Following two open comment periods, the BitLicense appears to be just a few weeks away from being finalized. The latest draft, however, retains several key flaws that have not yet been addressed and which, if passed in their current form, will stifle innovation across the space and threaten both businesses and consumers in the state of New York.
Last Friday, we participated in an industry roundtable to discuss these issues in more detail. For the first time, representatives from the private industry, venture capital community, public sector and academia convened to discuss their concerns with the BitLicense and to outline changes they hope to see incorporated into the final framework.
As part of the discussion, the group produced the following four priority recommendations for Superintendent Lawsky and the NYDFS:
Regulate exchangers, not the protocol: AML controls should be focused on Exchange Service transactions, not on individual wallets. Since the latter functions in much the same way as regulated hosted wallets, attempts to regulate the inherently open source technology will likely prove ineffective, impeding the growth of the virtual currency sector in New York with little benefit to law enforcement.
Eliminate or amend duplicative policies and licenses: Most Bitcoin companies today are already required to obtain money transmitter licenses for the states in which they operate. To require them to obtain two licenses is duplicative and unnecessary, introducing barriers and costs that will make it impossible for emerging startups to scale, compete and move the industry forward. The BitLicense also includes state-level AML reporting and recordkeeping requirements, despite the fact that adequate programs already exist at the Federal level.
Allow companies to launch new features and updates through a notification or alert to the NYDFS rather than explicit permission: The current BitLicense requires that companies obtain permission from the NYDFS before releasing new features or updates. In the fast-paced tech industry, this is untenable: companies cannot wait an indeterminate period of time for regulatory bodies to approve their latest product.
Increase control threshold for companies to obtain NYDFS approval for venture financing: The draft framework requires businesses to obtain permission before any new owner provides financing for more than 10 percent of the company, a threshold that would stall funding rounds for many startups today. The Bitcoin industry should be held to the same control threshold established for traditional financial services, 25 percent.
The discussion was moderated by Brian Forde, recently appointed director of digital currency at MIT Media Lab, and included participants like Fred Wilson, Jerry Brito and Hans Morris, and representatives from companies like BitPay, Circle and Xapo. To review the executive summary and full participant list, please click here.
What can you do?
While the open comment period has closed, time remains before the BitLicense framework is finalized and its consequences are felt across the industry. As such, we urge all members of the bitcoin community — consumers, developers, investors and businesses — to continue to voice these concerns to the NYDFS, Superintendent Lawsky (@BenLawsky), and their own state representatives.
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