California as a crypto hub? Consumer confidence is the first step

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It was a sweeping statement with a clear message. California, home to one of the world’s largest economies, long a cradle of technology, will lead the way in two more: cryptocurrencyand block chain — the technology that enables virtual currencies.

“California is a global innovation hub, and we are preparing the state for success with this emerging technology – by driving responsible innovation, protecting consumers, and leveraging this technology for the public good” , California Governor Gavin Newsom said in a statement. statement announcing his executive order in early May. “Too often, government lags behind technological advancements, so we’re getting a head start on this, laying the groundwork for consumers and businesses to thrive.”

Newsom in the can order says he wants:

Create clear regulatory rules for crypto assets and blockchain businesses that protect California consumers.

Create and encourage research and development of the blockchain technology workforce that drives innovation, cultivates students, and creates pipelines for all three.

Integrate blockchain into the operations of more state agencies.

The goal: “to cement California’s status as the world’s premier location for responsible crypto asset companies to start and grow.”

This could boost California consumer confidence in technology, researchers and industry entrepreneurs say. About one in eight adults — about 16% — have invested in, traded in, or used cryptocurrencies, the governor’s office said.

But the absence of a regulatory framework and the fairing the recent crypto market rollercoaster ride have left other would-be, but capricious, users of crypto and blockchain on the sidelines. After the rise in interest and investment in virtual money over the past two years, prices have fallen resulting in crypto layoffs.

As experts sort out the meaning of the highs and lows, they say adding consumer protections to the executive order’s to-do list could calm the nerves of nascent users.

“One of the benefits of blockchain will be to streamline processes and make them much cheaper – think signing stacks of documents to buy a house,” he said. Christine SalonSylvan C. Coleman Professor of Finance and Accounting at UC Berkeley’s prestigious Haas School of Business, whose research delves deep into the worlds of fintech, digital payments, and credit markets.

But “regulatory uncertainty is one of the reasons why some consumers are unsure about entering the crypto sphere,” Parlor added. “Clearly defined consumer protections or warning signs will let everyone know where they stand, reduce uncertainty and encourage adoption.”

California consumer advocates, meanwhile, are urging caution and warning against the fuss of new technology.

Robert Herrell, executive director of the Consumer Federation of California was highlighted in prepared remarks after Newsom signed off. Calling for a strong regulatory and enforcement framework that protects “crucially important” consumers, Herrell nevertheless worried that Go-Biz, the Governor’s economic and business development office, was continuing its efforts at the expense of helpful safeguards for consumers. consumers.

“We are somewhat concerned that Go-Biz appears to be in charge of much of the process and consumer organizations will remain vigilant that consumers do not back down from promoting an industry spending billions to protect,” Herrell said.

A bill by State Assemblyman Tim Grayson, D-Concord, is sponsored by the consumer group. AB 2269 would create the Digital Financial Assets Actthe licensing and regulation of cryptocurrency exchanges and other activities of digital financial firms to protect consumers.

The bill would require new disclosures regarding prices and fees for cryptocurrency transactions and would require digital financial firms to be overseen and regulated by the state’s Department of Financial Protection and Innovation. The bill’s first hearing before a state Senate banking and finance committee is scheduled for late June.

Consumer federation officials say the public, including crypto investors, are skeptical of the industry and lack reliable enough information about cryptocurrencies. Volatility in crypto markets has made the situation worse, they say, reinforcing the need for consumer protection.

“Fortune favors the balanced and the wise, not just the so-called ‘courageous,'” the federation’s Herrell said in a statement. support legislation. “The crypto industry’s hundreds of millions of self-promotions should not overshadow the need for strong consumer protection.”

Others are also skeptical.

Molly White is a software engineer and Wikipedia editor who has become a prominent national skeptic of crypto and the decentralized financial alternative it promises users. White called the marketing of the crypto industry “predator” in a recent Washington Post interview; and, in a Bloomberg interview again challenged the crypto industry narrative.

