New York Now Wants to Tax Bitcoin Mining, Following Controversial BitLicense

New York state is famously tough on cryptocurrency trading but has recently struck some big deals with Bitcoin mining companies. Now the authority that controls electricity say prices for such activities is going to cost more.

Mining Operation a Boon to Small Town

It was only last month that Coinmint had made a $165 million deal with the town of Massena in Upper New York State to take over a shutdown ore smelter with plans to create a “futuristic company”

The deal promised to bring the town 150 jobs, jobs that are much needed not just in Massena but in most small towns and cities in upstate New York where the economies have been in steady decline since the end of heavy manufacturing.

Coinmint is set to open a cloud mining operation in the town. Cloud mining is a system of mining that allows users to buy a share in the computational power to produce dividends. That is the factory will own all the equipment users pay a flat rate to mine.

Part of the deal was for an allocated 15 megawatts of low – cost power that was subject to approval by the New York Power Authority. With the town on it’s side and town supervisor Steven O’Shaughnessy in their corner, it seemed a done deal.

Now Bloomberg Tech is reporting that the New York Power Authority has handed down their decision and it’s not good news for either Coinmint nor Messana.

The Authority which is made up of 36 municipal power authorities in the state have decided to raise electricity rates for crypto mining operations. In a comment to local news Commission Chair John Rhodes said

“If we hadn’t acted, existing residential and commercial customers in upstate communities served by a municipal power authority would see sharp increases in their utility bills,”

The power authority gave out numbers that showed in some cases Mining operations taking up over a third of the municipal power demand.

New York’s Hard Stance on Cryptocurrency

New York State has been decidedly hard on the cryptocurrency market. As the center of financial institutions in the US it passed the BitLicense regulation that at the time made all existing exchanges illegal and set up a dense process to register an exchange to do business in the state.

It also remains one of two states (Washington, ironically another hotbed for mining, being the other) where ICO’s are illegal.

Whether or not Coinmint will continue on with opening their cloud mining operation in Massena now that the low-cost power part of the deal has fallen through is yet to be seen. But as supervisor O’Shaughnessy said 150 high tech jobs in a little city of 12,000 would be a very big boon to the economy.

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South Korea is examining a licensing system to regulate the country’s cryptocurrency exchanges in a major turn around from its previous harsh stance.

A turn around from hardline approach

After announcing less than a month ago that some or all cryptocurrency exchanges may be shut down in the aftermath of the Bitcoin market correction South Korea looks as if it may soften their stance.

According to Business Korea, the government is considering adopting a system similar to New York’s Bitlicense model. The New York system only allows exchanges that applied for a Bitlicense from the state department of financial services to trade cryptocurrency. New York requires detailed reporting regulations and a minimum capital requirement which has limited the number of firms and currencies that qualify.

The South Korean government considers that implementing such a system brings a notoriously volatile market into a more familiar institutional framework which can be more easily supervised. These recent statements are a dramatic reversal to an energetic crackdown on cryptocurrency exchanges last year.

The first mention of a ban by South Korea, one of the top cryptocurrency markets in the world, in December of 2017 caused Bitcoin to slide 18% in one day. Resulting in the chief of financial services commission to talk openly about shuttering cryptocurrency exchanges nationwide in a speech to parliament.

“(The government) is considering both shutting down all local virtual currency exchanges or just the ones who have been violating the law,”

Choi Jong Ku, chief of financial services commission.

This call for tighter regulation sparked a strong reaction as thousands of South Koreans signed a petition to stop any ban on cryptocurrency trading on the website of the presidential blue house.

Creating a path to stable crypto market

This recent reconsideration from the government comes as a great relief to investors both in the country and around the world as South Korea’s policies would affect the international cryptocurrency market.

It seems that the recent stabilization of Bitcoin’s value after it fell dramatically at the end of last year has convinced the government that a safely regulated market is viable.

Or maybe the government realized that an attempted ban on trading would drive cryptocurrency exchanges underground, taking them out of the tax revenue loop as well as alienating South Korea from the developing Blockchain technology expansion and all of the benefits that are sure to come with it.

