows their identities. However, the transaction
information is recorded in the block chain as has every Bitcoin
transaction that has occurred in history. Additionally, a person's
identity, such as IP address, is recoded when the person makes a
Bitcoin transaction at a website or uses one of the numerous
services to exchange dollars from Bitcoins. One study, "Evaluating
User Privacy in Bitcoin" by Elli Androulaki found that using
AB 129
Page 5
behavior based analytical techniques could reveal the identities of
40% of Bitcoin users.
Emergence of New Payment Systems Under Old Statutory Regimes .
In 2013, this committee held several oversight hearings examining
the growth of technological innovation in the payments industry and
the lack of modernity in some of California's statutes that address
the movement of money. The most recent hearing, The Technology of
Consumer Financial Transactions, occurred on November 21, 2013 and
highlighted the growing trends and changes within the payments
world (Background paper available at
http://abnk.assembly.ca.gov/sites/abnk.assembly.ca.gov/files/The%20T
echnology%20of%20Consumer%20Financial%20Transactions%20background%20
document.pdf ). What emerged from that hearing is that California
has a growing and innovative payments market, but a stagnant
regulatory regime. The majority of all hearing participants agreed
that for most payment transactions a law already exist, but
technology has confused the manner in which that law may apply and
ultimately who may have the various legal responsibilities in the
event of loss.
AB 129 is a continuation of efforts began last year to update,
California's codes concerning payment systems. AB 129 amends
Corporations Code 107, a largely outdated prohibition on the
issuance and use of "anything but the lawful money of the United
States." According to the literal meaning of the statute anyone
that issues or uses digital currency, community currency, or
perhaps even reward points is in violation of the law. However,
staff is unaware of any prosecutions, arrest or enforcement actions
relating to this statute. Section 107 can actually be traced back
to the first state constitution of California, established in 1849,
which contained a provision prohibiting the creation and issuance
of paper to be used as money by any bank. This was a common
prohibition across the states during the 19th century as the risk
of states, or even non-state entities creating their own money was
a real concern. In 1972, during a series of revisions to the
California Constitution the currency provision was removed from the
Constitution and placed in the Corporations Code.
Section 107 may not be necessary at all, but until further research
is conducted staff recommends simply amending Section 107 until it
is clear that its elimination will not create unintended
consequences. In the intervening time the following technical
amendments are suggested:
AB 129
Page 6
1) Eliminate references to "corporation, flexible purpose
corporation, association, or individual" and instead replace
with "person." The Corporations code already defines "person"
to mean "corporation" and "individual" is never defined as a
term, but is typically included in the "person" definition.
2) Insert "of the United States" after "money" on page 3, line
5.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081