BitLicense in review
Virtual currency has had a rocky relationship with government regulations throughout its life.
There are several reasons for this tension, one of them being simply that it takes time for laws to catch up to technology. For example, Coinbase recently suspended its money-wiring license application in Wyoming due to a state law requiring that all wire transfer companies have to back up 100 percent of transactions with fiat currency. On another level, bitcoin itself was built to “stick it to the man” with its security and decentralized nature. It is safe to assume that the creator of bitcoin himself does not trust government as he remains anonymous to this day.
“The Department was receptive to public input, and the language we see here is improved from the original proposal,” Coin Center executive director Jerry Brito said in a Coin Center statement. “Yet the final BitLicense is far from perfect.”
One of the key concerns among bitcoin companies is how BitLicense may negatively affect privacy.
Bitcoin startup ShapeShift.io was the first to cut off service to New York entirely due to BitLicense. New York users are redirected to a website called PleaseProtectConsumers.org. The site argues that bitcoin and the blockchain provide far more security and privacy than any other tool. However, the site’s creators argue the BitLicense will jeopardize this security by revealing too much private information.
One proposal by the Electronic Frontier Foundation (EFF) asks for users to send a letter to the NYDFS to change the BitLicense. It mentions privacy as one of its key complaints. “It infringes on the privacy rights of individual users,” the EFF said. “Companies that obtain a BitLicense could be forced to collect identifying data on account holders and end users including full name and physical address. This information will be kept on file for 10 years in case the government seeks it.”
Regulations, however, also create legitimacy for virtual currency.
“There are two prevailing opinions about regulating bitcoin. On one hand, government regulation of some form (in this case BitLicense) helps to legitimize digital currency in the eyes of the general public,” goNetCoins founder and CEO Michael Vogel said. “Alternatively, one of the reasons that bitcoin has become so popular is that fact that no central governing or regulatory body is required in order for bitcoin to exist (or not exist!).”
Some companies, however, may inevitably decide that BitLicense is too complicated to deal with and do business elsewhere.
“BitLicense could ultimately push New York far behind other jurisdictions in terms of digital currency innovation; this is a very real possibility, and is an absolute shame given that New York is a world financial capital,” Vogel said. “In our case with Netcoins, rolling out to New York has definitely become a lower priority while we focus on other markets.”
In addition, Coin Center is concerned that BitLicense’s rule that each new product be pre-approved by the NYDFS will kill entrepreneurship.
One key takeaway from this situation is that bitcoin companies should not be frightened by regulation itself. Alan Wong, professor of business at IU Southeast, mentions how financial institutions will start to become more comfortable with virtual currency when regulatory frameworks are set in place. Organizations like Coin Center are developing reports of potential regulatory frameworks to protect startups and bitcoin business practices.
“Regulation is not the enemy, and time will tell how other jurisdictions choose to implement their own versions of BitLicense,” Vogel said.
A free report on global virtual currency regulation is available from Virtual Currency Today.
Image via pixabay