In comments submitted today, the Bitcoin Foundation highlights the need for public access to the “extensive research and analysis” that the New York Department of Financial Services’s (NYDFS) cited when introducing its “BitLicense” proposal. The Foundation’s comment seeks to learn the rationale the NYDFS used to substantiate its technology-specific regulatory proposal, which bucks the consensus among state and federal regulators that are integrating Bitcoin as a new financial technology into existing regulatory programs.
On August 5, 2014, the Bitcoin Foundation submitted a preliminary comment requesting “copies of any risk management and cost-benefit analysis (or other systematic assessment) that is part of the ‘extensive research and analysis’ referred to in the statement of needs and benefits for the proposed regulation.” That same day, NYDFS promised delivery of the material produced by its year-long inquiry within 20 days. But on September 9, 2014, the NYDFS delayed delivery of its research to December, well past the comment period deadline of October 20, 2014.
Bitcoin is an internet protocol whose essence is decentralization, but the Foundation comment assumes that well-formed and -implemented regulation can grow the Bitcoin ecosystem, producing benefits for New York consumers, markets, the economy, and jobs. The NYDFS has not explained how its “BitLicense” proposal, a new, technology-specific regulation, would actually improve the environment for Bitcoin or New York consumers.
Jim Harper, Global Policy Counsel for the Bitcoin Foundation writes, “The sacrifice of some decentralization in furtherance of other benefits to the Bitcoin ecosystem must meet a high burden of proof. Nobody should want a regulation that sacrifices Bitcoin’s benefits if doing so produces unknown or merely speculative benefits for New York consumers of the New York financial services marketplace.”
In contrast to the NYDFS, various U.S. governmental and legal bodies have worked to integrate Bitcoin into existing regulations. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the U.S. Internal Revenue Service, the U.S. Federal Election Commission, the Texas Department of Banking, and Kansas’s Office of the State Bank Commissioner have all taken a more modest approach, coordinating with other entities and integrating Bitcoin into existing laws and regulations as they apply. This approach paves the way for a safe and sane environment to allow bitcoin businesses to develop reliable consumer services.
The “BitLicense” proposal includes several stumbling blocks. Harper points out, “The language of the ‘BitLicense’ proposal would apply non-financial uses of Bitcoin’s public ledger, including communicative and expressive uses. This would run afoul of U.S. constitutional protections against regulation of speech.” The “BitLicense” proposal requires unreasonable financial surveillance, which may violate the Fourth Amendment.
“A regulatory regime that is markedly out of step with others is very likely to create inefficiency in national and global markets, which would suppress competition, hamper the delivery of benefits to consumers and frustrate consumers,” concludes Harper. “New York is a very special state, but we recommend that it join the national and global community of regulatory bodies that are taking a methodical, iterative approach to Bitcoin business regulation.”