US State-level Digital Currency Law & Regulation




In the US, most states have not provided any regulatory guidance, issued new rules, or began the process of passing digital currency-specific legislation. New York issued new regulations defining a license specific for digital currency businesses commonly known as the BitLicense. Texas, Kansas, and Washington have issued regulatory guidance, clarifying how existing law applies to digital currency businesses. California, Connecticut, New Hampshire, New Jersey, North Carolina, and Pennsylvania are in the process of crafting new legislation; in some states the legislation is still in the proposal stage, in others it has passed both houses of the state legislature and is awaiting the governor’s signature. This set of guidance, new rules, and new legislation address how digital currency businesses fit into their respective states’ money transmitter licensing regimes.

Commonalities and Notable Divergences

We are seeing a convergence of definitions for digital currency, which is referred to as “virtual currency” in the new legislation and rulemaking crafted by states. Across statutes it is defined as “digitally stored value.” New York and California have crafted more nuanced language that acknowledges the flexibility of digital currency technologies, and the two states explicitly exclude certain certain types of digital stored value that could potentially be caught up in the broader language utilized by other states. These exclusions are in-game currencies, customer reward points, and prepaid cards. CA AB-1326 Sec. 1(b) NY §.200.2 (p)(1)

New York and California also include definitions for “virtual currency business activity” (NY) and “virtual currency business” (CA). These definitions provide additional clarity to digital currency businesses, letting them know whether or not they need to seek a license from the state. California excludes certain types of virtual currency businesses from requiring a license:

(h) A person or entity developing, distributing, or servicing a virtual currency network software.

(i) A person or entity contributing software, connectivity, or computing power to a virtual currency network.

(j) A person or entity providing data storage or cyber security services for a licensed virtual currency business. CA AB-1326 Sec. 2(f-j)

No other states contain detailed descriptions of what constitutes “virtual currency business activity,” instead they rely on the definitions and descriptions of money transmission activities.

New York’s BitLicense, and California and New Jersey’s proposed regulation, require virtual currency businesses to provide a consumer protection disclosure to their customers, elaborating the risks associated with investing in and transacting with digital currencies. New Jersey’s legislation would require businesses to disclose to customers the following risks:

(1)   Digital currency is not legal tender, is not backed by the United States government, and the digital currency held by the registrant on behalf of the customer is not subject to Federal Deposit Insurance Corporation protections;

(2)   Transactions in the digital currency held by the registrant on behalf of the customer may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable;

(3)   Laws determining the rights and obligations of digital currency users are not fully developed, and a court of law may find that the elements of this transaction, including without limitation the timing, amount, identity or location of the parties, may not be the same as if the transaction had occurred with the U.S. dollar;

(4)   The value of the digital currency held by the registrant on behalf of the customer may change more quickly and unexpectedly than that of government currencies like the U.S. dollar, and may in fact become zero; and

(5)   Technological difficulties experienced by the registrant may prevent the customer from accessing the digital currency held by the registrant on behalf of the customer. A4478 Sec. 14

Typical across the states’ licensing regimes are standard money transmitter licensing requirements. These include maintaining a surety bond or trust account to ensure the business has adequate assets to cover its customers’ funds, certain net worth requirements dependent upon volume of business, and recordkeeping requirements.


New York is the only state to have issued new rules governing the activities of virtual currency businesses. For a detailed breakdown of New York’s BitLicense requirements, see our series of blog posts here.

New Legislation

Of the proposed new legislation, California’s is the most detailed and nuanced. Setting it apart from all other proposed legislation and new rules, when defining virtual currency business activity it includes in its definition;

‘Maintaining full custody or control of virtual currency on behalf of others. CA AB-1326 Sec. 1(c)

“Full custody” is used in order to exclude business that provide security or backup services with multi-sig technology.

Connecticut’s legislation, currently awaiting the governor’s signature, is notable for giving the commissioner sweeping discretion over denying applications or attaching new conditions to licenses; the language regarding non-virtual currency money transmitters is much more specific regarding what the commissioner can or cannot do. Furthermore, it grants the commissioner the power to decide what value a virtual currency business’ surety bond should be, unlike for traditional money transmitters, where the bond is based on a formula embedded in the language of the statute. Public Act No. 15-53 Sec. 7 (7)

The proposed legislation in New Jersey offers tax breaks in order to entice virtual currency businesses to the state.


A handful of states have not issued new rules or begun the process of passing new legislation, but instead their regulatory agencies have issued guidance defining how their current money transmission statutes apply to virtual currency businesses. In Texas, digital currencies are not considered “currency” under the Texas Money Services Act.

“Because cryptocurrency is not money under the Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location is not money transmission. Consequently, absent the involvement of sovereign currency in a transaction, no money transmission can occur. However, when a cryptocurrency transaction does include sovereign currency, it may be money transmission depending on how the sovereign currency is handled.”

In Kansas, digital currency is not considered “money” or “monetary value” under the Kansas Money Transmitter Act, which has the same impact as the above Texas regulatory guidance.

Washington state considers digital currency to fall under their Uniform Money Services Act, so any business that handles digital currency to transmit money is regulated in the same way as a typical money services business.

Other Proposed Legislation (Unrelated to MSB Licensing Regimes)

Across the United States are a handful of digital currency-related bills being proposed unrelated to money transmitter licenses. In Tennessee, legislation has been proposed to allow bitcoin contributions for political campaigns. Legislation to create a Council on Payment Options for State Services that would explore whether or not Utah should accept bitcoin for state services has been proposed. New Hampshire is considering legislation that would require the state treasurer to develop an implementation plan for the state to accept bitcoin for taxes and fees. And New York City (not the state) is considering allowing state residents to use bitcoin to pay fines, fees, charges and civil penalties.