On July 17, New York became the first state to attempt to regulate Bitcoin and other forms of cryptocurrency (referred to as virtual currency in the proposal). New York Department of Financial Services (NYDFS) Superintendent Ben Lawsky announced the so-called BitLicense proposal on Reddit. While some in the Bitcoin community welcome regulation as a validation of Bitcoin’s right to exist, the majority oppose it as the first roots of centralization.
Beginning July 24, the public will have 45 days to give feedback to New York state regulators before the BitLicense draft is finalized. In true Bitcoin fashion, the community has responded by forking the proposed BitLicense regulations on GitHub.
Following the BitLicense announcement on Reddit, Bitcoin Foundation General Counsel Patrick Murck created a .5 BTC bounty for the first person to upload the complete text of the BitLicense regulations to GitHub for the community to edit. Twitter user Austin Walne quickly claimed the bounty, and Murck began noting his problems with the document.
In particular, Murck decried the infeasibility of requiring wallet providers to track the “names, account numbers and physical address for both parties to every transaction.” He also proposed the definition of “virtual currency” should be altered so it only refers to the monetary nature of cryptocurrency units.
Definition of “virtual currency” includes non-monetary uses of crypto-currency units of account. Should be narrowly tailored to monetary uses.
Before long, other Bitcoin community members had forked and created their own versions of BitLicense.
One particularly contentious portion of the BitLicense draft requires virtual currency issuers to register with the NYDFS within 45 days of the currency’s creation. As Kyle Torpey noted, this “Satoshi Clause” would effectively criminalize Satoshi Nakamoto, as well as anyone who launched an altcoin without an official BitLicense. Moreover, it would criminalize future altcoin creators who desire to remain anonymous.
Recognizing this flaw, Coinfloor CEO Mark Lamb deleted the Satoshi Clause from his BitLicense draft. Lamb argued developers who create decentralized currency should not be subjected to licensing regulations.
Centralised virtual/digital currencies (such as fiat currency) can be licensed, but issuing a new decentralised digital currency should not be a license-able activity, as the issuers have no control over how the currency is used and cannot keep a register of user
While some have made conscious attempts to turn BitLicense into a document that does not entirely cripple the Bitcoin industry, others have taken a more heavy-handed approach to editing the BitLicense text due to the control it gives the government over Bitcoin-related companies. One such heavy-handed editor is Bitcoin security expert Kristov Atlas, who forked his own version of BitLicense. After deeming most of the BitLicense text unnecessary, Atlas concluded the following.
License irrelevant. No Person shall, with or without a license obtained from the superintendent as provided in this Part, find himself unable to download the latest version of various Bitcoin clients, Tor, Open Bazaar, or various other software projects that circumvent the legacy financial system.
As Bitcoin grows, government will increasingly view it as something they are both entitled and compelled to regulate. The cryptocurrency community should expect other states to follow New York’s lead and propose their own BitLicense-style regulations.
How the community responds to BitLicense and other early attempts at regulation will have a profound effect upon the future of cryptocurrency. Will Bitcoin compromise aspects of its decentralization to facilitate mainstream acceptance and adoption, or will the community resist government regulation on principle? We will soon find out.
Featured image by Shutterstock.
Last modified: July 3, 2020 1:00 PM UTC