State embraces blockchain technology, California governor issues executive order on crypto

California Governor Gavin Newsom speaks at a press conference in Oakland, California, on Wednesday, on Feb. 9, 2022.

California tech investors and businesses have been betting on cryptocurrencies and blockchain technology for more than a decade. Now the governor of the nation’s largest economy is jumping on the bandwagon.

California Gov. Gavin Newsom on Wednesday issued an executive order on cryptocurrencies that sets out a roadmap for regulation and consumer protection and examines ways the state can leverage blockchain technology and digital assets.

“Of the 800 blockchain businesses in North America, about a quarter are in California, significantly more than any other state,” Dee Dee Myers, Newsom’s senior adviser and director of the governor’s Office of Business and Economic Development, told CNBC.” We’re hearing a lot of people say they want to be here, and we want to help them do that responsibly.”

Newsom is directing the state’s Office of Business and Economic Development to work with the California Department of Commerce, Consumer Services and Housing, and the Department of Financial Protection and Innovation.

The order aims to “create a transparent and consistent business environment for companies operating in the blockchain, including crypto assets and related financial technologies, that harmonize federal and California laws, balances consumer interests and risks, and incorporates California values such as fairness, inclusion, and environmental protection.”

The agencies will submit their findings and recommend the next steps. It will “reflect consultations with relevant state agencies regarding forthcoming federal reports on the relationship of cryptocurrency assets to energy, climate, and criminal activity prevention priorities,” according to the order.

The agencies plan to hold roundtables and listening sessions with industry leaders, consumer advocates, and even critics, Myers said.

“The opportunities are almost endless,” Myers said.” We can do things like remove middlemen from transactions involving real estate or even cars. We can use it to protect people’s identities and provide benefits to people through government services. If we’re selling carbon offsets, we can make sure the same forest isn’t sold twice and have some transparent records.”

Under California’s plan, the order would be consistent with the Biden administration’s proposal in March to review the risks and benefits of cryptocurrencies.

Some 37 states have pending legislation on cryptocurrencies and other digital assets, according to the National Conference of State Legislatures, and in February, New Hampshire issued an executive order proposing new bitcoin laws.

Aaron Klein, a senior fellow for economic studies at the Brookings Institution, said the most compelling part of Newsom’s plan is to explore ways to find “cryptocurrency solutions to existing problems.”

“California appears to be trying to walk a tightrope in pushing the state to embrace new technologies while ensuring that consumers and investors are properly protected,” Klein said.

Given concerns about the security of cryptocurrencies and the speculative money pouring into digital assets, Newsom is sure to encounter skeptics. Criminals stole a record $14 billion worth of cryptocurrencies last year, according to a report by data firm Chainalysis, and the U.S. Securities and Exchange Commission announced Tuesday that it will nearly double the staff tasked with protecting investors in the cryptocurrency market.

“Blockchain has been around for decades, and it has never found a widely adopted use case,” said Stephen Diamond, a law professor at Santa Clara University.” There’s a frenzy right now for California to come in and say this has tremendous potential, and to me, they’re fueling that frenzy.”

The key, Myers said, is to create “guardrails” to eliminate the ability of bad actors to manipulate and “make sure there are enforceable, clear guidelines to protect everyone.”

Timothy Massad, former chairman of the CFTC, said it’s important to get states and government agencies on the same page.

“What we don’t want is for states to compete with each other to attract businesses by lowering standards or offering incentives,” Massad said.

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