 Hello, my name is AJ Santos. I'm an assistant professor at Ombra University. And today I will be talking about a bill that has been proposed in Texas that requires the receiver of cryptocurrency to identify the person that is sending cryptocurrency. The bill was introduced a few months ago and another aspect of the bill, in addition to requiring identification of the sender, is that the Texas Department of Banking is required to promote a specific type of cryptocurrency called Verified Identity Currency, which is currency that allows the sender or a receiver to be identified, which is kind of weird because cryptocurrency doesn't really work that way. And how would it be done practically on a public blockchain like Bitcoin? Are you gonna put personal identifiable information, name, address, birth certificate, phone numbers, addresses on a public blockchain? Or is it something that people that are receiving cryptocurrencies need to maintain a database as a secondary off-chain store of information? Then that goes into data protection issues. And you see in the news every day of companies getting hacked and information being leaked. So that's a big danger. Now, the bill is very undeveloped and it raises more questions than it helps answer in terms of regulating cryptocurrency in Texas. And the current status of this bill it was proposed a few months ago and it's currently pending before committee, which means that this bill hasn't really been debated, it hasn't been it hasn't been edited and changed and available for public comment. Just a congressman, a legislature from Texas was concerned about privacy coins and decided to make a bill that requires the sender to be identified. Texas is one of the states that is a part-time legislature meaning that it operates every two years. So this bill did not make it to the next step this particular session. So it might just be dead before even being considered or it might be picked up in 2021 in the next session. Now, today I will point to specific problems with this bill. For one, I don't think it really applies to cryptocurrencies. The language that is used to describe what is currency is not very detailed. And if you consider the definition of currency within the context of Texas law, then Bitcoin, Monero and other cryptocurrencies doesn't fit the definition. So the way the bill currently is drafted would only apply to stable coins such as Tether and Coinbase, USDC. So today, I wanna talk about three points. First, I wanna touch on some preliminary issues and I'm not gonna get into the weeds. I just wanna point out some key problems and issues that are raised by this bill. Secondly, I want to consider the definition of currency. What is currency? What is money in the context of Texas law? And we'll look at some cases that have examined the question is Bitcoin money? Can it be considered currency? And finally, I just wanna touch on some potential issues. If this bill does become a law, what problems could arise from this bill being considered a law? All right, so first, there is a lot of misinformation out there about cryptocurrency. The new technology that is a danger to national security, a danger to the status of the US dollar as a reserve and politicians and the media tend to hype up the danger that cryptocurrency serves to the current traditional banking system. One of the classic arguments that are advanced by these politicians and bureaucrats is that cryptocurrency can be used by terrorists or offshoring and hiding funds in order to engage in tax avoidance or to finance terrorist organizations. Now, if you really take a big picture, look, at is cryptocurrency a danger? Chances are that you're more likely to die from a heart attack, cancer or diabetes than a terrorist attack. A terrorist attack, as you can see ranks, you have less than a 0.06% chance of dying from a terrorist attack. So is a danger really there that requires state law enforcement to regulate and to protect the public from this dangerous cryptocurrency? Now, I think if, well, another argument that some bureaucrats put forward is that if Bitcoin and cryptocurrencies become the new medium of exchange, it poses a systemic threat to the US dollar. The United States dollar is used in oil contracts, in international trade. A lot of the trade between countries are based on the US dollar. And about 61, 62% of bank reserves are in the US dollar and about 21% is in euros. So if we want to think, well, what actually poses a threat to the national security of the United States as a dominant force in the world and using the US dollar as a soft power to assert its influence in international politics. Now, Bitcoin and cryptocurrency is a new and evolving technology. It's just barely scratching the surface of mainstream. But if you look at the Euro, the Euro actually has a stated policy of displacing the US dollar as a dominant currency reserve. They're actually planning and they have a strategy to increase the influence of the European Union in international relations by encouraging member states to base their trade and oil in Euro. So if we're looking at currencies that actually pose a threat to the national status of the US dollar, I would argue the Euro is probably more of a danger than Bitcoin or any other cryptocurrency at the moment. Now, one issue that this bill raises is well, what is the definition of currency? What is money? And when we consider the definition of money in the legal sense, one way that we define money from a legal perspective is just to open the Oxford Dictionary. You just look up the word and what's the ordinary meaning of that word. And when you do that, it's normally defined as a medium of exchange, as a utility for conducting trade from one product to another product or exchanging value for another value. And if you look at the Oxford Dictionary, if you look at Black Law's dictionary, it gives a very broad definition of what currency can be defined. So courts, when trying to interpret ambiguous terms in laws, that's the first thing that they look at. What is the ordinary playing meaning of this word? Now, when we look at these sources, it's ambiguous, it's unclear. And you look at some definitions, it defines currency is money. Well, what is money? Money is currency, it's self-defining. So another source that courts will use to try to interpret the intent of the legislature is to look at other laws that are similar or related to the law that is being proposed. So here the bill