By Andrea O’Sullivan, Director of the Center for Technology and Innovation, The James Madison Institute
CLICK HERE TO READ THE FULL PDF
Introduction
Florida can and should become a leader in the advancement of cryptocurrency. In one short decade, Bitcoin (the most widely known cryptocurrency) has grown from a little-known computer science project of dedicated hobbyists to a professionalized financial industry boasting a currency market capitalization of well over $100 billion.
This value is well-earned: by overcoming two long-standing barriers in computer science that had prevented distributed data verification—called the double-spending problem[1] (which prevented digital scarcity) and Byzantine general’s problem[2] (which prevented distributed consensus)—Bitcoin generated a true paradigm shift by allowing direct peer-to-peer payments online for the first time. In other words, this technology has offered an alternative to many traditional financial institutions operated by central trusted third parties.[3]
For these reasons, many regulations that were drafted to constrain or oversee centralized financial institutions fit awkwardly if applied to cryptocurrency firms (and even private individuals) that operate in a partially- or fully-decentralized manner. Legislators hoping to encourage innovation and investment in Florida therefore have ample “low-hanging fruit” to harvest by reviewing and rationalizing our regulations to more appropriately take account of these technological advances.
Florida is in an especially fortuitous position to be a leader in cryptocurrency policy. The Sunshine State boasts a large, highly-skilled, and creative labor force; as the state looks to diversify our economy away from hospitality and agriculture, technology is a promising candidate. Our welcoming tax and regulatory systems are attractive to businesses who may be considering relocating from the more hostile environments of other large states. We are also home to Miami, the unofficial capital of the Latin world. Cryptocurrency is especially important to this population as a potential vehicle for remittances or savings in countries with poor monetary management.[4] And our world class beaches and natural beauty are unparalleled, further enticing potential investment.
This paper will briefly explain what cryptocurrency is and how it works before examining the current state of applicable Florida regulations and law. We will examine how these rules impact cryptocurrency businesses and how they compare to those in two other states: Wyoming and New York. We will conclude with some practical and concrete steps that legislators can take now to position Florida as a leader in cryptocurrency policy and industry, as well as future areas of analysis needed to continue along this path.
[1] David Chaum, Amos Fiat, and Moni Naor, “Untraceable Electronic Cash,” Conference on the Theory and Application of Cryptography, CRYPTO 1988: Advances in Cryptology — CRYPTO 88’, (1988): pgs. 319-327, https://doi.org/10.1007/0-387-34799-2_25.
[2] Leslie Lamport, Robert Shostak, and Marshall Pease, “The Byzantine Generals Problem,” ACM Transactions on Programming Languages and Systems, (July 1982): pgs. 382-401, https://people.eecs.berkeley.edu/~luca/cs174/byzantine.pdf.
[3] This does not imply that traditional financial institutions are generally irrelevant, since they can provide value to consumers who do not wish to take on the risks of private key management, and indeed some cryptocurrency businesses operate similarly to traditional institutions, as we’ll later discuss. The point here is that cryptocurrency has afforded a new option that had not been technologically available before.
[4] In 2004, Florida sent some $2.5 billion in remittances to Latin America. See: Robert Shackleton, “Remittances: International Payments by Migrants,” Congressional Budget Office, May 2005, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/63xx/doc6366/05-19-remittances.pdf.
