CA lawmakers weigh bills to accept cryptocurrency payments

As the home of Silicon Valley, California prides itself on innovation. But is the state ready to accept cryptocurrency as legal tender? State lawmakers and officials are conflicted.

Cryptocurrency is defined as “a medium of exchange that is digital, encrypted, and decentralized. Unlike the U.S. Dollar, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet,” according to a California legislative analysis.

Popular cryptocurrencies include Bitcoin and Dogecoin.

Such virtual currencies are tracked by a blockchain, defined by the Massachusetts Institute of Technology Technology Review as a decentralized online record-keeping system maintained by a network of computers that verify and record transactions using cryptographic techniques.

Cryptocurrencies have gained in popularity and use in recent years, to the point that several cryptocurrency ads aired during this year’s Super Bowl.

Currently, no state accepts virtual currency for government services. In 2018, Ohio became the first state to do so, but it has since discontinued the program. Earlier this year, Colorado Gov. Jared Polis announced that his state would accept payments in cryptocurrency for government services, but no detailed plans or timelines for doing so have been released, according to a California legislative analysis.

Now, California lawmakers are considering a pair of bills that would make cryptocurrency legal tender for the purchase of government services, allowing for the possibility, for example, of paying one’s taxes in Bitcoin.

One bill, Senate Bill 1275, authored by Sen. Sydney Kamlager, D-Los Angeles, had a hearing earlier this month in the Senate Governmental Organization Committee.

The bill met with resistance from committee members, who voted 2-5 against advancing the bill, though the committee was unanimous in voting for reconsideration, meaning it can be taken up again at a future date.

“I think there was confusion about what the bill would do and what it wouldn’t do,” Kamlager said in an interview.

According to Kamlager, the bill was open-ended, but intended to allow for the possibility of one or more state agencies, at their discretion, to accept virtual currency transactions in exchange for services. Kamlager said the bill could have been amended to allow for the state to hire a third-party vendor to collect such payments and convert them into cash, as one possibility.

“In the meantime, I’m exploring holding a public informational hearing so that I can engage policymakers and stakeholders on this issue,” Kamlager said.

One such opponent of the bill was California State Controller Betty Yee, who wrote in opposition that, “My primary concern centers on my office’s responsibility to produce timely and accurate year-end financial reports in both a budgetary legal basis and in a format consistent with generally accepted accounting principles.”

Yee wrote that introducing digital currency as a method of payment is “ill-timed and not prudent.”

She added that another concern of hers is that prevailing accounting techniques were established in a time prior to the widespread use of virtual currency.

“If California were to have cryptocurrencies on its ledger, state agencies would be left without accounting guidance and would need to apply arcane accounting standards to a new technology,” she wrote.

A second bill, Assembly Bill 2689 by Assemblyman Jordan Cunningham, R-San Luis Obispo, is also working its way through the committee process but has yet to be voted on by lawmakers.

Another critic of California accepting cryptocurrency at this time is economist and Loyola Marymount University professor Sung Won Sohn, who said in an interview with The Sacramento Bee: “I think it’s a bad idea.”

“I think it is too early, too premature, it is too risky, too volatile,” Sohn said.

That volatility means that if the state collects a given value of virtual currency, that value could change even hourly, according to a legislative analysis, meaning that when the state converts that cryptocurrency into U.S. dollars, the state could lose money on that transaction.

“We are talking about the volatility of 30, 40, 50% in a short period,” Sohn said.

Another concern that critics have raised about cryptocurrency is the energy use it takes to generate it.

Banks of computers are put to work solving complex math problems in order to generate new coins on an industrial scale. According to the Cambridge Bitcoin Electricity Consumption Index, the amount of energy used to mine new Bitcoins exceeds that consumed by the nation of Ukraine.

Several nations, including China, Egypt, Iraq and Bangladesh, have banned the practice of Bitcoin mining within their borders.

Sen. Kamlager said that while mining for virtual currency can be incredibly energy intensive, “we should also be encouraging the use of renewable energy whenever possible.”

“The total (environmental) impact of a digital currency depends on the specifics of the blockchain in question,” she added.

Kamlager said one reason she is supporting legislation to promote the use of cryptocurrency is that its popularity has taken off in communities of color.

About two in five Black adults say that they are likely to purchase or invest in Bitcoin, compared to roughly three out of 10 adults overall, according to Morning Consult. More than 30% of Black adults are likely to invest in cryptocurrency overall.

“It is a way for them to earn, it is a way for them to save, it is a way for them to participate in the financial marketplace,” Kamlager said.

Kamlager said that California has been absent from the cryptocurrency space for too long.

“It’s not over. The bill didn’t pass out the first go-round. This is not the first bite at the apple. California shouldn’t be afraid. California should not be afraid of digital currency.”

This story was originally published April 27, 2022 5:00 AM.