Last weekend I was in Tel Aviv speaking on the regulatory panel at Inside Bitcoins, and it was good to see more discussion around next generation technologies than I have at previous conferences. Israel certainly does appear to be very active in trying to push what is possible with the technology – one I thought particularly interesting was La’Zooz, which claims it is resolving the “prisoners’ dilemma” to bring cooperation to ride sharing arrangements through a new blockchain technology. Ensuring the security of their ‘proof of movement’ algorithms (used to demonstrate contributions to ride sharing and in doing so creates new tokens, rewarding drivers) however, looks like an interesting challenge.
In the meantime, it seems that the answer to my July 20th “Will the NYDFS BitLicense halt second generation crypto-currencies?” post is “No.”
A few Tuesdays ago Ben Lawsky spoke at the Cardozo Law School on the BitLicense proposal. There has been a good amount of reporting on this talk, mainly over his comment that the license is not intended for software developers or miners. I was, however, interested in the implications of the proposal on second generation blockchain technologies, so I asked him how the use of second generation non-currency applications would be viewed in the eyes of the BitLicense, considering that the exceptions for personal use only apply to the use case of blockchain technologies as a currency.
Lawsky remarked it was a ‘very good question’ – I only ask very good, or very stupid ones – and clarified that the regulation is not intended to capture businesses working in that area. As there is a small amount of currency that is transmitted along with these information/asset transfers however, they may apply some sort of de minimus amount but he stated that they’re still working out how to address that.
I thought this was interesting for two reasons. One, that the DFSNY would appear to have a pretty good understanding how these technologies work. Knowledge of the transaction amount that goes along with a colored coin, or the Ether that is expended in executing an Ethereum contract, may not be that common knowledge amongst many in the industry, and the fact that Lawsky himself understood this and could speak to it on the spot is impressive.
Secondly, his open admission that they were still working through how to address these issues was revealing. It was somewhat encouraging to me, as I don’t know if anyone yet has an effective solution on how to regulate such instruments, and their admission that this is something that needs more thought demonstrates that they recognize that this is not something that can easily be shoehorned into current regulation.
We haven’t before had the ability to so easily create new assets that could be stores of value and representations of ownership, computing power, namespace, or any of the other applications that are possible through the blockchain. To be able to send value under so many different guises does raise questions on how the regulators should look (or if they even should try) to protect the public against illicit activity. The blockchain does however have an enormous amount of power that may allow us to address such issues in novel new ways that will not require the sort of product-based regulation that has been used to this point. An ideal solution may be able to limit regulation or monitoring to no more than a light touch. Lawsky himself opened with saying that the next generation “will bank in vastly different ways than we do now” – the community could develop solutions and show him what that looks like, from his risk-averse point of view.
Article reposted with author’s permission from: http://bankingbytes.com/2014/10/28/lawsky-bitlicense-not-intended-to-cover-non-currency-use-cases-which-is-good/
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A software engineer and white hat hacker by background, Angus now serves as a Senior Manager in Ernst & Young’s Regulatory Compliance Technology practice in New York. While in this role he has worked across a number of aspects of regulatory compliance, over the last four years he has specialized in anti-money laundering remediations at top tier banks following regulatory consent orders and other action letters. Angus has worked on and led teams that have established industry leading AML practices in these banks, often requiring the development of customized technology and applications to address tactical and strategic compliance needs. In recent months, Angus has established EY’s cross-competency Digital Finance task force, which is researching how blockchain and consensus technologies may assist our financial services clients. Angus also serves on the Advisory Panel for LibraTax, the first comprehensive tax and accounting software solution for digital currencies.