Men with crypto coins
Photo illustration: powerofforever/DigitalVision Vectors/Getty Images; Protocol

What California can learn from New York’s crypto rules

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: lessons from the BitLicense, Klarna’s losses and Pinterest’s hunt for a payments guru.

Off the chain

In a sign that the NFT world may be maturing past the fantasy that minting on a blockchain somehow grants any kind of intellectual property rights, a16z Crypto has introduced a set of NFT licenses modeled after Creative Commons. The “Can’t Be Evil” licenses cover a range of scenarios, and even consider the question of theft, forbidding the exploitation of a stolen NFT. The licenses will be stored on-chain and are referenced through smart contracts. But the biggest hole in them, at least from a crypto purist perspective, is that they’re only enforceable through the existing legal framework (and only the U.S. courts, at that). Smart contracts can only do so much: If someone violates these “Can’t Be Evil” licenses, you’ll have to sue.

— Owen Thomas (email | twitter)

California’s crypto conundrum

California is turning the heat up on crypto. And the industry is warning the Golden State about what happened in the Empire State.

A bill awaiting Gov. Gavin Newsom’s signature would impose licensing requirements on businesses dealing in digital assets. Proponents say the proposal would protect consumers in a fast-growing market. The crypto industry warns it could trigger an exodus of crypto companies in California — just like what happened in New York.

Crypto could face more restrictions in California. The Digital Financial Assets Law would require businesses offering services for investing in, lending or trading digital assets to get a license from the state’s Department of Financial Protection and Innovation.

  • Robert Herrell, executive director of the Consumer Federation of California, the bill’s sponsor, said the law would strengthen consumer protections “in the wildly volatile digital asset and cryptocurrency space” while “striking the proper balance with innovation.”
  • The bill was introduced in June by assemblymember Timothy Grayson at a time when the crypto market was reeling from a dramatic crash. “Real people are suffering profound harm each day from unscrupulous scams, frauds and schemes without sufficient consumer protections,” Herrell said.
  • But the California proposal evoked echoes of New York’s BitLicense regulations. “If [the California proposal] is anything like the BitLicense, then it is going to be counterproductive,” Omid Malekan, who teaches blockchain and cryptocurrencies at Columbia Business School, told Protocol.

The California bill “mirrors the flawed approach of New York,” Chamber of Progress CEO Adam Kovacevich said in a statement. In 2014, New York’s Wall Street watchdog, the Department of Financial Services, unveiled the BitLicense credential required for facilitating most crypto transactions, issuing its first one the next year.

  • The license sparked an "exodus" of crypto startups. One prominent crypto player, Kraken, bade farewell to New Yorkers by lambasting the BitLicense law as "a creature so foul, so cruel that not even Kraken possesses the courage or strength to face its nasty, big, pointy teeth."
  • Some crypto companies blocked New York residents from their services. It got so bad, Malekan said, that there was “a running joke in crypto that many services are not available in Iran, North Korea and New York.”
  • Critics complained that applying for a BitLicense was long, tedious and expensive. DFS superintendent Adrienne Harris called it a "misconception that having rigorous regulation turns off innovative companies" in a New York magazine interview. In other speeches, she’s pointed to data showing crypto VC funding was still flowing to New York startups.
  • And many crypto firms did opt to stay. The DFS has approved 31 credentials — either the BitLicense or a trust charter — required for crypto transactions in New York for companies like Coinbase, Block, Gemini and Robinhood. FTX said in May that it had applied for a trust charter.

Crypto licensing is a “modest, reasonable and inevitable next step,” Herrell said. But that’s not entirely clear based on New York’s experience. Even a top California regulator who will be in charge of implementing the law has suggested that setting a crypto licensing program will be a tough process.

  • Harris acknowledged that New York has been too slow in approving new licenses. To get more dedicated resources behind the license, she backed a new state law that will allow the department to charge crypto companies for time spent examining them, the same as banks and insurers. The law was approved as part of New York’s 2023 budget.
  • California faces similar challenges if crypto licensing does become law. In a Protocol interview in June, Suzanne Martindale, head of California’s Division of Consumer Financial Protection, said the agency would have to “pivot quite substantially to implement a new licensing program that may indeed override some of the work that we were contemplating doing on the regulatory and administrative level.”
  • California could end up driving crypto companies out of the state “depending on how heavy the lift is to get licensed and the time frame and expense of retroactively licensing,” Moor Insights & Strategy analyst Melody Brue told Protocol.

Regulating crypto at the state and local level “can backfire,” Malekan said. Crypto is a global industry, and companies can have users all over the world. “If local compliance is too hard,” he said, “then it might be best to just avoid it.” Regulators are in a tough spot, though: The coming federal crypto bill from Sens. Cynthia Lummis and Kirsten Gillibrand envisions some level of local regulation for exchanges and other businesses. And customers, facing a rising level of scams, are clamoring for better protections. Striking a balance will be a tricky challenge.

— Benjamin Pimentel (email | twitter) and Ryan Deffenbaugh (email | twitter)

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On the money

On Protocol: The time of the Merge is nigh: Here's what it means for climate change.

Klarna is racking up big losses as it expands internationally. The Stockholm-based “buy now, pay later” firm reported an operating loss before tax of 6.2 billion Swedish kronor ($581 million) for the first six months of the year, up from 1.8 billion kronor in the same period a year ago.

A law group says insider trading in NFTs is not a crime. The New York Council of Defense Lawyers says insider trading charges against a former OpenSea employee should be tossed, arguing that prosecutors are contorting the law to turn workplace misconduct into a felony. is suing to retrieve millions it accidentally sent a customer. The exchange sent an Australian customer 10.5 million AUD (about $7.2 million) instead of a 100 AUD refund. Seven months later it discovered the error, and is asking a court to get the money back from the customer, who reportedly bought a house with some of the mistaken payment.

Michael Saylor was accused of evading $25 million in D.C. taxes. D.C. Attorney General Karl Racine said that Saylor, the chairman of MicroStrategy and a prominent bitcoin maxi, claimed to reside in Virginia or Florida while living in several different homes around the district.


Honestly, Cornell law professor Dan Awrey had us at “payments wonk,” even before he got into his beef with the forthcoming FedNow real-time payments system: “The fact that it’s not even going to be interoperable with RTP suggests to me that it’s going to be out of date the moment it’s launched.”

"The Real World,” but in the metaverse, with Alexis Ohanian’s Bored Ape? Get ready for “The R3al Metaverse,” a show from Invisible Universe. “We think that the next Woody and Buzz will be introduced to you on TikTok instead of on the big screen,” CEO Tricia Biggio told Decrypt.

Moves and hires

Open-finance technology startup MX has landed another PayPal veteran. Former PayPal VP Wes Hummel will serve as CTO at MX, which recently named PayPal's omni-payments solutions lead Jim Magats as CEO.

Fintech-focused Flourish Ventures has made two senior hires for a new San Francisco office. Tyler Mann, formerly of Greenoaks Capital, is Flourish's head of global legal, and John Onwualu, formerly of the U.S. International Development Finance Corporation and SoFi, joins as a principal on the U.S. investment team.

Pinterest is looking for a head of payment and fraud operations. The company wants to hire someone to innovate on its "end-to-end payments processing capabilities, including new ways to exchange money with payments partners." The image-sharing network recently named payments veteran Bill Ready as CEO.

Payments company NMI has hired Robert Hoblit as chief revenue officer. Hoblit most recently served as CRO of DigiCert.

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