Bitcoin Regulation Pursued in New York
Last week, Ben Lawsky, the Superintendent of the New York Department of Financial Services (NYDFS), announced that the Department would be extending the public commenting period on its proposed BitLicense regulation by another 45 days. Previously, before the extension, the commenting period was set to last only 45 days, ending sometime in September.
This potential Bitcoin regulation would require all Bitcoin businesses that conduct transactions in New York to acquire a state-issued license, which would be known as a BitLicense. Some of the requirements involved in obtaining a BitLicense include refraining from holding any profits in Bitcoin, hiring a cybersecurity officer, and keeping customer records for several years. Furthermore, this proposed Bitcoin regulation does not stop at the New York borders — it extends far beyond the state of New York into the international economy. BitLicense does not apply only to businesses based in New York, but to all businesses that do any transactions with anyone inside the state of New York. In other words, if a company in Canada has a customer in New York, then that Canadian company has to be compliant with the BitLicense regulation.
Bitcoin Community Reacts to BitLicense Proposal
Understandably, this proposed Bitcoin regulation has raised fear in the community of hindered competition and compromised privacy. The security requirements laid out in the BitLicense proposal would make it so expensive for a Bitcoin business to become licensed in the state of New York that only a few companies would actually be able to survive the process of becoming compliant. Furthermore, since only a few businesses would be able to thrive in such restrictive conditions, and they would be required to hold the personal information of their customers for several years, the privacy of the customers would be severely compromised. For example, let us consider a Bitcoin exchange in New York. We will assume that only one exchange could afford to become compliant with BitLicense, because it had become profitable before the regulation passed. This exchange will become a huge target because it is both the only exchange in the area, and it has servers filled with the financial information of its customers.
In light of these potential restrictions in competition and privacy breaches, several influential members of the Bitcoin community have stepped forward and issued responses to Ben Lawsky and the NYDFS. Among the most influential people to respond thus far is Jim Harper, the global policy counsel for the Bitcoin Foundation. A few weeks ago, he wrote an open letter, on behalf of the Foundation, to the NYDFS. In this letter, he scolded the Department for not allocating enough time for the public to digest the BitLicense proposal and submit formal comments, among other things. Harper then demanded that the Department extend the public commenting period to at least 3 months, which would then be followed by a new draft of the BitLicense proposal, another commenting period of at least 3 months, and so forth until the law is exactly what the public wants.
Bitcoin Regulations Get a Comment Period Extension
Then last week, as mentioned above, Ben Lawsky took to Twitter and announced that the NYDFS would be extending the public commenting period in light of a substantial demand for such an extension. “We’ve been getting great comments and are working hard on revisions,” Lawsky said. “Extension makes sense.”
The reaction from the Bitcoin community to this news was mixed; some people rejoiced over the fact that the New York state government was finally listening to the demands of the people, while others were slightly more cynical and poked fun at the former group for thanking the masters for having mercy upon the subjects. However, the focus should not have been on whether or not we should be thanking the NYDFS for granting an extension. Instead, we should keep in mind that any version of this Bitcoin regulation at all will result in a net drain on the Bitcoin economy in New York. Therefore, neither rejoicing nor criticizing the rejoicer is productive in this situation, for both parties would be focusing on the wrong aspect of BitLicense. Moreover, rather than show that the NYDFS is willing to work with the public, this 45 day extension to the commenting period merely proves that they will only “compromise” enough to appease the public, and will likely not give any ground that would make the regulation anything less than what they originally imagined.
Petitioning Bureaucrats for Reasonable Bitcoin Regulation is Useless
I somewhat alluded to this point in the open letter I wrote to the Bitcoin Foundation and its members approximately two weeks ago. For this letter, I drew from an interview Coin Brief’s Sean Wince did with Erik Voorhees. In this interview, Voorhees said that, yes, people should try to reason with governments and get the lightest amount of regulation possible—since, at this point, Bitcoin regulation is inevitable. However, the community should not be wasting too much time and money on pleading with governments to have mercy. Instead, most of our resources should go towards developing the core protocol and intuitive payment systems that will allow Bitcoin to subvert any harmful regulation that is thrown its way. I wholeheartedly agree with this statement, and I believe that the Bitcoin Foundation—along with other organizations, such as the Chamber of Digital Commerce—have sunk far too much of the Bitcoin community’s resources into the political game.
Rather than adhering to their original goal of funding Bitcoin development and spreading its acceptance, the Foundation has used the money given to it by its members (under the assumption that the Foundation would actually pursue their original intentions) and has thrown it away on lobbying governments and pleading with bureaucrats like Ben Lawsky. And what does the Foundation have to show for it? All they have, thus far, is an extension on the comment period that amounts to half of the minimum extension demanded by Jim Harper. So, if it is impossible to prevent the BitLicense discussion from steering towards an argument on rather or not the extension on the commenting period was inadequate, then I must stress that the Bitcoin Foundation requested an extension of 3 months at the very least, and all they got was an extra 45 days.
This half-baked compromise struck between the pro-regulation Bitcoin Foundation—which, we should not forget, as I discovered while writing my open letter to the Foundation, supports uniform regulation that extends across the entire globe—and the NYDFS serves as foreshadowing for what we can expect from the Department in the future, in regards to their negotiations with the public. If Lawsky and his minions are only going to give in halfway to the minimum demands made by the Foundation in reference to the commenting period, and consider that a legitimate compromise, then we cannot expect the NYDFS to take our actual comments on the regulation itself seriously. If they will only consider the lower bounds of the community’s demands, and then make only insignificant changes to their proposals and rules, then we will see only minimal change to the BitLicense agreement. In other words, they will change enough to make us believe that we are beating the government into submission, forcing them to bend to our will and change their draconian laws, while in reality that have not conceded any ground that is worth consideration. For that is what happens when individuals or private organizations try to go head-to-head with politicians and bureaucrats — they will never concede anything that they cannot afford to lose because they do not have to. If it is necessary, they can just force you through violence to comply with their dictates, although it is preferable to subversively force you into compliance by making you think you have won something — that you have stood up to them and forced them to compromise.
It appears as if the NYDFS is taking this route with BitLicense, which makes it all the more important to focus on infrastructure development so that these types of regulations will be totally harmless when they become globally ubiquitous—which, let us not forget, is what the Bitcoin Foundation envisions for the future.
After spending quite some time thinking about BitLicense, I came to the conclusion that it’s absurd and its conditions cannot be satisfied by anyone, no matter how hard they try or how much costs they spend. Simultaneously, it will apply to a wide range of businesses that have nothing at all to do with cryptocurrencies and have no way of verifying whether it applies to them. Thus I think it is better to have such an absurd regulation which everyone knows is absurd and ignores it, there will be no licensed companies and NYDFS will be looked at as someone who royally screwed up.