Topic: [2014-07-18] N.Y. Proposes Licensing Plan for Bitcoin Businesses (Read 1659 times)

Airline miles etc. are quasi virtual currencies as well. The upshot may turn out to be that they can no longer be transferred to avoid this kind of regulation.       

It will be interesting to see if Amazon and the likes get caught up in this legislation because their gift tokens are essentially a virtual currency.

I think there is sufficient room for interpretation around this aspect to make the regulations unhelpful.

The section that is relevant is

section 200.2

(n) Virtual Currency Business Activity means the conduct of any one of the following types of activities
involving New York or a New York Resident:

(1) receiving Virtual Currency for transmission or transmitting the same;
(2) securing, storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;
(3) buying and selling Virtual Currency as a customer business;
(4) performing retail conversion services, including the conversion or exchange of Fiat Currency or
other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other
value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency; or
(5) controlling, administering, or issuing a Virtual Currency.

If the creators or the administrators carry out their 'conduct' in New York or involve a NY resident, then it is clear cut that issuing or administrating code, e.g. uploading crypto code to github for distribution, would require registration as a business.

The difficulties are:

1. What is the business that a coin issuer or administrator conducts, especially if they do their work for free?
2. Do individual volunteers have to register as individual businesses?
3. What if you issue a coin in Japan, yet someone living in NY contributes a few lines of code?

What is very unclear is whether someone living in Arizona would be considered as requiring registration in NY as a business if someone in NY acting as a consumer simply uses a currency. I doubt it.  Terms of reference in this section talk of 'conduct' i.e. carrying out activity relative to 'controlling, administering or issuing.'

Regulatory licences for any type of existing activities typically target a control test. They try to make businesses disclose sufficient information to identify those who ultimately might indirectly control a business, e.g significant shareholders (who may not be employees or officers; they may be acting through other businesses or from overseas).

Those that release a coin or contribute code to it might be consider as having some control. That remains true until a coin becomes sufficiently decentralised that new code releases could be forked and rejected by a sufficient number of clients.

How does this impact on DRK? It doesn't. It might if these regulations were adopted by Arizona or by the Federal government.

Is Satoshi under threat? Not likely. He doesn't control Bitcoin. However, if the regulations extended their definition of control to include those with a significant holding of a virtual currency, that could be challenged in the courts, but it is sufficiently grey that it could go either way.

Do significant holders of the global gold or diamond reserves have to disclose who they are? If someone accumulated significant cash and stored it under their house, would they need to disclose themselves?

With Darkcoin going anon, how can anyone prove how much eCash a DRK holder has? They can't. Whereas with Bitcoin they can. That is a good enough reason to go DRK as a hedge as anyone with any significant amounts of Bitcoin or Litecoin really needs.

Like I said before:

* You sold your eCash, when you should have hodl your eCash. ha ha.

* To da moon.

It is a good thing that there aren't other states close to New York that these businesses can choose to locate themselves in. 

:-)

I can't read the full story. Can anyone copy the text to this thread?

New regulations may make Bitcoin safer. But some people think they will also ruin what made virtual currencies attractive.

Bitcoin may have just taken a huge step toward entering the financial mainstream.

“In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation,” wrote Lawsky in a post on Reddit.com’s Bitcoin discussion board, a popular gathering places for the currency’s advocates.

“These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.”

The proposed rules won’t take effect yet. First is a public comment period of 45 days, starting on July 23rd. After that, the department will revise the proposal and release it for another round of review.

Regulation represents a turning point in Bitcoin’s history. The currency is perhaps best known for not being subject to government oversight and has been championed (and vilified) for its freedom from official scrutiny. Bitcoin transactions are anonymous, providing a new level of privacy to online commerce. Unfortunately, this feature has also proven attractive to criminals. Detractors frequently cite the currency’s widely publicized use as a means to sell drugs, launder money, and allegedly fund murder-for-hire.

The failure of Mt. Gox, one of Bitcoin’s largest exchanges, following the theft of more than $450 million in virtual currency, also drew attention to Bitcoin’s lack of consumer protections. In his Reddit post, Lawsky specifically referenced Mt. Gox as a reason why “setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”

New York’s proposed regulations require digital currency companies operating within the state to record the identity of their customers, including their name and physical address. All Bitcoin transactions must be recorded, and companies would be required to inform regulators if they observe any activity involving Bitcoins worth $10,000 or more.

The proposal also places a strong emphasis on protecting legitimate users of virtual currency. New York is seeking to require that Bitcoin businesses explain “all material risks” associated with Bitcoin use to their customers, as well as provide strong cybersecurity to shield their virtual vaults from hackers. In order to ensure companies remain solvent, Bitcoin licensees would have to hold as much Bitcoin as they owe in some combination of virtual currency and actual dollars.

Cameron and Tyler Winklevoss, two of Bitcoin’s largest investors, endorsed the new proposal. “We are pleased that Superintendent Lawsky and the Department of Financial Services have embraced bitcoin and digital assets and created a regulatory framework that protects consumers,” Cameron Winklevoss said in an email to the Wall Street Journal. “We look forward to New York State becoming the hub of this exciting new technology.”

Gil Luria, an analyst at Wedbush Securities, also saw the regulations as beneficial for companies built around virtual currency. “Bitcoin businesses in the U.S. have been looking forward to being regulated,” Luria told the New York Times. “This is a very big important first step, but it’s not the ultimate step.”

However, this excitement was not universally shared by the internet Bitcoin community. Soon after posting a statement on Reddit, Lawsky was inundated with comments calling his proposal everything from misguided to fascist. “These rules and regulations are so totalitarian it’s almost hilarious,” wrote one user. Others suggested New York’s proposal would increase the value of Bitcoins not tied to a known identity or push major Bitcoin operations outside the United States.

One particularly controversial aspect of the law appears to ban the creation of any new cryptocurrency by an unlicensed entity. This would not only put a stop to virtual currency innovation (other Bitcoin-like monies include Litecoin, Peercoin, and the mostly satirical Dogecoin) but could theoretically put Bitcoin’s anonymous creator, known by the name Satoshi Nakamoto, in danger of prosecution if he failed to apply for a BitLicense.

One major issue not yet settled is whether other states, or the federal government, will use this proposal as a model for their own regulations. Until some form of regulation is widely adopted, New York’s effort will have a limited effect on Bitcoin business. “I think ultimately, these rules are going to be good for the industry,” Lawsky told the Times. “The question is if this will spread further.”