Policymakers continue to oppose bitcoin and cryptocurrencies in certain regions of the world. California legislators have tried to introduce their version of BitLicense a while ago. Luckily, those plans were shot down relatively quickly, not once, but twice. It appears a new proposal under the name AB 1123 has come up, with touches upon the topic once again. This bill needs to be opposed by the people once again.

It was to be expected Californian policymakers would not give up on opposing bitcoin so easily. Assembly Member Dababneh is a clear opponent of cryptocurrency as a whole. His new Assembly Bill 1123 aims to once again thwart bitcoin usage in the state. A lot of the wording is a direct copy of AB 1326, which was opposed by the public twice already. It is evident the locals in California do not want a version of BitLicense, as there is no clear need for such harsh regulation.

To be more specific, AB 1123 is capable of bringing the bitcoin use to a near halt in the state. Dababneh’s wording can be interpreted in many different ways. However, it leaves little to the imagination of how bitcoin startups would be nearly outlawed. Moreover, businesses accepting bitcoin would need to meet additional regulatory requirements. Donations in bitcoin or other cryptocurrencies would be subject to harsh guidelines as well.

AB 1123 Needs To Be Opposed

It is evident AB 1123 and AB 1326 are near copies of the same proposal. Introducing regulation on the same level as BitLicense will not do anyone any favors. In fact, a lot of companies are no longer active in New York state due to the bizarre regulatory requirements. The same can happen in California, assuming the bill comes to pass. It seems highly unlikely that will happen, though, since CA does not label bitcoin as money right now.

Politicians are still rather clueless when it comes to bitcoin and cryptocurrency. To be more specific, they simply try to oppose what they do not understand. Disallowing innovation to take root in California will only have an adverse effect. It is now up to local bitcoin enthusiasts to openly oppose this proposal. That can be done either by asking Dababneh to withdraw the bill, although it is unlikely he will do so. Another option is through using EFF forms and contacting local legislators.

This latter method successfully defeated AB 1326 in its tracks not once, but twice. The Governor of California can veto this bill at any time, assuming there is enough demand to do so. This is the third attempt to introduce BitLicense in California. Thrice is usually the charm, but we can only hope this new bill will fall short as well. Otherwise, the bitcoin situation in California will become very dire rather quickly.

Header image courtesy of Shutterstock

Bitcoin wallet and exchange Coinbase yesterday announced that they have obtained the Bitlicense from the New York Department of Financial Services (NYDFS). It is the formal license to carry out digital currency-related businesses in the state of New York.

Coinbase believes that the long-term success of virtual currency and blockchain technologies will require productive partnerships between industry and government. Support from government is seen as essential in longevity of any cryptocurrency even by the other members of the crypto community.

Further, Coinbase sees the Bitlicense as an important validation of its highest priority, which is, to operate the most secure and compliant digital currency exchange in the world. Coinbase plans to continue to make heavy investments in the security and integrity of its operations as it expands business in New York and around the world.

The BitLicense strengthens Coinbase’s operating status even if it was allowed to serve New York customers under a safe-harbor provision while the application process was being conducted.

The BitLicense regulatory guidelines were introduced in June 2015 by the state of New York in its pursuit to scrutinize Bitcoin companies even more than most other financial institutions in the state.

What’s interesting is the timing of the BitLicense which is being viewed as the “validation” of Coinbase’s aim to be compliant with regulatory considerations. The BitLicense comes at a time when the company is already embroiled in an expensive legal battle with the IRS.

The license was issued after a thorough review of Coinbase’s anti-money laundering, consumer protection, cyber security, and financial information policies as required by the BitLicense application.

But BitLicense itself has the Bitcoin community confused if not divided, due to its controversial regulatory structure as it has extensive data gathering standards, associated expenses, and stringent reporting requirements, even after it’s granted.

Moreover, the costly and cumbersome requirements for the license have many companies getting out of the state. And there are only two issued BitLicense before Coinbase, to Boston-based bitcoin startup, Circle Internet Financial Inc., and distributed ledger startup, Ripple.

