Yesterday’s announcement of the finishing touches to the BitLicense regulations marked a significant milestone for the cryptocurrency industry.
The New Department of Financial Services (NYDFS), led by superintendent Benjamin Lawsky, first embarked on what was to surely become a turbulent mission nearly two years ago when it began looking into digital currency and engaged the industry for insight. Nearly one year ago, the first version of the regulations was drafted, to which industry reaction was overwhelmingly negative. Four months ago, the proposed rules were revised significantly in response to industry reaction, including over 3,700 comments submitted during the feedback period.
Even on the revised draft, industry players expressed concern over clauses that required: NYDFS approval for product updates, businesses to inform NYDFS in certain cases of venture investment, money services business licensing in addition to a BitLicense, and certain disclosure requirements that seemed onerous. The general reaction that such regulation would stifle innovation in the industry, expressed within the first draft, was repeated in the second.
The final iteration, as to be expected, saw fewer changes than its predecessor. The changes include:
- (Minor) software updates need not be reported.
- Software developers are exempt.
- Money Services Business licensing and the Bitlicense can be applied for in one process.
- Companies already compliant with Suspicious Activity Reports (SARs) need not file duplicate reports.
- Approval is not needed for each new round of venture capital funding, unless it entails a change of control.
As no sweeping changes were expected in the final draft, industry reaction was already covered following the previous revision, although this will likely change in the days ahead.
At one end of the spectrum are well-capitalized, regulation-savvy companies like itBit that have been itching for the day regulation arrives. Their preparedness provides a distinct competitive edge, and they would likely not mind a few extra rules many would find difficult to comply with.
Then we have the major industry players. Circle, Coinbase and Bitcoin Foundation all expressed concern, while BitGo seemed indifferent. BitFury, which is continuing to expand outside of New York, had this to say:
Bitlicense. America just handed over its digital advantage to China! Well done fellas, well done! You ll be playing catch up for a long time
—a George Kikvadze (@BitfuryGeorge) June 3, 2015
Bitcoin advocacy group Coin Center acknowledged improvements in the final version, but was not shy with its ultimate assessment:
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“The final BitLicense still creates a lopsided regime as between digital currency businesses and traditional money transmitters and banks. It has cybersecurity and state-level anti money laundering requirements that will not and have never applied to the legacy payments industry. The Department has rationalized this discrepancy by suggesting that it would apply the same heightened standards to the banks and money transmitters. With the Superintendent’s imminent departure, however, we are left wondering if that will be the case.”
Looks like the BitLicense is now final. Seems like just yesterday that I got a subpoena from the DFS. Fun times — Barry Silbert (@barrysilbert) June 3, 2015
— Empowered Law (@pamelawjd) June 3, 2015
— Ben Lawsky (@BenLawsky) June 3, 2015
From the various online forums, where often the most vocal of Bitcoin supporters are best heard, there was some of the typical rhetoric, but also some spirited debate on the role of regulation.
Many, especially from outside the crypto community, agree that some form of reasonable regulation will be healthy for the industry in the long run and will likely grant Bitcoin more legitimacy in the public eye.