Bitcoin No Longer Unregulated in New York Regulations Proposed

For some time the unregulated use of bitcoin has made it an attractive alternative to paper currency. Then companies and government agencies began to see the rise of interest and use of the digital coin. The IRS dubbed it as property, and not currency, yet it appears to be entering the next generation of currency acceptance. Companies, like Dish reached out to their customers and told them bitcoin would now become an acceptable form of payment. Many cheered the moves as a win for expanding bitcoin use, but others are dismayed to see the currency becoming mainstream.

With mainstream attention comes regulations, something bitcoin has skirted around for some time.

Benjamin Lawsky, the superintendent for the New York Department Financial Services, proposed new regulations for bitcoin on Thursday. The 40-page proposal, labeled as “BitLicense” under Title 23, provides a set of rules for businesses who approve, store, control, transfer, buy, sell or exchange bitcoins.

Lawsky took to popular social media outlet, Reddit, to discuss the proposal. He stated the proposal provides an “appropriate balance that helps protect consumers and root out illegal activity.” The proposal is not in effect and can take some months for approval.

What does this mean for New York business owners? The regulatory proposal will require owners to identify their customers, including names, and physical addresses. Each bitcoin transaction must also be recorded. Owners will be mandated to report any unusual activity, such as transactions exceeding $10,000 in bitcoin.

Business owners will also have to pass a background check, and expect a drop in from an inspector at any time during active business hours. 100 percent of account information must be available for review.

The currency has long been heralded as a consumer choice for anonymity and non-disclosure.

Following the downfall of the largest bitcoin exchanges, Mt. Gox, many demanded protection for consumers. That protection, of sorts, will be in the form of regulation which can hurt companies who have enjoyed unfettered transactions.

In addition to keeping files on customers and transactions, business owners will have to invest into approved cybersecurity firmware and software to deter hackers.

If Lawsky expected Reddit users to welcome the regulation, he was extremely disappointed. He was hit with comments like:

You are creating a few dangerous barriers to entry and there is a huge glaring problem with the definition of virtual currency business activity.

This is so counter intuitive. “You can totally use bitcoin, but you can’t use it.”

What? Oh, yeah, you’re totally free to grow your own food. But you will have to register first and give us 90% of your crop.

This is a huge joke right? I have no way of knowing if a user is from New York or Newcastle when they deposit coins in my Web wallet.

Ben Lawsky just killed New York as a center for financial crypto innovation. Hopefully London, UK, Dubai, Hong kong, and other financial centers won’t make the same mistake.

Many users discussed turning to Dark Wallet, an app intended to circumvent regulation. New York has not addressed apps in their proposal, and it is unknown if they are aware they exist. What are your thoughts on the proposal?

by Paul Rivera