“I think it’s possible to see a broad shift of the internet to become more decentralized to kind of take the power away from the tech companies that currently wield a lot of power. But I don’t think crypto is going to be the way what this is going on,” White told Bloomberg Quick Take.

“If we look at what is currently described as Web3, you see a lot of the same big players, the same venture capitalists, the same technology companies that hold the power in Web2,” White continued. “I think it’s a little strange that they’re holding this narrative that they’re going to take the power away and give it back to the little guy, instead of just using it as another money-making opportunity.”

Meanwhile, the lack of meaningful regulation in California has been a barrier to industry progress in the crypto sector, Parlor said, leading companies to seek avenues into other markets.

“Because of this, various businesses are moving to the Bahamas, Estonia, the United Arab Emirates, the list goes on and on,” Parlor said. “Given the depth of experience here, if there was a supportive regulatory environment, it would bolster California’s standing in crypto.”

Brian Foote is keeping a close eye on what the executive order may mean. His San Diego-based Humbl offers a litany of blockchain services in the digital economy – from mobile payment, non-fungible tokens and mobile wallets that digitally store credit, debit and ID cards, to credentials for government agencies – and became something of a new technology evangelist.

But Foote said he must first leave tech-rich California and plant stakes in Wyoming. The regulations set by the Cowboy State for blockchain-focused businesses allowed it to quickly enter the industry.

“As a lifelong Californian, it was surreal to have to go to Wyoming, to leave the state to give birth to a public company,” he said. “If (Gov. Newsom) can give us a clear regulatory framework for California companies to start building a token economy on blockchain, California can be a real leader for another round.”

In interviews, Foote has said that the 2030s will be the “decade of blockchain,” where functions ranging from home mortgages and auto purchases to how we store and transport banking, driver’s license and insurance will be supported by blockchain technology.

Consumers today are “tenants of their data on the web. You rely on brokers, brokerage houses, intermediaries to perform simple tasks in your daily life,” he told San Diego TV station KUSI in a recent interview. Blockchain technologies, he said, decentralize these functions, allowing consumers to conduct business directly.

Consumer comfort with mobile and blockchain technologies may have accelerated by up to a decade as the pandemic, shelter-at-home orders and work-from-home environments have changed the way Californians shop, work and do business, he said.

“We’ve moved away from merchants (corporations) towards scalable software and a token economy,” Foote said in an interview with Bee. “Clients started thinking about virtual environments – it accelerated from five to 10 years in my mind.”

Industry analysts applauded the executive order. Some say the governor’s charge immediately positions California as the most crypto-friendly state in the nation, surpassing New York and Wyoming — two states with enacting crypto-industry and blockchain laws — and Florida. , where Miami is an emerging hub as a gateway to a Latin America that has embraced technology.

“Silicon Valley has been a hotspot for blockchain and cryptocurrency development since the early days of these global industries,” Shelly Kramer, brand strategist and analyst at Futurum Research, wrote. “As emerging fields that receive substantial investment and create many jobs, it is wise for Newsom to take the lead in developing a regulatory framework that encourages the presence of the blockchain and crypto industry in California. “

California is establishing pole position for the crypto industry, but Parlor is waiting to see where that leads.

“I see this as a very positive development,” said the UC Berkeley finance professor and digital economics expert. “It’s clear that Washington has decided to engage on these issues and so it’s in California’s interest to ensure the state maintains its technological lead…It’s still early days. As with any push for a regulatory framework, the eventual details will be important.”

Parlor said Newsom’s order shows California wants everyone — entrepreneurs, investors, consumers and policymakers — around the table as it crafts policy around emerging technology and the kinds of businesses that she can generate.

“That seems to be California’s approach to the problem,” Parlor said. “Let’s hope this leads in the direction we all hope for.”

This story was originally published June 21, 2022 5:00 a.m.

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Darrell Smith is the Elk Grove reporter for The Sacramento Bee. He joined The Bee in 2006 and previously worked at newspapers in Palm Springs, Colorado Springs and Marysville. Smith was born and raised at Beale Air Force Base, near Marysville, and lives in Elk Grove.

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