New York Department of Financial Services Proposes BitLicense Regulations

The New York Department of Financial Services has just announced the formal draft for its proposed BitLicense regulations. These new regulations have the potential to dramatically change the world of Bitcoin, and they are an important step in the right direction for the crypto-currency as well as for consumers.

One of the biggest developments that these regulations bring forward is the fact that Bitcoin services sanctioned in the State of New York will no longer be anonymous. Bitcoin companies will be required to now keep records of who their customers are.

According to a recent article from BusinessInsider:

The greatest change is that anyone using a New York-sanctioned Bitcoin or cryptocurrency service will no longer be anonymous. This was something Bitcoin’s earliest users said was a key ingredient to the digital currency’s appeal, but which DFS, as well as other lawmakers, expressed strong distaste for at hearings earlier this year.

Now, any business whose essential service is buying, selling, or processing Bitcoin will have to maintain records of their customers’ names and addresses, and check them against the Treasury’s list of bad actors.

Though this specific regulation will undoubtedly cause some pushback from those who want to use Bitcoin anonymously, its inclusion into law can actually be seen as quite beneficial for the currency itself. As Bitcoin continues to move into the mainstream, and away from its often characterized illicit past, the currency will continue to expand its reach. This will perhaps mean that more and more companies will begin to accept Bitcoin as a legitimate form of payment. Therefore, the fact that this regulation requires that Bitcoin becomes more transparent will benefit consumers. Further, it will help to prevent Bitcoin from serving as a form of financing for criminal activites.

While the change outlined in the proposed regualtion mentioned above is probably the most evident, there are a number of other regulation that have been put forward. Among these, Bitcoin holding companies will now be required to keep reserves of 100% equal to what they are holding for customers, as well as “get bonded-up ‘in such form and amount as is acceptable to DFS for the protection of the licensee’s customers’” (BusinessInsider). This stipulation is designed to give consumers more peace of mind when trusting their Bitcoin to a firm.

There are a breadth of new regulations released in today’s draft of bitlicense guidelines. Consumers’ Research will continue to cover these developments in order to give readers a greater understanding of this important draft. There is a 45-day public comment period in which concerned citizens and organizations can make formal comments on the proposed draft.  Consumers’ Research will participate in this public comment period and welcomes input at info@consumersresearch.org.

As mentioned, this framework has many future benefits for consumers. Its purpose can be best summed up by those who created it. As Ben Lawsky, Superintendent of Financial Services at the New York State Department of Financial Services, said in a recent post on Reddit’s r/bitcoin:

In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation. These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.

We recognize that not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework. Ultimately, though, we believe that setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets. (We think the situation at Mt. Gox, for example, made that very clear.) Moreover, given that states have specific regulatory responsibilities in this area, we also have a legal obligation to move forward on this framework.

Consumers’ Research will continue to monitor the developments of this legal framework as it is an extremely important development in the world of Bitcoin.

Read More- “New York Just Released Its Bitcoin License, And They’re Going To Change The Face Of Digital Currencies In The US” (Rob Wile, BusinessInsider)

Read Ben Lawsky’s Reddit Post

Read The Formal Draft

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A rising senior at Colgate University, John is currently working as a research fellow with Consumers' Research.

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