Lawmakers in North Dakota have introduced a bill aimed at curbing cryptocurrency fraud and protecting its residents. House Bill 1447 was submitted on January 15 in response to an alarming $6.5 million in crypto-related fraud losses reported by 103 residents in 2023. The proposed legislation, sponsored by Representative Steve Swiontek, seeks to establish measures to safeguard consumers and address vulnerabilities in crypto ATM transactions.

The bill outlines specific restrictions, including a $1,000 daily withdrawal limit on crypto ATMs and a cap on transaction fees at $5 or 3% of the withdrawal amount, whichever is higher. These limits are designed to reduce financial exploitation and ensure fair use of these machines.

Lisa Kruse, commissioner of the North Dakota Department of Financial Institutions, emphasized the importance of these measures, citing the growing number of complaints regarding crypto-related fraud. Speaking to the House Industry, Business, and Labor Committee, Kruse highlighted that crypto scams are becoming more sophisticated, leading to substantial financial losses for the state’s residents.

The situation in North Dakota mirrors national trends. According to an FBI report released in September 2024, Americans lost $5.6 billion to cryptocurrency fraud in 2023. Among these losses, 5,500 cases involved crypto ATMs, with over $189 million in damages. This highlights the need for enhanced consumer protections, particularly in high-risk areas like crypto ATMs, which have become a target for fraudulent schemes.

Representative Steve Swiontek pointed out the security gaps in crypto ATMs compared to traditional banking ATMs. He argued that these vulnerabilities allow criminals to exploit the system for illicit activities, creating a pressing need for regulation.

The proposed bill also addresses the risks faced by older residents, a demographic that is frequently targeted by fraudsters. Josh Askvig, the North Dakota director of the American Association of Retired Persons (AARP), stressed that protecting elderly residents is a critical aspect of the legislation. Many older individuals are less familiar with cryptocurrency, making them more susceptible to scams. To counter this, the bill mandates that crypto ATMs display clear warnings about potential fraud and encourage users to contact law enforcement if they suspect any fraudulent activity. These warnings would also remind users that funds lost in scams may not be recoverable.

While the bill has garnered support for its consumer protection goals, it has also faced opposition from some crypto ATM operators. During the hearing, Kevin Lolli, a representative of CoinFlip, one of the largest crypto ATM providers in the U.S., raised concerns about the impact of the proposed fee and transaction limits on operators. He explained that the current fees, which range from 8% to 20%, are necessary to cover the costs of hardware, maintenance, and rental payments to businesses hosting the machines. Reducing fees, Lolli argued, could make it financially unfeasible for operators to continue offering services, thereby limiting access to cryptocurrency in North Dakota.

Despite these concerns, Lolli expressed support for the consumer protection aspects of the bill, acknowledging the importance of educating users about potential risks. He argued that striking a balance between consumer safety and the viability of crypto ATM operations is crucial to fostering a sustainable and secure crypto ecosystem.

The proposed legislation is part of a broader effort to address the challenges posed by the rapid growth of cryptocurrency. As adoption increases, so do the risks of fraud and exploitation, especially in areas where regulations are still catching up. North Dakota’s initiative could serve as a model for other states looking to implement similar safeguards.

The debate around House Bill 1447 also raises a critical question: how can regulators effectively protect consumers without stifling innovation in the crypto space? While the restrictions aim to reduce fraud, critics argue that excessive limitations could hinder the growth of the local cryptocurrency industry. Balancing security with accessibility is a challenge that both regulators and industry stakeholders must navigate carefully.

The outcome of North Dakota’s efforts will likely provide valuable insights for other states grappling with similar issues. If the bill is passed, it will establish new standards for crypto ATM operations and offer a layer of protection for residents, particularly those most vulnerable to scams. However, the discussion surrounding this legislation underscores the complexities of regulating a rapidly evolving industry while preserving its core principles of accessibility and innovation.

North Dakota’s approach to addressing crypto fraud is a reminder of the importance of proactive regulation in safeguarding consumers. As the cryptocurrency market continues to grow, initiatives like House Bill 1447 will play a key role in shaping the future of digital finance.