Mere weeks after New York state's BitLicense requirements were said to be “in effect,” two Bitcoin mining pools have been forced to deny their services to New York IP addresses (one shutting down entirely), and one exchange has done the same.

BTC Guild and Eobot are among Bitcoin's smaller mining pools — you know, the kind that have kept Bitcoin mining sort of “decentralized.” But BTC Guild has now shut down entirely, telling its members:

“The fact that BTC Guild is not in New York does not matter, since it would be doing business with New York residents while they are physically in New York. This fact makes it possible for New York to attempt to claim jurisdiction to enforce regulations.

Whether or not BTC Guild could win in defense of such an attempt is irrelevant, since the cost of defending the pool would be greater than any income the pool is expected to generate going forward.”

Similarly, Eobot explained to their members who use New York IP addresses that the mining pool could no longer afford to deal with them:

“The new BitLicense requirements in this state place compliance and cost burdens upon Eobot that we believe are excessive.”

Lastly, after declaring a block of New York IPs, the online exchange cited that BitLicense is actually dangerous to consumers, gathering their personal data into “honeypots” to be hacked. ShapeShift's founder even started a website, PleaseProtectConsumers, which encourages companies to join him in refusing BitLicense compliance.

Have Things Gone Terribly Wrong, or Precisely Right?

Business licensing laws always hit the smaller guys first and hardest — but only if they're “aboveboard.” This means using banks, government IDs, and business licenses — being "legally documented,” so to speak. While aboveboard businesses like Eobot and BTC Guild have been negatively affected by BitLicense, there will likely be a parallel effect: more businesses will go “below board” to the free — or black — market.

Drug prohibition has provided the perfect example of this effect. There are no “Joe's Heroin Emporiums” or “LSD Quick Stops” to be seen, but that doesn't mean that there isn't vibrant drug trade happening in free markets.

If licensing laws aren't retracted entirely, digital currency-related businesses just may start doing the same. Aboveboard, regulation-compliant giants like Coinbase will become the new Big Pharma — that is, the legal drug dealers — and most others will go below-board to become the “illegal” street-level dealers.

And according to some, the “below-board” economy is the only economy in the world that's even growing. And it's projected to eclipse the aboveboard economy within a decade or two.

It must be remembered: these business closures are the exact point of the BitLicense. State regulation of crypto businesses hasn't failed. It hasn't gone awry. It's working precisely as planned.

In a pay-to-play environment, only those willing to first pay tribute to the gods are allowed to compete in the open. Everyone else goes below-board.