On Thursday morning July 17, the NYSDFS issued the first draft of their proposal for the BitLicense that companies must obtain in order to do business with New York Residents.
I decided to wait an entire week to absorb all the information in an attempt to clear up some of the confusion in the wording; for both myself and those interested in Bitcoin who are relying on people with experience to guide them.
What we are all learning is that no matter how complicated something might be, there is always a way to make it more complicated by adding a layer of laws and regulation no two lawyers will ever agree on. Here are some good links that helped me break things down:
- Bitcoin at a Crossroads – Tackling the BitLicense by Ryan Selkis (TBI)
- Reflections on the NYDFS Bitcoin Proposal and the Right of Privacy by Erick Voorhees
- Reddit Comments on the proposed regulations, posted by Ben Lawsky (more funny than informative)
It looks like everyone will have their opinions as to which are the most egregious parts of the proposal, but here are my top 5 along with a comment as to why.
(It will have a close resemblance to what is described on the post by TBI because he did hit the nail on the head with his excellent breakdown):
5. Requiring that a company must obtain a NY BitLicense and report the identities of ANY user deemed to be participating in suspicious activities even when neither the user nor the company have any connection to NY or USA in general.
Comment: This seems like a complete over-reach, not practical and in reality not enforceable. Why can’t an exchange in Asia simply add a disclosure that NY residents are not allowed (maybe add a fancy “are you from NY” check box) and put in protocols to block NY IP’s. In reality of course this should not hurt their business much because the majority of people using Bitcoin today should have no problem making their IP’s appear from other places and the use of these services is on the rise.
4. Requiring that companies that simply facilitate transactions completely within the Bitcoin ecosystem and never interface with Government Fiat Currencies, are grouped with those holding customer funds and/or provide gateways to Government Currency.
Comment: This again seems like a complete over-reach and non-enforceable unless you deem implementations like CoinJoin and companies like ChangeTip illegal. It appears one of the most popular wallet services Blockchain.info would fall under this regulation as well, but it’s unclear what it means for personal wallets like MultiBit or apps like Mycelium.
3. The requirement that whichever Bitcoin companies are left standing within the services/transactions space MUST collect ALL identifiable information on their users.
Comment: This completely goes against the fundamentals of Bitcoin. By now it’s pretty accepted that in its current form using bitcoins makes you at best pseudo-anonymous as in with enough resources and surveillance tools, it’s possible to link identities to users. But that is a far cry from centralizing all personal information and linking them to Bitcoin addresses internally.
People are still having a hard time understanding that the reason many Bitcoin thefts happen is by criminals pretending they are you with companies that have your personal information on file. See examples here and here. Or the experienced hackers/scammers go after large accounts at companies holding their bitcoins in one place, examples here and here. There is one common element here: “Centralization”.
2. Creating a “One Size Fits All” BitLicense that every company no matter its size, transaction market cap or significance in the ecosystem is treated as equals.
Comment: This is another one of those everyone is equal socialist views that governments love to implement in every aspect of our lives except for some reason Tax Collection. It implies that a bright computer savvy NY High School student who decides to do his family a favor by maintaining some of their savings in a Bitcoin wallet, would need to comply with the same laws and regulations as a global exchange.
1. Requiring a BitLicence to innovate within the space.
Comment: This takes the prize because as of the day the law goes into affect any new Alt-coin release or any Bitcoin 2.0 project building on top of the Blockchain would now need permission from the NYSDFS if there is a possibility that a New Yorker might participate. This in tern means that the creator of Bitcoin Satoshi Nakamoto would be a criminal since he did this without a BitLicense assuming this law is to go on the books retroactively like the IRS rules did. And people still wonder why he has not yet revealed himself !!!
Bonus for the “you can’t make this up” category of the law proposed:
BitLicense holders can only invest their earnings and profits in ‘safe’ and ‘high-quality’ investments like the CD’s, Money Market Funds, and US Government Debt.
Comment: I can put myself in the shoes of the Government bureaucrats and see why they would consider investing in an asset that earned this profit dangerous, but what if a company wants to invest its profits in the company itself? Would they need an additional special License for that too?
As was mentioned around the web and most notably by Michael Krieger at Liberty Blitzkrieg, The proposal can easily be summarized by a single tweet. We’ll let Bruce Fenton do the honors:
A person no one elected is creating laws no one asked for to prevent problems which don’t exist. #Bitcoin #Bitlicense
— Bruce Fenton (@brucefenton) July 18, 2014
Did you enjoy this article? You may also be interested in reading these ones:
- NY State Releases “BitLicense” Regulations Draft for Businesses
- “Bitcoin: The Stripe perspective” is the view that will render Bitcoin Useless
- Representing Bitcoin: Digital Chamber of Commerce Formed