Overly strict legal regulations in the United States may "drive away" a large number of blockchain companies

In the United States, the outdated legal system has hurt blockchain startups, and more and more startups are choosing to move abroad. According to the law, many blockchain companies are suspected of violating the US money transmission law. The US federal government has a clear definition of companies engaged in currency business, while state government legislation in this regard needs to be improved. Many companies involved in cryptocurrency business but not providing payment services find it difficult to obtain business licenses.

Money transmission laws apply to both the federal government and state governments in the United States. The U.S. federal government requires businesses that provide money services (MSBs) to register with the Financial Crimes Enforcement Network (FinCEN). State governments have not issued any specific regulations for this industry. The main issues facing blockchain companies in the United States are as follows:

1. 48 states in the U.S. regulate money transmission (out of 50 states)

2. Regardless of how many states MSBs have customers in, they need to obtain a license from the state where their customers are located (even if there is only one customer in a state).

3. A license from any state in the United States is not valid in other states (a license cannot be used across states)

4. The license is expensive

5. Each state’s legislation on blockchain is unclear (legal loopholes)

For most blockchain companies, the application process for a complete operating license is too cumbersome. This is why after the collapse of Mt. Gox, there has never been an exchange in the United States that has a complete license and can operate freely in the country.

US blockchain companies spend between $2 million and $5 million per year on licenses alone. Most startups simply can’t afford it. In contrast, Luxembourg Bitcoin exchange Bitstamp (funded by US venture capital firm Pantera) spent less than $1 million during the two years it applied for an EU payment license. Bitstamp recently obtained the license and is now accepted in all 28 EU member states. It is precisely because of this EU practice that it has surpassed the US in the field of financial technology innovation. Sadly, more than 75% of venture capital in the blockchain industry comes from the US.

There are two choices facing US blockchain startups: either take huge risks and refuse to apply for licenses, or give up some customers and markets because they cannot afford the high application fees. In many cases, blockchain companies will fall into operational difficulties or even go bankrupt due to a decrease in customers and a reduction in business scope. This is a vicious cycle that will eventually lead to the collapse of the US blockchain industry.

In the United States, many laws were drafted before the Internet was even invented. Now is the time to make appropriate changes. The blockchain industry also favors issuing a national license, like the UK.

The U.S. Office of the Comptroller of the Currency is considering issuing financial technology licenses to support the development of this field, but it may be a long time before this happens.

Meanwhile, some state governments are working to address this issue. Take New York, for example. New York created a new licensing system (BitLicense) that has sparked controversy. So far, only two companies have successfully obtained BitLicense (Gemini and Ripple). The North Carolina Senate just voted to legalize virtual currencies and blockchain technology. This is definitely progress (although not perfect).

The best thing about blockchain technology is its decentralized ecosystem, but the US regulators have not seen this. Many countries have recognized the advantages of blockchain technology and have issued various policies to attract blockchain startups to take root. We live in the United States, which has become a world economic leader since World War I, and we are certainly very proud of this. The United States is famous for encouraging innovation and freedom of thought. However, the government has hindered the development of innovative technology - blockchain due to its outdated legal system. We must rewrite the law and rebuild a robust innovation system.