US States Continue To Attempt Bitcoin Regulation

NYDFS was one of the first state regulators to decide that digital currency companies would need their own set of requirements. After introducing the first draft of the bill nearly two years ago, NYDFS released several versions for public comment since.

Through those public call for comments many changes were made — to the dismay of many bitcoin entrepreneurs — a number of desired changes to the license were discarded, even though they were present in earlier drafts. Exemptions for open source projects and micropayment channels were some of the things missing, as well as the heavily requested “safe period” of 24 months for bitcoin startups – who might not be able to afford compliance in the beginning. That safe period was something NYDFS superintendent Benjamin Lawsky previously said was crucial to creating a “sandbox environment” for innovation.

The only alteration present in the final version was a somewhat clearer definition of what a change would mean under the license. A change to a digital currency startup’s product or service would require approval from NYDFS under the BitLicense, but now Lawsky says they aren’t trying to “micromanage” app updates. Instead, bitcoin startups only require regulatory approval for a change that is "materially different from that previously listed on the application for licensing by the superintendent".

While the new requirements might be restrictive, and seen by some as unfair, it could also mean newfound legitimacy for the digital currency industry. More and more financial firms have been getting involved with digital currency, including the New York Stock Exchange and NASDAQ, and the new regulatory framework might be the clarity they require for a more aggressive move. This includes projects like Winklevoss twins’ bitcoin-based exchange-traded fund Gemini. Gemni’s postponed launch is widely speculated to be due to an uncertain regulatory environment.

Lawsky certainly gave his approval for the nascent and still developing technology. In a speech at the BITS Emerging Payment Forum about the new license, he said that Bitcoin’s blockchain could have beneficial effects on the “disco era” technology of the financial industry.

"We are excited about the potential digital currency holds for helping drive long-overdue changes in our ossified payments system. We simply want to make sure that we put in place guardrails that protect consumers and root out illicit activity – without stifling beneficial innovation."

• Ben Lawsky

Besides New York, the license could have further implications for bitcoin regulations in other American states. It is the first framework of its kind for any state to enact into law, and could become a model for other states to follow. At the very least, it might serve as a sign to others that bitcoin regulations is something they should begin to look into.

California is on their way to being next state to enact a law focused on digital currency. The California State Assembly approved bill AB-1326, which would regulate digital currency companies, in a 55-22 vote on June 4. Designed by chairman of California’s Banking and Finance Committee, Assemblyman Matt Dababneh, the bill would regulate Bitcoin companies in a similar fashion to banks. One requirement would be for digital currency startups to renew an annual license, costing $5,000. The bill will need to be approved by the Senate and then will be vetoed or signed in law by California governor, Jerry Brown.

Other states are joining the fray too. In May, North Carolina House of Representatives passed a bill that would add specific requirements for digital currency companies as part of a larger financial regulatory bill. House Bill 289, if passed, would create a new Money Transmitter Act, the regulations all businesses handling money must follow, with additions just for crypto-currency companies. The bill was praised by leading American bitcoin startup, Coinbase, who called the regulations a “sensible solution” and a something other states and countries should follow. It is still waiting to be voted on by the Senate.

More recently, New Jersey Assemblyman Rai Mukherji and Assemblyman Gordon Johnson proposed a regulatory framework for digital currency companies that would include tax breaks to encourage job growth. Titled “Digital Currency Jobs Creation Act,” the bill, which was made public last month, would introduce up to $5,000 of tax write offs for digital currency companies who have created over 10 jobs, but would also had security requirements for startups including having each person handling digital currency directly fingerprinted.