New York has recently been placed under the blockchain industry’s global spotlight after CoinDesk’s ‘Consensus’ conference last week. The New York City Economic Development Corporation (NYCEDC) announced the launch of the Blockchain Resource Center (described as a “physical hub for the industry”) and a competition for blockchain-based apps to improve the public sector.
Just announced at #Consensus2018: NYC is launching new initiatives to support the growing #blockchain industry! The NYC Blockchain Resource Center will serve as a physical hub for the industry and the @nycbigapps competition will be blockchain focused. pic.twitter.com/JcTtagNVqc
— NYCEDC (@NYCEDC) May 14, 2018
In the speech announcing the initiatives, NYCEDC CEO James Patchett said that there is “no city in the world that’s better positioned to lead the way in blockchain” than NYC.
Patchett’s words were passionate indeed, but are his claims merited?
Many voices in the blockchain industry agree that New York’s chances at becoming a global hub the likes of Zug or for blockchain technology are ‘iffy.’
There are numerous reasons for this–some industry insiders agree that the low costs associated with starting businesses in other parts of the world could make New York a relatively less-attractive option in the global picture.
However, if there’s one thing that everyone can agree is stifling the growth of the blockchain sector in New York – it’s the BitLicense.
The Big, Bad BitLicense
The BitLicense was originally launched in 2015, and was designed provide a legal operational framework for companies who were involved in storing, trading, buying, or selling cryptocurrency.
The exchange was intended to attract blockchain firms who were interested in operating within the law, and to push New York to the forefront of the blockchain industry. However, after the first 22 applications were sent in, it became clear that the license was too expensive for most blockchain startups.
Since 2015, hundreds of applications for the BitLicense have been submitted–only five have been granted. Coinbase and Circle are among the recipients.
At a roundtable discussion in February, New York state senator Jesse Hamilton joked, “anyone in the crowd that does not think the BitLicense needs to be reformed?” At the same discussion, state senator David Carlucci that revisions to the BitLicense could be introduced “very soon,” although he did not quantify when “soon” would be.
Other solutions have been proposed to New York’s regulatory conundrum, including Ron Kim’s Bill A9899, which would effectively repeal and replace the BitLicense.
The ‘BitLicense Exodus’
“There’s no question that New York’s BitLicense stifled the growth of blockchain and crypto startups. This is a widely held opinion, even among lawmakers,” 360 Blockchain President Jeff Koyen told Finance Magnates. “Since it’s unlikely they’ll abolish it altogether, we can hope for reasonable revisions. Even if the application and review process is streamlined—that might be enough to reduce the so-called ‘BitLicense Exodus.’”
The ‘BitLicense Exodus’, of course, referring to the mass exit of blockchain startups from New York following BitLicense’s confirmation as law.
In an email to Finance Magnates, Nick Spanos, founder of the Bitcoin Center and Zap.org, believes that the BitLicense effectively choked the blockchain industry in New York. “I’ve witnessed the full extent of the tragic outflow of the earliest, most talented innovators. Nobody wanted to stick around for a still-evolving, harsh regulatory environment, when many alternatives exist in other parts of the US, and particularly abroad.”
In addition to the potential economic effects that this ‘BitLicense Exodus’ had on the New York economy, the stifling of the industry also meant that blockchain technology itself did not have as many opportunities for adoption within other industries in the United States and internationally.
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Still, the Blockchain Industry Needs Regulation
By many accounts, the BitLicense has been a spectacular failure. However, the need for regulation of the blockchain industry in New York and in the rest of the United States remains. Appropriate regulations are “a key driver for adoption,” according to Patrik Wijkstrom, COO of Dispatch Labs.
However, Wijkstrom believes that flexible regulations are essential to the future of an industry that continues to evolve so quickly: “any regulation that isn’t structured from the beginning to support ongoing optimization will be quickly outdated. This requires continuous dialogue with the entire blockchain ecosystem: developers, startups, investors, regulators, universities, researchers, banks, corporations, etc.”
“If NY adapts this flexible model,” he continued, “they have an opportunity to become a regulatory leader in this transformation.”
Others Believe That New York Will Not Become a Regulatory Leader
Not everyone agrees with this sentiment, however. Cal Cook, the Consumer Finance Investigator at ConsumerSafety.org, doesn’t think “that the rest of the US will look to New York for crypto regulations, as New York legislators fall significantly left of the national median, politically speaking.”
“If anything,” Cook continued, “other states like Wyoming are being smart by taking the exact opposite approach. They’re drafting legislation making it easier and convenient for crypto companies to do business, which will attract new business from this sector.”
Even if New York is successful in creating a regulatory model that is just as innovative as the blockchain industry itself, a lack of clarity on crypto and blockchain from the US Federal Government could create serious problems.
Caroline Abenante, founder of Nyiax, told Finance Magnates that “the issue is the uncertainty of if and when the Federal government does act, which may hamper the build out for cryptocurrencies.” Despite the fact that this does not have any direct effect on the use of blockchain technology within any given industry, “the inaction of the Federal government is only affecting the strength and longevity of the cryptocurrency market, which is waiting for guidance.”
Indeed, confusion over the legal classification of cryptocurrencies ensued after the US SEC and FinCen gave separate definitions to digital assets.
What a nightmare this is. SEC says “all ICOs” its seen are sales of securities, but FinCEN says they are “generally” money transmission.
But by law, they can’t be both.
— Literaly an Entire Country Googling (@msantoriESQ) March 6, 2018
There’s Hope Yet
Despite the confusion, bureaucracy, and other troubles associated with starting a blockchain firm in New York, there are a growing number of solid firms and scrappy startups that are moving forward the industry forward within the city. Consensys, Genesis Global Trading, the Blockchain Resource Center, and other blockchain-related organizations have been making waves and connections around the globe.
Patrik Wijkstrom said that in his opinion, there are a lot of exciting blockchain initiatives. In fact, “there are too many to list them all! The NYC Blockchain week that took place May 11-17 showed the expanding size and diversity of the blockchain community. It was the first time we’ve seen that many finance-related people start to engage around Blockchain.” He also mentioned May 13’s Women in Blockchain event and TLDR Capital’s new office in Bushwick.
Additionally, Nick Spanos pointed out to Finance Magnates that “financial institutions are revolutionizing their entire business model, institutional money in chomping at the bit for blockchain and cryptocurrency.”
Even “the NYSE itself wants to have a cryptocurrency trading platform,” he continued.
Spanos added that the simple fact that the government is actively involved in crypto regulation at all is a positive sign for the industry: “it’s also exciting that the government now takes this seriously. When I was doing it, they wanted to put me out of business. They finally understand what it is, and will launch their own blockchain center.” Still, the question remains: “when will they let private entrepreneurs back in the game?”