BitLicense has been there on the news for a while now and recently the outgoing superintendent of New York State Department of Financial Services (NYSDFS) announced the final version of the BitLicense. By finalizing the BitLicense after almost a year of deliberations and amendments, NY became the first State in the United States to regulate cryptocurrency based businesses. Once the BitLicense regulations come into effect in full force, any Bitcoin or digital currency related business wishing to set shop in the State of New York would have to gain approval from the NYSDFS after meeting all the requirements as stated by the regulations.
What does BitLicense require from companies?
The initial draft of BitLicense was introduced in July 2014, and since then it has undergone some amendments to become what it is now. The initial draft was heavily criticized for being too stringent, up to an extent that it could smother the upcoming digital currency industry to death. The authorities made amendments to address the issues raised about it and in the end, only few of these issues were resolved.
BitLicense, takes inspiration from the State’s existing money transmitter laws but with additional riders. The inclusion of anti-money laundering, cybersecurity, information technology requirements and reviews has made the regulatory requirements of BitLicense much tougher than the federal requirements applicable to banks (without any consideration to the fact that most of the Bitcoin/digital currency based companies are fresh start-ups, not big corporations that run banks).
Apart from the long list of documentation, affidavits, clearance from law enforcement and judiciary and other information about all stakeholder and directors, the compliance requires wallet and financial services providers to collect identification of each customer and record each transaction that happens through their platform. The company is required to collect information from both parties involved in any transaction. Also any changes to products or services has to be first approved by the Superintendent of NYSDFS.
What will BitLicense mean to Bitcoin businesses?
Any Bitcoin business in the New York State dealing with Bitcoin as a financial instrument has to compulsorily apply for a BitLicense. Meeting the requirements for Bitcoin regulations will require a money and manpower. The company will have to set up a compliance process, appoint a compliance manager to oversee the implementation and maintenance of anti-money laundering, cyber-security, and information technology processes. It may not be possible for fresh Bitcoin start-ups to meet all the requirements.
What does BitLicense mean to Bitcoin’s ideology?
Bitcoin is based up on the ideology of decentralized economy, by removing the conventional trust system created by middlemen like governments, banks and financial institutions. By creating a zero-trust system, Bitcoin network democratizes currency. It allows people to transfer money directly to one another, anonymously outside the government’s control.
The whole ideology associated with Bitcoin now stands threatened by BitLicense, where the government introduced oversight is again bent on creating a trust system with the introduction of regulatory requirements.
Bitcoin has been providing a fast economical and secure way of transferring money across the world while providing access to financial services to the unbanked in the developing world.
What will be the end game?
The Bitcoin companies in NY now have two options open in front of them, either apply for BitLicense or stop operating in the State. Few start-ups have already started working on complying with the BitLicense requirements, with itBit becoming the first company to receive BitLicense. There are few companies still contemplating their next move regarding it and it is quite possible that may Bitcoin companies may decide to move out of NY than submit to BitLicense. ShapeShift.io has become the first digital currency company to announce its decision to move out of NY for moral and ethical reasons than share customer details with the government.