Crypto in Hawaii is still a “lab” experiment

Eleven companies are participating in the Digital Currency Innovation Lab as the government explores regulations and advocates for open markets.

Cryptocurrency remains a “lab” experiment in Hawaii, with 11 companies offering digital currency services in the state as part of the Digital Currency Innovation Lab. The laboratory, which was scheduled to end last summer, was instead extended until 30 December 2024.

House Bill 2108, designed to help create a new regulatory framework in Hawaii, made it all the way to conference committee in the final days of the 2022 Legislature but never passed. Senator Glenn Wakai, who has introduced cryptocurrency legislation in the past, says he does not plan to introduce new legislation during the 2023 legislative session.

“The state should be very deliberate in how it grows the crypto market in Hawaii. So many people were hurt and defrauded. It is the government’s duty to protect the public from bad actors,” says Wakai.

Ryan Ozawa frequently reports on cryptocurrencies as news editor for Decrypt, an online news platform that aims “to demystify the decentralized web.” He also once provided community engagement services for the Digital Currency Lab, but no longer serves in that role.

He strongly supports greater access to digital investment.

“In the absolute freedom model, you do what you want, but you can also lose your house. In the consumer protection model, you have to jump through hoops, but you’re less likely to lose your house. I see both sides of it. I believe in the “buyer beware but have freedom model,” he says.

However, Nathaniel Harmon, CEO and co-founder of OceanBit Energy, a local Bitcoin mining startup, says well-constructed regulations will benefit local communities.

– We need good regulation here in the state. These exchanges, if they sell Bitcoin, it’s just a commodity. It is like buying or selling steel or buying and selling gold. Everything else is a security. The value depends on the work that the company does, and the utility the company offers, so we should have strict rules around these unregistered securities, says Harmon.

Recommended: Bypass Bitcoin Blockade

Centralized vs. decentralized

Some cryptocurrency advocates emphasize the distinction between centralized exchanges and decentralized cryptocurrencies.

Cryptocurrency exchanges are companies that allow customers to trade cryptocurrency against other assets, such as conventional money or other digital currencies. Exchanges may accept credit card payments, bank transfers or other forms of payment in exchange for digital currencies or cryptocurrencies.

FTX is one example of a centralized cryptocurrency exchange; it was run by Sam Bankman-Fried and is now bankrupt, and Bankman-Fried has been charged with fraud, money laundering and other crimes.

However, there are decentralized cryptocurrencies where transactions are user-based and user-controlled. Some of the most famous cryptocurrencies, such as Bitcoin and Ethereum, are decentralized. Such cryptocurrencies can also be traded on most exchanges, centralized or decentralized.

Cryptocurrencies can also be bought and sold by individuals in Hawai’i through companies participating in the Digital Currency Innovation Lab. They can use online exchanges and brokerages, and other platforms such as some ATMs in Hawai’i.

Lab director Iris Ikeda, who is also the state’s commissioner of financial institutions, says the lab was formed to study the use and effectiveness of cryptocurrency companies — and whether or not they should be regulated.

Liam Grist is the founder of Cloud Nalu, a Hawaii-based company participating in the lab that offers “a brokerage application for buying and selling Bitcoin while prioritizing keeping your own keys (self-storage).” He says HB 2108 could have been a “double-edged sword” by allowing easier access to cryptocurrency and trading practices, while allowing unfairly leveraged and shady exchanges like FTX to operate in the islands.

However, Ikeda says additional protections provided by HB 2108 would be helpful to consumers.

Pending federal regulation

Grist says, “Regulation coming from our national government, or the (US Securities and Exchange Commission), will have a bigger impact on the crypto industry — more than any legislation Hawai’i could come up with.”

Ozawa agrees that Hawai’i should hold off on the legislation until the federal government creates a national framework. “There is no doubt that there will be government measures,” he says.

The regulatory climate for cryptocurrency currently varies from state to state.

Grist would like to see greater acceptance of digital currency by Hawaii’s banks. This acceptance, he says, would help citizens and the local economy, and each bank would become a “beacon of hope” by safely storing individuals’ cryptocurrency investments.

“The only way we can really change the future is by engaging and integrating with and building a new system based on better incentives, based on real, hard money. It will take a while, but it is an important thing to do, says Grist.

Ikeda says the lab will continue to allow digital currency transactions and will continue to conduct research that can demonstrate the benefits of crypto, including economic development.

Recommended: Bypass Bitcoin Blockade

While Harmon and Grist both support the lab and a regulatory framework, they also believe that a decentralized blockchain like Bitcoin should be viewed differently.

“The difference with Bitcoin is that you can actually hold your own keys to that Bitcoin,” says Grist. “You can hold your own property and no one can control it. I hope it (the lab) will help lawmakers decide in the future, (that) when we come up with bills to support digital currency, we separate Bitcoin from crypto because it’s two very different things.”

Harmon adds: “Bitcoin has no leader, no company behind it. It’s completely decentralized and sets the bar. The vast majority (of cryptocurrencies) are scams. … If you’re a Bitcoin-only exchange, there should be a different set of laws than being an unregistered stock exchange.”