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California prepares to adopt cryptocurrency

California has become the first state to publicly begin studying how to broadly adapt to cryptocurrencies and similar developments, despite having a larger economy than all but four countries and being the birthplace of much of the world’s technical innovation.

Following President Joe Biden’s lead, California Governor Gavin Newsom signed an executive order directing state agencies to collaborate with the federal government on digital currency rules. Officials are also encouraged to look into applying larger blockchain computer coding into government operations.

Blockchain and cryptocurrency technology are “potentially explosive creators of new companies, new jobs, and new opportunities,” according to Dee Dee Myers, a senior advisor to Newsom and the director of the Governor’s Office of Economic Development. “There are many opportunities,” she explained. “There are also many unknowns in the sector, which is another reason we want to be involved early.”

According to Newsom’s edict, California, which is home to Silicon Valley and financial innovators such as PayPal and Square, should be at the forefront of figuring out how to adapt to new technologies. “Too often, government lags behind technology breakthroughs,” Newsom, a Democrat, said in a statement. “We’re moving ahead of the curve on this, creating the groundwork to empower consumers and businesses to thrive.”

California has a population of around 39 million people and a GDP of more than US$3.1 trillion (RM13.5 trillion), making it larger than the United Kingdom and India combined. Each bitcoin is presently worth around US$38,000 (RM164,820), however this value swings greatly.

According to bitcoin critic Hilary Allen, a financial regulatory expert at American University in Washington, DC, California’s approach will help legitimise the technology and push it into the mainstream. However, she does not believe it is the greatest strategy for the state and its citizens. She believes that private investors will benefit the most, and that the state government should look for simpler technological solutions rather than relying on technology that is “by its very nature complex and inefficient.”

Although California was the first to try to build a complete solution, Ohio was the first to accept virtual currency for government services in 2018, albeit the initiative was quickly phased down due to low usage. Colorado Governor Jared Polis, who is also a Democrat, said in February that his state would accept bitcoin for government services later this year. California legislators are among those throughout the country that have proposed similar laws. However, a bill introduced by Democratic senator Sydney Kamlager to allow California to accept cryptocurrency as payment for state services failed in its first committee this year, while a similar bill introduced by Republican assemblyman Jordan Cunningham has stagnated. Arizona, Wyoming, and other states have enacted similar legislation.

Despite the risks associated with bitcoin, Newsom’s order stated that California should lead the way in terms of figuring out how to adapt to technological change. His directive expands on the California Blockchain Working Group’s study from July 2020, which looked into the use of blockchain and its hazards and benefits.

California launched a new Department of Financial Protection and Innovation from the Department of Business Oversight the next year, with the purpose of assessing emerging risks and opportunities while safeguarding consumers.