Poorly drafted regulations have again started to haunt Bitcoin businesses. Many cryptocurrency platforms have fallen victims to the fiasco, choosing to either move away from a particular market/location or shut their shops entirely. BitPhone is the latest company to succumb to the injuries inflicted by regulations.

The cryptocurrency-based encrypted voice and video calling platform has announced the end of its brief 1.5-year stint. According to BitPhone’s announcement, the platform has been forced to shut down due to certain regulatory requirements. It, in a well-balanced message, blames both “irresponsible” customers and the government for its unavoidable fate.

BitPhone states that the phone service was misused by many customers. The problem was further compounded by regulations requiring the company to collect identity information of all its customers. However, the platform doesn’t say whether the introduction of regulatory requirements was a direct result of its customers’ actions.

BitPhone has expressed its unwillingness to violate customers’ privacy by complying with the regulations. Instead, the platform has made a tough decision to shut down its services without compromising its ideals and beliefs. Justifying its actions, BitPhone also quotes Roger Ver saying,

“We believe it is reckless and ethically impermissible to extract personal, private information from our users, if it is not necessary for the service they are using. Companies which capture this information expose their users by needlessly storing sensitive data in a central repository, which inevitably becomes a target for hackers and other malicious actors.”

The Bitcoin-based phone service has an impressive track record. In addition to Bitcoin, BitPhone also allowed users to pay for the connection with other cryptocurrencies through Shapeshift integration. It also scores high in the security criteria by being able to successfully thwart all the hacking attacks against the platform.

Existing users of the service have been given 3 months to withdraw their funds from BitPhone’s account. All user accounts are currently set at withdrawal only mode and existing  customers with an active contract will be offered a partial refund before March 10, 2017.

The departure of BitPhone opens up an opportunity for other players who can offer similar secure and private services, filling the newly created void.


The impact of regulations targeting cryptocurrencies is being felt again in the United States. This time it is the State of Washington which seems to be at the receiving end after Bitstamp announced that it won’t be providing services in the “Evergreen State”.

The platform’s mail to its customers reads,

“After long and careful deliberation, we are sorry to inform you that due to recent regulatory constraints imposed by the State of Washington, Bitstamp will cease to serve customers from The Evergreen State, effective 20th December 2016.

We kindly ask you to withdraw your funds by 20th December 2016 by means of Bitcoin or international wire. Your account will be closed after the deadline has expired.

We sincerely apologize for the inconvenience. We are actively working to restart our services within the State of Washington and we will inform you as soon as the situation is resolved.

In the meantime, should you have any question, please feel free to reach out to our support at”

Bitstamp is one of the leading European cryptocurrency platform operating out of Luxembourg, United Kingdom , and the United States. The platform has not offered any clear explanation regarding the specificities of the regulations responsible for its decision. However, the platform currently holds a Payments Institution License issued by the Luxembourg Ministry of Finance making it the first regulated and licensed cryptocurrency platform in the Europe. Bitstamp’s license is valid across all the European Union nations.

Armed with the Payments Institution License, Bitstamp is already subject to various AML and KYC regulations along with frequent audits to ensure compliance in accordance with the EU laws. Introduction of similar conditions by the State of Washington will be of little concern to the platform, unless few drastic changes or compliance requirements are stated by the state authorities for cryptocurrency exchanges.

In the wake of recent incident involving Coinbase and the US Internal Revenue Service, Bitstamp may as well be insulating itself from any additional hassles it might face due to recent developments. Few people also believe that the complicated financial regulations of Washington State are to be blamed for Bitstamp’s decision to stop serving customers in its jurisdiction.

For now, existing Bitstamp customers from the region have another 14 days to withdraw Bitcoin deposits from their respective accounts.

Ref: Reddit | Image: Bitstamp

New York is a great place for tourism, but not so much for entrepreneurs running a Bitcoin business. Things have gotten progressively worse since the BitLicense was introduced. As it turns out, the licensing process for BitLicense has been clogged up, and Bitcoin innovation has come to a halt in the stat.e not entirely surprising, as regulation following traditional guidelines is not the best course of action for Bitcoin.

