Bitcoin services company Coinbase recently decided to discontinue its services in Wyoming, after being capsized by the state’s “impractical” demands.
The Californian company briefly explained the issue on its blog, saying that the Wyoming Division of Banking expects Coinbase to be treated as a Money Transmitter Service, for it acts as a financial intermediary — a third party that holds the customers’ funds on its online Bitcoin wallet. While this may seem very normal on layers, the real trouble lies in the fact that a licensee is further required to “maintain dedicated fiat currency reserves in amount equal to the aggregate face value of all bitcoin held on behalf of customers.”
“Although Coinbase securely maintains 100% of all customer bitcoin, it is impractical, costly, and inefficient for us to establish a redundant reserve of fiat currency in equivalent value,” the company added.
According to the Wyoming Money Transmission Act 40-22-106 (a), a licensee is required to submit a surety bond to the commissioner that may range from $10,000 to $500,000 — as per the cost of the payment instruments held by the licensee. This is a basic security protocol that ensures no customers violations on the behalf of the licensee. It says:
“The security device shall be in a form satisfactory to the commissioner and shall run to the state for the benefit of any claimants against the licensee to secure the faithful performance of the obligations of the licensee with respect to the receipt, handling, transmission and payment of money in connection with the sale and issuance of payment instruments or transmission of money.”
For many reasons, this law indeed protects consumers from fraud and risks associated with the money transmission companies. But, at the same time, it obstructs new companies to kickstart their operations in Wyoming. The state undoubtedly is playing it too safe from its side, while for the startups like Coinbase, the law is a clearly a setback.
The Wyoming Money Transmission Act might end up sending the local Bitcoin companies to another, more friendly state. For some reason, even the recently released BitLicense seems like a simple law before the aforementioned one.