A series of bills introduced in the state Legislature aim to push Hawaii’s financial markets into the 21st century.
Seven bills in the state Senate and House would allow residents to invest in and conduct transactions using cryptocurrency, which has been heavily restricted in Hawaii up until now.
The central bills in this initiative are Senate Bill 2697 and House Bill 2287, both of which would exempt cryptocurrencies from the state Money Transmitters Act, which has imposed strict requirements that discourage cryptocurrency exchanges from operating in Hawaii.
“The Money Transmitters Act says that a (licensed money transmitter) has to have the same amount of cash on hand as they have invested in crypto, which seemed like a good law at the time,” said Puna Sen. Joy San Buenaventura, a co-introducer of one of the crypto bills. “But what it means is that it limits people’s involvement to small transactions.”
Oahu Sen. Bennette Misalucha, an introducer of four of the Senate’s crypto bills, said Hawaii is regarded among crypto users as one of the least crypto-friendly states in the nation.
Misalucha, who developed the bills along with Oahu Sen. Glenn Wakai and Oahu Rep. Patrick Branco, said the state opened a “sandbox” 18 months ago to gauge public interest in crypto investment. In total, she said, that project found that some 62,000 residents are involved in crypto trading to some degree.
“The genie is out of the bottle,” Misalucha said. “We shouldn’t begrudge people how they want to invest their money. Our role should be to figure out how to protect our citizens while allowing them the freedom to invest how they want.”
Cryptocurrencies and governmental regulations have a sticky history. Bitcoin, the first and most widely used cryptocurrency, was conceived specifically to avoid financial industry regulations, and grew infamous as a secure means of purchasing drugs and other illicit goods from online black markets.
Bitcoin, and all decentralized cryptocurrencies, use computer encryption to keep an immutable ledger of transactions maintained by a network of computers, called the blockchain. Additional Bitcoins can be “mined” by computers competing to solve increasingly complex cryptographic equations: The computer that solves the equation is awarded a newly minted Bitcoin, which, at the time of writing, is worth approximately $38,500.
Although cryptocurrencies can theoretically be used as a literal currency to exchange for goods and services, their primary usage has been as a speculative investment, and the value of cryptocurrencies can fluctuate drastically from day-to-day, or even hour-to-hour.
“We’re not trying to replace our current financial system with this,” Misalucha said. “But these are financial instruments. They need some regulation, but they also need space to grow.”
Other bills would provide additional state regulatory support for crypto use in Hawaii.
Senate Bill 2695 would establish a “Blockchain and Cryptocurrency Task Force” to review the scope of crypto adoption in the state, while Senate Bill 2696 would allow state agencies to enter into payment agreements using convertible virtual currency as a means of legitimate payment.
Another measure, Senate Bill 2698, would amend the state Constitution to forbid any prohibitions on owning or using “a mutually agreed upon medium of exchange.”
Finally, House Bill 2108 and Senate Bill 3076 would establish a state program to oversee and license digital currency companies.
“We can’t keep the state from the crypto economy any longer,” San Buenaventura said, adding that not legitimizing crypto also means the state loses out on tax revenue on each transaction.
“People who think that crypto is this shady thing, from this seedy underbelly, it’s not like that anymore,” Misalucha said. “The mayor of New York City took his first paycheck in crypto.”
But crypto still faces widespread scrutiny. Cryptocurrency scams are common, with credulous investors dumping large sums of money into a new cryptocurrency, only for the coin’s developers to take the money and run.
Misalucha said people cannot treat crypto like a “get rich quick” scheme anymore.
In addition, crypto has been criticized for its extreme ecological impact. Because of the intense processing demands of maintaining multiple copies of a ledger of every Bitcoin transaction ever made, as well as the processing requirements of mining new coins, the entire Bitcoin network is estimated to consume 91 terawatt-hours of electricity annually — more than the annual energy consumption of Finland, and almost 0.5% of all electricity consumed worldwide — according to a 2021 New York Times report.
With Hawaii committed to become completely carbon neutral by 2045, Misalucha acknowledged a contradiction between the state’s ecological goals and the massive fossil fuel usage of cryptocurrencies, but added that solving the energy problem might require a federal solution.
“But when the internet was starting out, there were problems with it, and we came up with solutions for it,” Misalucha said. “I think people will be able to fix it, make it better.”
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.