When the state of New York introduced BitLicense, there was a genuine feeling of dismay among Bitcoin community members. Forcing companies to obtain a license so they can continue Bitcoin operations seemed a step too far. But at that time, Benjamin Lawsky was confident it was the right course of action. Most companies had different ideas, though and halted services in the state rather quickly.

BitLicense Fails To Deliver On its Promise

Fast forward to today and the whole licensing ordeal turned into a big mess. Benjamin Lawsky excited the NYDFS position shortly after bitLicense was introduced, which infuriated, even more, people. So far, the number of companies successfully receiving their license can be counted on the digits of one hand. The way things look right now, that number will not increase anytime soon.

While regulatory approval and compliance is a selling point for Bitcoin companies, the costs do not outweigh the benefits. New York state wanted to get ahead of the competition by introducing this licensing requirement. Unfortunately, their concept is flawed from day one and ultimately succeeded in doing the exact opposite.

Other parts of the world are far more inviting to Bitcoin startups these days. Several factors make BitLicense less attractive to pursue, such as the US$5,000 application fee. Moreover, there is the sheer invasion of company and customer privacy that has a lot of entrepreneurs concerned. In fact, GoCoin CEO Steve Beauregard once stated pursuing BitLicense was “not worth the effort”.

Other US states have been keeping a close eye on the evolution of Bitcoin as well. Those places requiring a license seem to hand them out a lot quicker. The first-mover advantage New York once had evaporated quickly. Administration is the one way to stifle innovation, and BitLicense is a perfect example of that.

It is evident for everyone to see BitLicense fails to live up to its promise. At the same time, there are only so any companies that can “afford” to ignore New York state. For Bitcoin companies, this is not much of an issue, due to their global appeal. However, something will have to change sooner rather than later, as the current regulatory environment hinders innovation.

Header image courtesy of Shutterstock

The increasing usage of Bitcoin and blockchain technology in today’s economy is posing a challenge to the governments. With the current legal and regulatory environment set to address the issues related to conventional economic systems, governments are still stuck at finding ways to include digital currencies and distributed ledger systems into it.

According to George Takach, a senior partner at McCarthy Tetrault LLP, it is just a matter of time for the law to catch up with technological innovation. In an article on one of the online law magazines, he compares Bitcoin and blockchain technology to the internet a few decades ago. He compares the regulatory scenario in Canada with that of few states in the United States. While the State of New York rushed with a half-baked BitLicense, the Canadian government has opted for a wait and watch approach. So far, the Canadian regulatory bodies have only issued directives for countering money laundering using digital currencies.

Each state and country react differently to new technologies, especially the disruptive ones. Takach gives the State of Utah’s reaction to the introduction of Public Key Encryption in the 1990s. The regulations introduced by the state in the early days of its adoption didn’t come of any use as the industry developed in an entirely different direction. Similarly, any actions on the part of governments and regulatory bodies, concerning digital currencies at the moment may or may not be fruitful.

The cryptocurrency industry is still in its nascent stages. There is still room for adoption and innovation. As the technology develops, the use case for Bitcoin or blockchain technology may be completely different from what it is now. The increasing use of blockchain technology can be taken as an example. The distributed ledger was initially meant for keeping a record of all the transactions happening over the Bitcoin network. but now, the distributed ledger by itself is being used for a variety of applications.

George Takach doesn’t believe that there is a regulatory vacuum concerning cryptocurrencies. Like in the early days of internet-based business models, the general legal rules of libel, taxation, securities regulations etc. applied to them then, and the same applies to cryptocurrencies now.

Even though the general laws cover some aspects of digital currencies, there is still few regulatory challenges when it comes to countering terrorist financing, privacy rules, and consumer protection. These challenges can be eventually solved, using internet related precedents.

Ref: Lexpert | Image: NewsBTC

The New York Department of Financial Service (NYDFS) has published a new cybersecurity regulation draft which might have a direct-indirect impact on the state’s Bitcoin industry growth.

Touted as the regulation that would limit consumers’ exposure to cyber attacks, the aforementioned law is likely to put additional legal burdens on the New York’s freshly brewing Bitcoin sector. The state’s FinTech entrepreneurs were already facing troubles in complying with a draconian BitLicense law.

