Hi all,
Yesterday I had the privilege and honor of being asked to testify at the New Hampshire State House, in front of the Commerce and Consumer Affairs Committee (a group of a dozen State Reps who focus on commerce, trade, and finance legislation within the state).
The testimony was in support of a currently standing bill, which
repeals all state level licensing requirements for money transmitters. Most states have these money transmitter laws, and this is one of the reasons it's so hard/risky for a US-based Bitcoin exchange... they'd likely need licenses in all such states.
The fact that New Hampshire is even considering repealing such silly laws is a great sign - and a Bitcoin-based business would be able to operate more easily (and cheaply) in such a state. I'd love it if Bitcoin businesses could have a safe haven here in New Hampshire.
So, I wanted to post my oral testimony here for you all. If any of you are in similar situations, feel free to use similar language, or contact me about the process. The State Representatives were definitely paying attention to this, and were thoughtful and receptive. Whether it actually passes will be another matter
Notice I didn't mention "Bitcoin," but simply discussed the relevant issues to it. This is a good strategy to avoid delving into complex technical talk, which will inevitably lead to confusion among legislators.
Hello and Thank you for having me today.
Part I
My name is Erik Voorhees, I live in the beautiful town of Portsmouth New Hampshire. I'm the Director of Communications for a company called BitInstant, based in New York City. Our company has thousands of customers all over the United States and in dozens of countries around the world.
Now, a company with thousands of customers all over the world sounds big, but in fact we have four employees, no formal office, and our revenue is only a few thousand dollars per month. We launched only last summer.
Our business is one of many being built upon new payment technologies and networks that didn't exist even a few years ago. We're able to exist and grow because these new technologies are enabling innovators in the field of payment systems, where before it was completely dominated by large credit card companies and banks.
Just as the internet and new digital media has opened up publishing like never before, so too have these new payment technologies opened up trade and exchange like never before. Just as publishing is no longer controlled by a few large publishing houses and television networks, payment and exchange systems - which are at the very core of society itself - no longer need be controlled by a few banks and financial giants. Over the last ten years we've seen the democratization of media. Over the next ten years we'll see the democratization of exchange and it will be just as revolutionary, if not more so.
Our entire business is to help people move money without delay between these various new payment networks. Transactions that would take an hour, or days even, we make happen in 10 minutes. Next time you're forced to wait 24 hours for your bank to open after a Sunday, you'll understand a bit of our value proposition.
I'm telling you all this because, as I said, we are a tiny company. We're barely more than a small group of entrepreneurial friends. Yet, using these new payment systems, we're finding ways to create value for people in countries all over the world. It's been a hugely satisfying and exciting endeavor for us.
Companies like ours are just starting to scratch the surface of the possible benefits of this payment revolution - to business, to efficiency, and to human freedom and prosperity. These benefits will be far reaching, from the rich to the poor, from the US to nations across the world. Companies like ours are working to build the internet of money. Some of these topics probably sound confusing, and they are. But remember how confused we all were about the Internet in the 90's - and thank goodness we had our senses about us and didn't regulate the transmittal of information like so many are now doing with the transmittal of payments.
And of course, like all new innovations, entrenched powers will not permit their privilege to be removed easily. We're seeing the banks and legacy payment providers - companies like Wells Fargo, JP Morgan Chase, Western Union and the credit card companies - fight to prevent new exchange systems from building. And they're doing this primarily through regulations at the federal and state levels. They lead the charge when it comes to money licensing laws, because these laws protect them and that should be clear to everyone. Big companies have no problem adding new regulations to their lawyers' and accountants' retainer - sadly, much of their profits rely on using the power of government to restrain would-be competitors. Competitors like us.
We've not even been in business for a full year, and yet we've spent tens of thousands of dollars hiring lawyers to consult us on which licenses we need, in which states, and more important, they advise us on which areas of business we must stay away from because those areas open up new requirements and huge financial costs. Unfortunately, in practice this means many of our best ideas have simply been thrown into the waste bin - not because they would be illegal, but because our lawyers have said that pursuing them means paying hundreds of thousands of dollars in license fees, and much more time on the lawyers' invoices.
