By Don Thompson
Associated Press
California, which is the world's fifth largest economy, and where much of the world's technological innovation is born, on Wednesday became the first state to begin formally examining how to adapt to cryptocurrencies and related innovations in that field.
Following the path laid out by President Joe Biden in March, Democratic Governor Gavin Newsom signed an executive order for state agencies to study with the federal government the elaboration of regulations for digital currencies.
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It also asks officials to explore the incorporation of a broader computer encryption than the
blockchain
-or chain of blocks- (a database of digital operations of which everyone who participates in the network keeps a copy) in the operations of the Government.
The evolution of
blockchain
and cryptocurrency technology "is potentially an explosive creator of new businesses and new jobs and new opportunities," explained Dee Dee Myers, senior adviser to Newsom and director of the Governor's Office of Business and Economic Development. .
“So there are a lot of opportunities.
There are also a lot of unknowns in the industry, so that's another reason why we want to engage soon,” he added.
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Newsom's order indicates that the state - home to Silicon Valley and financial innovators such as PayPal - an online payment system company and Square - a financial services and digital payments company - must be at the forefront in seeking to adapt to the new technologies.
“Too often, government lags behind technological advances
, so we are getting ahead of the game, laying the groundwork for consumers and businesses to thrive,” Newsom said in a statement.
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California has about 39 million inhabitants and its economy exceeds 3.1 billion dollars, larger than that of the United Kingdom and India.
Newsom noted that his order is a step toward making it the first state in the nation “to establish a comprehensive, thoughtful, and harmonized business and regulatory environment for crypto assets.”
Cryptocurrencies, which are based on blockchain
database technology
, have exploded in popularity in recent years.
Around 16% of American adults have invested, traded or used cryptocurrencies and the percentage is much higher among younger men.
Biden's executive order asks in part for the Federal Reserve to consider whether to create its own digital currency.
The
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 property records.
Records are kept on many computers that together form a global network, so no one or institution can control them.
A cryptocurrency ATM next to a cash teller in San Francisco, Calif., on Wednesday, February 23, 2022. David Paul Morris/Bloomberg via Getty Images
There is strong disagreement about the legitimacy of cryptocurrency, even among some of the world's richest people.
American businessman and tycoon Elon Musk - CEO of Tesla and SpaceX - is an ardent supporter of the dogecoin cryptocurrency, while investor and entrepreneur
Warren Buffet recently said he would not pay $25 for all the world's bitcoin
, the most popular cryptocurrency .
.
Each bitcoin is currently valued at about $38,000, but it 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 it's the best approach for the state and its residents. .
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He believes that private investors are the most likely to benefit, while the state government should seek simpler technological solutions rather than resort to technology that "is by its very nature complex and inefficient".
“Although this approach will create more of a market for cryptocurrencies, it is unlikely to produce the best results for users of public services in California,” Allen opined.
California may be the first to try to develop a comprehensive approach, but Ohio was the first to try to accept virtual currency for government services in 2018, though the program was soon discontinued because few people used it.
Colorado Governor Jared Polis, also a Democrat, said in February that his state would begin accepting cryptocurrency for government services later this year.
California lawmakers are among many who have proposed legislation in the United States.
But a bill by Democratic Sen. Sydney Kamlager to allow California to accept crypto assets for state services failed in its first committee this year and a similar bill by Republican Assemblyman Jordan Cunningham is stalled.
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Similar measures have been introduced in Arizona, Wyoming and other states.
Despite the potential pitfalls of cryptocurrency, Newsom's order says California must take the lead in figuring out how to adapt to technological developments.
His order is based on a July 2020 report from the California Blockchain Task Force, which examined the use of this technology along with its risks and benefits.
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That same year, California created a new Department of Financial Protection and Innovation out of what had been the Department of Business Oversight, with the goal of assessing emerging risks and opportunities and protecting consumers.
Newsom's order calls for the department to develop guidelines for disclosure by companies when offering cryptocurrency-related financial products and services.
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It will also provide guidelines for state-chartered banks and credit unions regarding cryptocurrency-related products.
The department will respond to consumer complaints, work with crypto businesses to resolve consumer complaints, and take enforcement action when necessary.
It will also post educational material for consumers, including tips to avoid cryptocurrency-related scams and fraud.
Newsom's order calls for 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 industry early and start learning the ins and outs of innovative technologies early on,” said Amy Tong, Secretary of the California Government Operations Agency.
"We can take the next steps to get ahead of the curve and harness the potential of these tools to improve government."
