Please remember this lecture was uploaded March 2015 however it was filmed August 2014. The lecturer does mention an update for Feb 2015 but again that is still 3 years old. There is an article from Nov 2013 talking about the NYDFS (New York Department of Financial Services) subpoenaing Bitcoin companies in the summer of 2013. The point I’d like to make is, this information is old and so I’ll be updating at the bottom of this what’s the updated the news as of Summer 2018 via news articles. I’m not going to use Twitter or Reddit though I admit that has the most up to date information sometimes.
Questions answered in this Post:
- General Information
- What will the license do?
- What happened from 2014 – 2017?
- What is the current state June 2018?
NY BitLicense Proposal by NYDFS
As the lecturer says, this is a specific effort by a specific state to introduce specific regulation of Bitcoin. Filling in the blanks like a Madlib. This is the Department of Financial Services (DFS) effort by NY state to introduce the NY BitLicense Proposal regulation of Bitcoin/ virtual currencies. The regulation was presented in July 2014, and I’ve provided a link to the DFS website. It is a slightly different link then the lecturer since this was the one I could find. This proposal was a bunch of rules, codes, and regulations for virtual currencies. In an online Forbes article, one goal states for this proposal was to determine regulatory guardrails to protect consumers and national security. However, other sources seem more focused on whether virtual currency companies registered in NY are money transmitters and thus need to keep consumer to be registered so they can pay appropriate taxes. The main proposal was that to be a virtual currency business you need to get this license. There were five main sections highlight that defined a virtual currency business activity that involved New York or a New York resident.
- receiving Virtual Currency for transmission or transmitting the same
- securing, storing, holding, or maintaining custody or control of Virtual Currency on behalf of others
- buying and selling Virtual Currency as a customer business
- performing retail conversion services, like converting or exchanging of fiat currency or other value into virtual currency, the conversion or exchange of Virtual Currency into Fiat or other value, or the conversion or exchange of one form of virtual currency into another form of Virtual Currency
- controlling, administering, or issuing a Virtual Currency
What the license does?
Essentially, virtual currency businesses have to keep and maintain the same records as other financial service companies. Businesses that do the above defined activity need to get the license. Getting a license means that these businesses have to share information on ownership, finances and insurance, and their business plan. These businesses also have to pay an application fee. With a license, the companies have to keep provided periodic financial statements. They would need to maintain a financial reserve set by the NYDFS. In addition, there would be rules on custody of consumer assets, anti-money laundering, cyber-security, and disaster recovery, and record keeping. In addition, there would need to be a compliance team with written policies as well as documentation disclosing all risk to consumers. In short, businesses would need to abide by many of the same standards traditional financial institutions like banks/hedge funds/broker dealers have to maintain for their clients today.
The lecturer ends with a final thought.
If companies who get the license are able to solicit more business and trust from consumers because of being regulated, that could be the metric of the success of the Bitlicense…
I agree with those who say companies who make the list of likely the most well funded because they have greater access to the most money, meaning to me they have played the nicest with institutional clients/have large banks backing them.
Companies with the Bit License Aug 2018 (NYDFS website for dates + press releases)
- Circle (Sept 2015)
- Ripple (June 2016)
- Coinbase (Jan 2017)
- BitFlyer (Nov 2017)
- Genesis Global Trading (May 2018)
- Xapo (June 2018)
- Square (June 2018)
- Bitpay (July 2018)
* Gemini and Paxos have limited charter with DFS that allow them to operate
Updates in July 2018
As you can see the last 4 licenses were all granted fairly close to each other in 2018. During Consensus conference, Fortune quoted Erik Voorhees for saying “Let’s call the BitLicense what it is – an absolute failure.” The DFS other than granting license in this summer to Bitpay and Square has not suggested anything regarding modifying the current license. DFS did authorize Paxos to expand its services to other currencies ie Ether, Litecoin, Steller Lumens and Bitcoin Cash though. There was quite a bit of hype about an assemblyman Ron Kim though. Mr. Ron Kim proposed a Bill (Assembly Bill A9899A) that would amend the current license by prohibint fees and repealing many of the provisions. I’ve linked the status of the bill and as of Aug 2018, it is still Active. In regarding to other states, Coin Center provides a great tool. It’s interesting the the site doesn’t talk too much about specific currencies like Bitcoin. Instead, it focuses on states that have ruling regarding money transmitters. Some of these rules apply only to fiat while others now include digital currency. They provide information on a state-by-state level on this tracker. I appreciate all the resources. I do apologize this post has been very United States centric so I’ll give a quick blurb about what I read about India this afternoon.
India
I read an article in quartz India. My understanding was that this summer people have been saying that crypto has been banned in India in that citizens were not supposed to buy or sell it. It looks like the state governments as well as finance ministry are taking a more intellectual approach. They are separating how they treat blockchain, just the technology, from cryptocurrencies. While it is interesting that the governments have been trying to incorporate blockchain into their current tech. Cryptocurrencies or specifically cryptocurrency business, ones that deal with currency transmission seem to have been shut down. The Reserve Bank of India ordered the banks to close all cryptocurrency-related accounts in April 2018. In September 2018, there will be a case with the Indian Supreme Court that may settle the fate for digital currency exchanges.
There are many other countries like South Korea, Japan, Malta, UAE, Germany, Switzerland, China, and etc that have expressed opinions about digital currencies. I hope that some point I can expand and share their views as well as compare and contrast.