BILL ANALYSIS                                                                                                                                                                                                    



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          ASSEMBLY THIRD READING
          AB 129 (Dickinson)
          As Amended  January 23, 2014
          Majority vote 

           BANKING & FINANCE   10-0                                        
           
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          |Ayes:|Dickinson, Morrell,       |     |                          |
          |     |Achadjian, Bonta, Chau,   |     |                          |
          |     |Gatto, Linder, Perea,     |     |                          |
          |     |Rodriguez, Weber          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
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           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 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 United States 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 five 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 10 years imprisonment, or both. 

          Printed reproductions, including photographs of paper currency,  
          checks, bonds, postage stamps, revenue stamps, and securities of  








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          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 $5,000, or 15 years imprisonment, or both. 

          U.S.C. 5103 Section 31 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.

           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.

           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  
          United States monetary policies, or large financial  
          institutions.  The following is a list of "community currencies"  
          in California:








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          1)Barter Bucks Concord, California

          2)Bay Bucks San Francisco, California

          3)Berkeley Barter Network Berkeley, California

          4)Berkeley Bread Berkeley, California

          5)Central Pound Clovis, California

          6)Davis Dollars Davis, California

          7)Escondido Dollars Escondido, California

          8)Fairbuck Fairfax, California

          9)Humboldt Hours Eureka, California and Arcata, California

          10)Mendocino SEED Fort Bragg, California

          11)North Fork Shares North Fork, California

          12)San Luis Obispo Hours San Luis Obispo, California

          13)Sand Dollars Bolinas, California

          14)Santa Barbara Hours Santa Barbara, California

          15)Santa Monica Hours Santa Monica, California

          16)Sequoia Hours Garberville, California

          17)Sonoma County Community Cash Santa Rosa, California

          18)TradeMarket Nevada City, California

          19)Ukiah Hours Ukiah, California

          The following is a list of the largest digital currencies  
          (cryptocurrencies) that are in use:

          1)Bitcoin









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          2)Ripple

          3)Litecoin

          4)Peercoin

          5)Namecoin

          6)Dogecoin

          7)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  
          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 does not 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"  








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          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 resource 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 Web  
          site 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 behavior based analytical  
          techniques could reveal the identities of 40% of Bitcoin users.   
          AB 129 is a continuation of efforts that began last year to  
          update, California's codes concerning payment systems.  AB 129  
          amends Corporations Code Section 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, the Assembly Banking and Finance  
          Committee is unaware of any prosecutions, arrest or enforcement  
          actions relating to this statute.  Corporations Code Section 107  








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          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.
           

          Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081 


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