is proposing regulating cryptocurrency as a form of trade. So if we look at other laws that are currently in the books in Texas, we can look at the Texas Money Services Act, which gives an exact definition of what is currency. So it defines currency as coin and paper money of the United States or any country that is designated as legal tender. Now, does Bitcoin fit that definition? Is it considered legal tender? Is it the official currency of a state? No, it's not. Now, within the Money Services Act, it also provides an additional definition of money or monetary value. And it defines currency. It defines money as currency. You get that inner definition, money is currency, currency is money type deal here. But in defining money and monetary value, it means currency or a claim that can be converted into currency, which is by the paragraph above, considered legal tender of a specific country. Now, another source that courts will look at in interpreting ambiguous terms and bills would be guidance that are issued by agencies that are interpreting the law. And just recently, April 2019, the Texas Department of Banking issued some guidance on whether cryptocurrencies are subject to money transmitter laws. And in their analysis of the bank, the money transfer, money transmitter laws, they come to the conclusion that Bitcoin and other cryptocurrencies does not fit the definition of money, as it is defined in Texas law. And for two reasons why it wouldn't be considered money. One, it does not establish a claim or duty or obligation to meet the value of that one Bitcoin that you get. There's no guarantee that Bitcoin will be valued $10,000, $9,000. It is subject to the will of the market. And no one is guaranteeing you that token or that coin that you have will maintain a certain value. Now, the second reason why that it wouldn't fit the definition of money, according to Texas law, is that there's no central authority. No one controls Bitcoin. And once it's out, the code is out, once miners are mining the cryptocurrency code, there's no way to stop the production of Bitcoin. It's a decentralized global operation. So the Texas Department of Banking then concluded that given these characteristics of cryptocurrencies that it wouldn't fit in the traditional meaning of money as defined under Texas law. So therefore cryptocurrencies in Texas are not subject to money transmitter laws. Now, there is a distinction made in the guidance with stable coins. Stable coins are centrally administered. There is an organization that you can point to and say that this organization is controlling the supply in order to maintain the value. And to a certain extent, it creates a promise. It creates an obligation that one tether or one coin-based UDC is worth $1. So therefore, the stable coins in Texas would be subject to money transmitter laws. And in that sense, this bill that is currently pending in the Texas legislature would apply to those specific types of cryptocurrencies. And it wouldn't apply to decentralized coins such as Monero or Bitcoin. So the lawmaker probably rushed this bill, was a reactionary action because of the news and people talking about Bitcoin that, well the bill was proposed before Facebook announced their own currency. So once it's in the media, once the danger is hyped, that's when lawmakers act. And when they act, they don't really, sometimes they don't really consider the impact of what is being proposed. So another source that we can look at in defining what Bitcoin and specifically cryptocurrencies can be defined as is by looking at other cases in other jurisdictions that have considered the definition of is Bitcoin money. One case from 2014 in the United States versus Fadila, this case involved a Silk Road dark web market administrator and he was charged with operating an unlicensed money transmitting business. And the way that court defined whether Bitcoin is considered money is by referring to a dictionary. And in referring to the dictionary, it established that something generally accepted as medium of exchange, a measure of value or a means of payment. So it's a very, very broad definition of what money is. So in that case, by just referring to the dictionary definition of what is considered money, that case found that Bitcoin was considered money and they're subject to the federal money transmitting laws. In 2016, in another case, this involved an exchange with CoinMax, Bitcoin was also charged with an unlicensed money transmitting business. And it also found that Bitcoin is something of monetary value and it also can be considered a payment instrument. So in defining whether Bitcoin and cryptocurrencies fit the definition of money or monetary value, at the federal level, it would meet that definition. In another case, just recent, in Espinoza, this involved someone that was involved in P2P, person-to-person exchange of Bitcoin using localBitcoins.com. But the problem with this particular user, it wasn't a one-off exchange. He was conducting trades on a regular basis, meeting people at Starbucks and exchanging Bitcoin for money. So then the question became, is someone who engages in the trade of Bitcoin for business purposes considered a money transmitter? And according to Florida law, they are. And the reason why is because the state law on money transmitters is actually very broad and it includes whether or not redeemable in currency. So in Florida, because of the specific wording of the local Florida law on money transmitters, it is considered a crime to not be registered as a money transmitter if you're engaging in trading Bitcoin as part of a business. Now how would Texas define electronic form of currency? So it would look at the ordinary meaning, as I mentioned earlier. And as we noted that the definition of money of currency as it is defined under the Texas legal framework, Bitcoin and other cryptocurrencies do not fit as it is defined in that specific legal system. Now this is Spinoza case that I just mentioned. In Florida is a non-binding authority because the United States is a federal system just because one court in one jurisdiction holds a specific finding, that finding does not automatically apply to other jurisdictions, especially since Spinoza was interpreting Florida law and Florida law specifically was broad enough to include cryptocurrencies as defining cryptocurrencies as money. So where are we in defining the impact of the bill? Well, I think the bill will probably be dead and