New York’s bid to become the first state with a dedicated regulatory regime for the digital currency industry took a step forward this week when the New York State Department of Financial Services (NYDFS) published an updated draft of its BitLicense proposal.
While only released on 4th February, the digital currency industry is already beginning to develop a loose consensus on the revisions and their potential impact.
Overall, the community lauded the NYDFS for its willingness to incorporate feedback from those who provided comment, even if there was an equally strong belief that some parts of the regulation remain unclear and onerous.
Non-profit research firm Coin Center has to date released the lengthiest public response to the latest proposal, and was perhaps most indicative of this centrist view. Coin Center praised the agency even as it critiqued its approach to conditional licenses and mandated that those who want to issue digital currency will fall under its scope.
Authors Jerry Brito and Peter Van Valkenburgh wrote:
”NYDFS has shown a willingness to embrace criticism that should be celebrated by the bitcoin community. This new draft clearly indicates that the many comments submitted in the previous comment period were reviewed and considered.”
Despite challenges ahead, there was a sense from the business community that the BitLicense debate is nearing completion and that this will spur interest and growth for the industry, even if there are likely to be disagreements that arise in the coming 30-day comment period.
“Throughout the document, there remain an enormous number of clauses that leave issues open ended and to be decided at the discretion of the superintendent,” he argued. “This lack of specificity and open-ended review will create an environment which discourages innovation and instead focuses on risk mitigation.”
Allaire’s criticisms came even despite his belief that the revision includes a number of “significant and important changes”, and that upon its passage, bitcoin will take an important step on the road toward being integrated with the wider financial system.
This more optimistic outlook was echoed by Cameron and Tyler Winklevoss, the venture capitalists and entrepreneurs behind New York-based digital currency exchange Gemini.
“The revisions demonstrate New York’s commitment to being the center of the financial world – both for fiat and digital currency," the brothers told CoinDesk.
Boon for non-financial bitcoin technologies
Perhaps most notable was the inclusion of a previously announced exemption for startups that are using bitcoin’s decentralized ledger, the blockchain, as well as the ledgers of other protocols, for non-financial means.
The addition of this provision was cited by a number industry members, including Allaire and the Winklevosses, but was of particular focus for crypto 2.0 companies, the sector most concerned with these applications.
Taariq Lewis, CEO of bitcoin and gold trading platform DigitalTangible, told CoinDesk he was “comforted” by the fact that software distribution is exempt from the current proposal.
“We're still digesting, but believe this clause allows companies like DigitalTangible to avoid licensing requirements by building more software tools,” he said.
Tim Swanson, business development head at digital asset exchange Melotic, however, suggested his opinion that the definition of “software” still remains vague.
Such an interpretation would put New York in line with the growing global consensus that non-financial blockchain applications require less oversight, a development that could potentially push more investors to consider the sector as its growth continues in 2015.
Business burdens remain
While noting that “important improvements” were made, Allaire critiqued the most recent revision for its failure to remove potentially onerous mandates that he argued will restrict the competitiveness of startups.
In particular, Allaire took aim at the requirement that licensees receive permission to introduce all new products and features.
“This cuts deeply against the grain of agile, Internet-based software innovation, and is nearly inconceivable,” Allaire said. “Internet technology companies deploy new features into products on a daily or weekly basis, responding to immediate customer and market demands.”
The latest revision did allow for digital currency startups to ask the NYDFS if certain changes need to be reviewed, but Allaire suggests that such oversight be limited to certain “highly specific” changes.
Such a take was seconded by Bitcoin Foundation board member candidate and Bitcoin Embassy director Francis Pouliot, a resident of Canada who spoke to the proposal's broad reach. Pouliot said that US bitcoin companies should push for bitcoin to be regulated under existing law.
“Compliance with existing laws is crucial for the bitcoin industry to obtain legitimacy, but such new rules and requirements will certainly reduce New York's potential to be a leader in cryptocurrency innovation,” he said.
In current form, Pouliot suggested, the proposal would do much to convince startups to head to “more friendly jurisdictions” outside the US.
At least one respondent provided evidence of this response, with Coinkite’s Rodolfo Novak telling CoinDesk:
"It seems that it was toned down, but it is still absurd to ask a startup [for] $265,000 to register in all states. Happy to be in Canada."
Verdict still out
Still, while the community applauded the willingness of the NYDFS to make changes, others were unimpressed by what they characterized as slight revisions given the scope of the critical feedback the department received.
“None of these changes address the structural flaws that many industry members, such as Coinbase, addressed in the comments they submitted,” Andrew Ittleman, founder and partner of Fuerst Ittleman David & Joseph, PL, told CoinDesk. “If anything, subject to a few exceptions, NYDFS has doubled down.”
Other respondents were positive in their remarks, while suggesting that more in-depth reading needs to be done before decisions can be reached.
This take was put forth by Perianne Boring, president of US bitcoin advocacy group the Chamber of Digital Commerce, who indicated her opinion is perhaps still being formulated.
“The NYDFS clearly listened to many of the community's concerns and was very responsive in addressing some of the identified issues. We are continuing to analyze the proposal and look forward to providing comments to the NYDFS,” Boring said.
In yet another sign opinion is still being formulated, many individual companies contacted for comment did not return responses at press time.