Bitcoin Forum

since transactions in the bitcoin network rely on the use of a transaction engine which is distributed internationally, and states are prohbited from regulating interstate commerce, are states actually constitutionally prohibited from regulating bitcoin exchanges and transmission companies when the receiving or sending client of US dollars is based out of the state where the exchange is hosted or operating from?

For example, if I am based in Florida and transmit money to a Vermont based corporation to exchange dollars for bitcoins, and the Vermont corporation does not have operations outside Vermont and does not do business with residents of Vermont, is not the State of Vermont prohibited from regulating this enterprise?

You assume that the states and federal govt actually abide by what the constitution says, a demonstrably false assumption.

This.  It would seem obvious (common sense but legal precedent) that while a state can regulate Money Tranmission within the state it can't regulate money transmission between the states.  That hasn't stopped 47ish states from passing regulations doing exactly that.  As stated above if you have $20M+ you are willing to light on fire and a willingness to spend years (if not a decade) you likely could fight it all the way up to the Supreme Court and have a 50/50 chance of getting state interference in interstate commerce overturned.

However lets game theory this for a second say you DID have $20M it would be faster and cheaper to just comply with the regs even if you 100% are sure they are Unconstitutional.  Why would you do that (i.e. why hasn't PayPal, ADP, etc fought MT regulations on the state level)?  Simple it creates a massive barrier to entry for future smaller more innovative competitors.

So TL/DR version the only entities with sufficient resources to fight this out are the exact entities which would do everything possible to ensure that never happens. :)

Is it interference in interstate commerce if congress allows it?  In contrast to the sales tax issue, 18 USC 1960 recognizes and allows federal enforcement of state laws restricting money transmission.

You're referring, I think, to the doctrine of the "Dormant Commerce Clause," (the "DCC") also known as the "Negative Commerce Clause."  It's taught in law school through Gibbons v Ogden, where the doctrine was first enunciated in the 19th Century.  Generally, the doctrine is that, since Congress  *could* pass a law regulating some particular instance of interstate commerce, that states *can't* pass such a law.

The DCC is typically applied when a state tries to tax or regulate something in a discriminatory or protectionist manner that might lead to the balkanization of the states.  For example, a state law that prohibits the export of shrimp unless the shrimp are first processed in that state would be held unconstitutional under the DCC.  The law clearly seeks to protect in-state businesses at the cost of out-of-state businesses.

There is a well-established exception to the DCC: where a law seeks to protect the public health or safety of the citizens of the state.  State money transmission laws clearly seek to protect the state's citizens from the harm of undercapitalized or fly-by-night money transmitters.  Money transmission laws fall under this exception.  It might also be the case that there is a federal statute out there that explicitly authorizes these laws, in which case they would fall under the "congressional authorization" exception as well.

yes, i am aware of this. what is your point?

this is not my business, i am simply gathering information.

really? do I? or do we have a system in place to deal with situations like this...

thanks for the detailed explanation.

Though I am not going to dive into the gazillion pages in the US Code and find a better example of a "congressional authorization", 18 USC 1960 seems to allow state money transmission laws, at least implicitly.