it's not gonna go into the next step. Or if it is picked up, chances are that it will be amended and it probably would include the definitions as defined by FinCEN. FinCEN recently published some guidance on defining convertible virtual assets. So if the Texas legislature really wants to regulate the use of cryptocurrencies, specifically private cryptocurrencies, they should incorporate the definition as defined by FinCEN in order to avoid any confusion whether cryptocurrencies can be considered a form of money under the Texas law. Okay, thank you very much. Yes? From Texas? Yes. Okay, yes. Well, I did look up the legislature that proposed it and there's a website, I forgot the domain name, but you can see everyone that donates to that particular politician and I looked up his background and he's actually an accountant and most of his donations come from the finance sector. So I suspect maybe there was some backroom lobby. There's no proof of that, but that's my suspicion that the traditional banking system basically are encouraging lawmakers to over-regulate this sector because perhaps they view it as a form of competition. Right. Yes? Like liability, what's the effect of that? Mm-hmm. And it can meet the problem of that as well. Right. I'm not familiar with that particular case, but can you elaborate a little bit more of what that court? I think what I'm saying was by a good point. Mm-hmm. This worked for a while, but by just going and then it eventually became a policy scheme. Mm-hmm. And the Excuse and Exchange Commission Right. Made the case that they usually secured it. Yes, so there's a distinction that is made between the state level and the federal level. So at the state level in Texas, you might not be considered a money transmitter under local Texas law, but the federal law on tax, on money transmitter is a lot broader. So even if you're not considered a money transmitter in the state that you're in, you still can run afoul on the federal level and be charged with operating an unlicensed business as a money transmitter. So I'm assuming that's probably what happened in that particular case. From my understanding, what was the most federal case? Right. Right, so yes, so there is law for money transmitters at the federal level and there's law for money transmitters at the state level, right? So the law that applies in Texas, you could say that I'm a money transmitter only in Texas, I'm not conducting business outside of Texas, but because of the cumulative effect of inter-commerce trade, then potentially the federal level could be considered having jurisdiction, even though the most of the part of the business is focused on one state. So yeah, so even if you're only operating in one state, if the cumulative effect of engaging in that particular trade has a potential effect on inter-commerce trade, then you would run afoul at the federal level and potentially fall within the framework of federal money transmitter laws. Thank you. Time for two more. Yeah, we have two more questions. Okay. I think what the gentleman was referring to is that case was mainly prosecuted by the SEC instead of Fincense as an unregistered security as opposed to unlicensed money service business. Right. So there's two regulatory authorities. And back in the day, I think he said it was a 2010, 2011 case. There wasn't a lot of clarity in terms of whether Bitcoin was a security or not and also based on how the individual was running the scheme, it may have appeared as a security. Right, right. So it basically is Bitcoin a security or is any token a security? And the SEC has recently published some guidance on that. And in order for a specific token or cryptocurrency to be considered a security, there's a test that needs to be met. You know, is there money that is invested in a specific enterprise? Is there a obligation placed on a third party to perform some type of function in the furtherance of that enterprise? And I'm assuming that in that particular case, there was a promise made that in his Ponzi scheme that I will do X, Y, and Z if you give me this much amount of Bitcoin. Now in that context, it would meet a definition of a security. But if you're operating a decentralized cryptocurrency, there's no one particular developer that is promising you the moon and the stars and it's not operating as a startup company. Now, there's some ICOs that would fit within definition of a security and you've seen many exchanges have started to delist some of these projects because they fall within the definition of a security. So it really depends on the aim of the project and whether money or value is exchanged for a promise in furtherance of a specific enterprise. So does that answer your question? Okay, thank you. Okay, last question here for Daniel. Hi, thanks for the talk. So I think that clear leader as far as progressive law on the state level is Wyoming, right? With Caitlin Long and her coalition putting over a dozen pro blockchain bills out in the Wyoming legislature and getting them passed. So I think there's always been this spectrum of regulation in which on the one hand, regulators tend to want to stamp out something that they don't necessarily understand that well. But on the other hand, they don't want the next school to go to the other guy's jurisdiction. So being Texas based, are you getting any sense of whether the innovations in Wyoming are maybe gonna spread? Like the Colorado legislature has taken some of the Wyoming and kind of copied it. Well, I hope so that, I think you can start dividing different states as pro cryptocurrency and other jurisdictions as anti-cryptocurrencies. So right now, as things are at the moment, I would say Texas is a pro cryptocurrency jurisdiction given the guidance given by the banking department. So it's possible to operate exchanges in Texas. But now you have this potential bill that's trying to change that trend and it's running opposite of what the bureaucrats are basically trying to do in Texas. So who would win now? I would think it just would depend on loving efforts and how successful they are in promoting a certain point of view. Now in Wyoming, you have strong advocates there, advocating to be a pro cryptocurrency jurisdiction in the interests for supporting innovation. So there could be some grassroots initiatives in other states. Perhaps there could be some more favorable laws that are proposed. All right, let's give a hand for AJ Santos, please. All right, thanks. Thank you.