Hawaii has quietly gone from being one of the most restrictive states to one of the most open in the country when it comes to cryptocurrencies.
Since 2014, a state legal decision has made it tremendously expensive for cryptocurrency companies to operate here, despite the growing proliferation and advancement of the technology.
That decision, explained Joe Kent, executive vice president of the Grassroot Institute of Hawaii, required any crypto company operating in Hawaii to have a valid money transmission license.
But under the terms of the state Money Transmitters Act, crypto companies would have to have on hand an amount of cash equivalent in value to all the cryptocurrencies the company issued nationwide.
โIt was enough to make crypto companies flee the islands,โ Kent said.
Cryptocurrencies have always been at odds with government regulations. Bitcoin, the most prominent example of this technology, originated as a means to specifically avoid government financial regulations and became the currency of choice for illicit transactions on online black markets.
The technology operates under an immutable digital ledger, called a blockchain, which is maintained collectively by a network of computers and protected by computer encryption. While many cryptocurrencies differ in how they work, Bitcoin generates new coins through โminingโ: computers compete to solve increasingly complex cryptographic equations, and the winning computer receives a newly minted Bitcoin, which at the time of writing worth almost $52,000.
But in January, the state Division of Financial Institutions โchanged its mind,โ Kent said.
With little fanfare, the DFI announced on January 25 that digital currency companies will no longer need a money transmitter license to operate in Hawaii and โwill be able to continue transactional activity as an unregulated business,โ according to the announcement.
The announcement came at the end of a four-year pilot project called the Digital Currency Innovation Lab, which allowed 10 digital currency companies to operate in the state without a money transmitter license. It was through this project, for example, that consumer Bitcoin machines were allowed to operate at Hawaii gas stations, Kent said.
Following the DCIL findings, the DFI concluded that โthe activities carried out by digital currency companies did not align with the (State's) concept of money transmissionโ and therefore should not be limited by the Law of Money Transmitters.
"So, we've gone from the worst state for cryptocurrencies to one of the best," Kent said. "We are excited to open new options for consumers."
Now that cryptocurrency companies can operate more easily in Hawaii (although the DFI announcement did not specify when the change in regulations will take effect, nor did a spokesperson for the Department of Commerce and Consumer Affairs respond to requests for comment), Kent He said more people will be able to access a versatile financial instrument that โis gaining increasingly widespread adoption.โ
Kent predicted that looser regulations could allow more โtraditional investorsโ (those whose investments are primarily in traditional instruments such as stocks or bonds) to dive into the cryptocurrency market. With more investors and greater adoption, he said digital currencies could find regular use as real currency beyond their primary use as speculative investments.
โSomeday, you might be able to buy a hot dog with cryptocurrency,โ Kent said.
That being said, cryptocurrencies remain an incredibly volatile asset. The crypto economy crashed in 2022 when prominent cryptocurrency exchange FTX went bankrupt, and the value of any cryptocurrency can fluctuate wildly from day to day, or even hour to hour.
At least one investment firm in Hawaii, Edward Jones Investments, doesn't trade cryptocurrencies because of that volatility: "It's too risky," said financial advisor Keith Marrack. "We do not deal with it and we do not advise our clients to do so either."
"All we have to say is 'buyer beware,'" Kent said.
The technology is also controversial for its extreme environmental impact. Due to the energy costs of maintaining multiple identical ledgers of every Bitcoin transaction ever made, as well as the increasing computing power required to mine new Bitcoins, it is estimated that the entire Bitcoin network currently consumes 168 terawatt-hours of electricity per year, according to the data. from the University of Cambridge.
For comparison, 168 terawatt-hours is about the same amount of energy the country of Egypt consumed in 2021.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
