Adam Voorhes
Gail Anderson + Joe Newton
New York State has released a first draft of its much-anticipated plan to regulate bitcoin and other virtual currencies, and at first blush, they look like they were written for the 19th century banking industry, not the modern fast-changing world of crypto currencies.
The guy responsible for the rules, Benjamin Lawsky, has a fine line to walk. Bitcoin, after all, came of age as a lubricant for illegal activity on the Silk Road. But today, a new generation of bitcoin startups are coming of age with millions of dollars in backing from legitimate venture capital companies. Is New York about to drive these startups out of town by clubbing them with onerous regulations before they can walk? Quite possibly. The New York regulations introduce a new level of reporting rules that cover a wider swath of businesses and require more work than the current federal guidelines.
‘The reporting is extremely frequent and extremely detailed. And it seems quite onerous especially in a new business.’
The guidelines ask bitcoin businesses to keep track not only of the physical addresses of their customers, but also of anybody who sends their customers money using the bitcoin network. That undermines the fundamental value proposition of bitcoin, which works very much like the internet’s version of cash. But there’s more. Bitcoin businesses must also file frequent reports to Lawsky’s organization, the New York State Department of Financial Services, or DFS, to detail changes in ownership, financial forecasts, even strategic business plans.
If adopted, these requirements will make things very tough for bitcoin startups, who have limited resources and are scrambling to invent whole new types of businesses. “I am concerned that the reporting is extremely frequent and extremely detailed. And it seems quite onerous especially in a new business,” says Jean-Jacques Cabou, a partner with the law firm Perkins Coie, who advises bitcoin companies
In some cases, bitcoin businesses would have to do more reporting than other businesses licensed by the DFS. For example, they have to store 10 years worth of customer complaints. “The corner store that does money transmission doesn’t keep 10 years of customer complaints,” says Cabou. “This is just a lot for a new industry to do and I think it would be very hard.”
Another big problem is that the regulations appear to cover a whole new class of bitcoin businesses that are not presently subject to federal regulation. These include online wallet companies like Blockchain and BitGo, and maybe even bitcoin tipping apps. That’s “ridiculous,” according to Patrick Muck, general counsel for the Bitcoin Foundation. “Really the scope of this thing ropes in the whole industry,” he says. “This proposal would set New York up as a quasi-federal regulator for the entire bitcoin industry.”
The DFS did not immediately respond to WIRED’s request for comment, but the agency is clearly ready to engage in some back-and-forth with the bitcoin community. Lawsky, the Superintendent of Financial Services at the DFS, unveiled the proposed regulations on Reddit today, where they were not exactly well-received.
Roger Ver, a libertarian who and serial bitcoin business investor, believes that—if adopted— the rules will drive bitcoin businesses out of New York. “These men calling themselves government are not asking anybody to do anything. They are making demands, and will put us behind bars if we don’t obey,” he says. “Bitcoin was specifically designed to strip away power from men who would be so presumptuous to believe that they have the right to rule over others.”
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