Businesses like ours are but tiny seedlings, trying to grow. And when well-intentioned but mis-guided legislation is passed, the damage to us is almost never properly accounted for. We're currently based in New York City, but we won't be there for long. Why? Because of the regulatory burden. It is not just the fee we pay each year for permission to operate. That is the tip of the cost iceberg. It is also the time spent determining the fee we pay, and to whom, and when, and in what manner. It is also the lawyers' bills we must cover. It is the time lost - time we spend debating in meetings over various terminology used in these laws. And these debates inevitably lead back to the lawyers office for yet more consultation. And even so, to date, no lawyer has even been able to give us a clear answer on whether we are a money transmitter in the first place. We've bought licenses we don't even know if we need, and I'm sure there are licenses we ought to have, but don't. Frankly, it's impossible to feel comfortable about legal compliance. It's a constant stress, a constant cost, and a constant inhibitor to the innovations we're pursing. There is also the unseen cost in lost investment capital from startled would-be investors - prudent men and women who's excitement for our idea is matched only by their trepidation for the regulatory burden and costs that we might incur. We've lost investors specifically for this reason. It's just too risky for them.
So as we leave New York City in search of more fertile ground, I of course have suggested we move here, to where I live in New Hampshire. But while the taxes here are far more reasonable, there is still little difference in terms of money licensing laws. In fact, Massachusetts of all places does not have these licensing requirements - Massachusetts is more business-friendly when it comes to this issue! And how it would pain me to see our business move all the way north only to stop and turn around at the New Hampshire border and fall back into Mass.
Part II
It should be obvious that unnecessary regulations stifle business unnecessarily. So how necessary are money transmittal licensing laws?
They are intended to prevent fraud, but fraud is illegal anyway. They are intended to prevent laundering, but laundering is a crime already without such licenses. Is it as though if we remove these licensing restrictions, all of a sudden fraud will become easy and legal? Is it as though if we repeal the license, money laundering will suddenly become our new favorite past time?
A case where any company defrauds a customer is already a crime, these money transmittal licensing laws add little, and the costs - both seen and unseen, short term and long term, are substantial.
We need only look at those states which do not have these licensing requirements to see how unnecessary and ineffectual they really are. There are four of these states, including Massachusetts. We are not hearing about evil money transmitters in these states doing ill upon the residents. When was the last time a money transmittal racket in Montana was discovered? Without these licenses, shouldn't these states have significantly higher problems? They don't seem to.
No, we do not see people rioting in the streets over the crimes of financial startups and innovative payment systems. There has been no march on Washington decrying demanding money transmittal laws. There has been no march decrying us. Yet there have been many marches on Washington decrying the big banks, the big financial instructions, and the big payment processors our society's been stuck with for far too long. And it is those same institutions which are the biggest advocates of these licensing laws. It is not a complicated puzzle to solve.
Getting a license to transmit money doesn't prevent illegal transmittal anymore than getting a license for a gun prevents illegal shooting. Residents of New Hampshire understand this. And even speech itself, like money, can be used for foolish or dangerous purposes, sure. Yet, we recoil in horror at the thought of requiring speech licenses, and rightly so. Why then do we feel so comfortable requiring money licenses?
The government already has the power, and the authority, to prosecute criminal actions. These money licenses, built on top of that legitimate criminal law, serve only two purposes:
1) they make some people feel a little safer
2) they make powerful banking interests feel a lot safer, and these banks use the former reason to ensure the latter reason. That is why they're they can always be counted on to support such licenses.
Our company, like many in this new economy, is highly mobile. We can move where we wish, and settle down where it is most productive. It would please us greatly to see New Hampshire recognize that freedom is more than something you put on a license plate. There are very good and noble reasons to let people, and to let groups of people called businesses, operate freely, to pursue their own goals and passions. By pursuing ours, we're building an exciting and valuable company - a company that is trying to compete with established banking interests who are long on legislation, and short on innovation. The work we're doing will help every person in the economy - we reduce the cost of money itself - we simply need wise lawmakers who will not be tricked into regulating competition out of the market.
Without that, our margins are too thin, and our risks too great, to comply with perpetually arduous regulations - we will either fall apart, or be forced to go somewhere else. Personally, I'd like to stay here in New Hampshire.
