SACRAMENTO, Calif. (AP) — California, which has an economy larger than all but four countries and where much of the world’s technological innovation is born, on Wednesday became the first state to formally begin exploring how it behaves broadly. adapt to cryptocurrency and related innovations.
Following a path charted by President Joe Biden in March, Governor Gavin Newsom signed an executive order for government agencies to work with the federal government to set rules for digital currencies. It also calls on officials to explore whether broader blockchain computer encryption could be integrated into government operations.
The evolving blockchain and cryptocurrency technology “is potentially an explosive creator of new businesses and new jobs and new opportunities,” said Dee Dee Myers, senior advisor to Newsom and director of the Governor’s Office of Business and Economic Development.
“So there are a lot of opportunities,” she said. “There’s also a lot of obscurity in the industry and that’s another reason we want to intervene early.”
According to Newsom’s injunction, the state — home to Silicon Valley and financial innovators like PayPal and Square — must be at the forefront of figuring out how to adapt to new technologies.
“Too often, government lags behind technological advances, so we’re leading the way in this and laying the groundwork for consumers and businesses to thrive,” Newsom, a Democrat, said in a statement.
California has a population of about 39 million and its economy is more than $3.1 trillion, larger than the United Kingdom and India. Newsom said his order is a step to make it the country’s first state “to establish a comprehensive, thoughtful and harmonized regulatory and business environment for crypto assets.”
Cryptocurrencies, which are built on blockchain database technology, have become extremely popular in recent years. About 16% of American adults have invested in, traded or used cryptocurrencies and the percentage is much higher among younger men. Biden’s Executive Order partially asks the Federal Reserve to consider whether it should create its own digital currency†
Blockchain creates the underlying transparency of a decentralized but publicly visible ledger. The technology can also be used to record other types of information, such as ownership details. The records are kept on many computers that together form a worldwide network, so that no one or no institution can check them.
There is great disagreement about the legitimacy of cryptocurrency, even among some of the world’s richest people. Elon Musk is an avid supporter of dogecoin, while Warren Buffet recently said he would not pay $25 for all of the world’s bitcoin, the most popular cryptocurrency. Each bitcoin is currently valued at around $38,000, but fluctuates wildly.
California’s approach will help legitimize the technology and bring it into the mainstream, said cryptocurrency skeptic Hilary Allen, a professor of financial regulation at American University in Washington, DC. But she doesn’t think this is the best approach for the state and its residents.
She said private investors are most likely to benefit, while the state government should look for simpler technology solutions rather than turning to technology that “is inherently complex and inefficient”.
“While this approach will create more of a market for crypto, it is unlikely to deliver the best results for California public service users,” Allen said.
California may be the first to try to develop a comprehensive approach, but Ohio was the first to try to accept virtual currencies for government services in 2018, though the program was soon discontinued because few people were using it.
Colorado Governor Jared Polis, also a Democrat, said in February that his state would start accepting cryptocurrency for government services later this year.
California lawmakers are among the many in the US who have offered related legislation. But Democratic Senator Sydney Kamlager Bill To Allow California To Accept Crypto Assets for state services failed its first commission and a similar bill this year by Republican Councilman Jordan Cunningham.
Similar measures have been introduced in Arizona, Wyoming and other states.
Despite the potential pitfalls of cryptocurrency, Newsom’s order says California must lead the way in figuring out how to adapt to technological evolution.
His order builds on a July 2020 report from the California Blockchain Working Group, which examined the use of blockchain along with its risks and benefits.
California created a new Department of Financial Protection and Innovation that same year from what had been the Department of Business Oversight, with the goal of evaluating new risks and opportunities while protecting consumers.
Newsom’s injunction calls on the department to develop guidelines for disclosures by companies when offering financial products and services related to cryptocurrencies. It will also provide guidance for state-chartered banks and credit unions regarding crypto-related products.
The department will respond to consumer complaints, work with crypto companies to resolve consumer complaints, and take enforcement action as necessary. It will also publish consumer education materials, including advice on how to avoid crypto-related scams and fraud.
Newsom’s injunction orders a separate agency to solicit proposals on how best to use blockchain to help the state and the public.
“It’s critical that we engage with the industry early and start learning the pros and cons of innovative technology early,” said Amy Tong, secretary of California’s Government Operations Agency. “We can take the next steps to lead the way and harness the potential of these tools to make government better.”