Nevertheless, the new regulation is supposed to be the first of its kind in the entire United States, proposed to counter the “growing threat” from terrorists and other criminal organizations.

“This regulation is designed to promote the protection of customer information as well as the information technology systems of regulated entities,”

— states the introductory section of the new cybersecurity requirements draft.

For starters, the Bitcoin industry never wanted to collect customer information in the first place but was forced to do so by the BitLicense. Now, the very department seems to be imposing additional regulations to address one of the potential problems which never existed before BitLicense.

Compliance Requirements for the New Cybersecurity Regulation

According to the proposed regulation, companies will be required to assess their risk profiles and design a program to address those risks. Financial services companies in the State of New York will be required to draft a cybersecurity policy for their respective organizations to address the following areas:

(a). information security, (b). data governance and classification, (c). access controls and identity management, (d). business continuity and disaster recovery planning and resources, (e). capacity and performance planning, (f). systems operations and availability concerns, (g). systems and network security, (h). systems and network monitoring, (i). systems and application development and quality assurance, (j). physical security and environmental controls, (k). customer data privacy, (l). vendor and third-party service provider management, (m). risk assessment and (n). incident response.

In addition to an extensive policy, financial institutions including Bitcoin companies will be required to appoint a Chief Information Security Officer. According to NYSDFS, the cybersecurity proposal will be implemented from the beginning of next year (January 1, 2017).

The complete proposal is available for download here. The department has given a 45-day notice for public comments on the new draft cybersecurity proposal, starting September 28, 2016.

Whether this proposal will be implemented in its original form or not, it will be known by the end of the 45-day notice period. Either way, the financial services industry can’t escape additional burden imposed by the state’s financial services department. Will the new cybersecurity proposal lead to more Bitcoin companies moving out of New York state? Provide you comments below and let the discussion keep going.

Ref: NYSDFS |Image: Microsoft Blog

The State of California is all set to follow New York’s footsteps. The Golden State has drafted a new digital currency regulation along the lines of New York’s BitLicense, and it will be voted upon soon.

The California Bitcoin License assembly bill – AB 1326 – was first introduced by the Assembly member Matt Dababneh in February 2015, and has since gone through multiple amendments in the assembly and senate. As the California legislature prepares to vote, digital currency community and businesses in the region have raised their concerns.

Bitcoin is a relatively new ‘disruptive’ digital currency. Both Bitcoin and its underlying blockchain technology have a huge potential to change the whole economic system, undermining the authority of government and conventional financial institutions. This combined with its potential uses in money laundering and terrorist financing has driven governments to implement legislations to control the digital currency ecosystem. In order to exercise their control, companies working in the digital currency sector are being subjected to various rules and regulations. California Bitcoin License and New York BitLicense are examples of such regulations.

At the same time, being a nascent technology, there are numerous applications of digital currencies which are still being explored. Unless these Bitcoin laws factor in the need for further innovation in the sector, they will end up causing more damage than good.

Electronic Frontier Foundation has expressed its concerns about California Bitcoin License, which if passed in its current form will end up smothering the state’s Bitcoin ecosystem. The foundation has pointed out various shortcomings in the bill. Some of the concerns include

  • The vague language used in the Bill fails to offer a proper definition of ‘virtual currency business’.
  • While smaller companies and software developers have some leeway when it comes to California Bitcoin License, it can still prove to be detrimental to innovation and experimentation.
  • The Commission of Business Oversight can either accept or reject a license by exercising its discretion.
  • The Business Oversight Commission can also ask for irrelevant information from companies applying for Bitcoin License.
  • All decisions taken by the Business Oversight Commission is final and businesses can’t appeal against its decision.

If the bill gets approved, it may have a similar impact on California as BitLicense had on the Bitcoin ecosystem in New York. California has to consider its thriving startup ecosystem in San Francisco and the implications of digital currency startups moving out of the nation’s startup hotbed because of Bitcoin License.

Ref: EFF |AB 1326| Image: NewsBTC