The Bitcoin Foundation has again commented on the ‘BitLicense’ proposal put forth by the New York State Department of Financial Services (NYDFS) to regulate bitcoin businesses in the state.
In a statement released today, the foundation highlights the need for public access to the “extensive research and analysis” cited by the NYDFS when the BitLicense was first proposed. This data, it says, is essential to examine the rationale used by the NYDFS in substantiating its regulatory proposal.
The foundation further points out that the NYDFS has failed to produce these materials. Despite an initial promise to publish by 20th October 2014, the NYDFS has since delayed the delivery of its research until December.
In comments at the time, the Bitcoin Foundation said it found the NYDFS decision “disappointing”, pointing out that the process would be completed well after the NYDFS stops accepting comments from the public.
Impact on free speech
The foundation recognizes the need for good regulation, saying it could help grow the bitcoin ecosystem and thus bring benefits for New York consumers and businesses. However, it claims the NYDFS has not explained how the BitLicense will actually improve the environment for either bitcoin or New York’s consumers.
Jim Harper, global policy counsel for the Bitcoin Foundation, explained:
“The sacrifice of some decentralization in furtherance of other benefits to the bitcoin ecosystem must meet a high burden of proof. Nobody should want a regulation that sacrifices bitcoin’s benefits if doing so produces unknown or merely speculative benefits for New York consumers of the New York financial services marketplace.”
Specifically, the foundation expresses concerns about the proposal’s “technology-specific” nature, as it would treat block chain-based companies as financial service providers even if that is not the case.
This could have a negative impact on communicative and expressive uses of bitcoin’s public ledger, said Harper, adding that the proposed regulation as it stands would require “unreasonable financial surveillance, which may violate the Fourth Amendment”.
Harper also took issue with the way the NYDFS has referenced digital currencies:
“Bitcoin is a digital currency, and our preference is that it be called ‘digital’ as opposed to ‘virtual’. The latter term should be reserved for currencies that inhabit closed commercial and game-playing systems.”
He added that the NYDFS is interested in bitcoin because of its “very real” potential rather than “virtual potential” for consumers and businesses.
“Your regulatory proposal should refer to it as digital and real, not virtual,” he concluded.
Appeal for moderation
Today’s comments by the foundation also point out that various US government and legal bodies outside New York have worked to integrate bitcoin into the existing regulatory framework. These include the Internal Revenue Service (IRS), Financial Crimes Enforcement Network (FinCEN), Federal Election Commission (FEC) amongst others.
The foundation said this “more modest” approach offers a way to create a “safe and sane” environment that would allow bitcoin businesses to thrive.
“A regulatory regime that is markedly out of step with others is very likely to create inefficiency in national and global markets, which would suppress competition, hamper the delivery of benefits to consumers and frustrate consumers.”
Ending on a positive note, however, Harper described New York as “a very special state” and argued that it needs to take a “methodical, iterative approach” to bitcoin regulation.
Industry response to the BitLicense proposals has been mixed so far, with some companies seeing benefits in measured regulation and others expressing concerns over its reach and impact. Others, like Circle, have even gone so far as to say they would not serve the state if the regulations are brought in as they currently stand.
The NYDFS, he said, intends to establish nuanced and thoughtful rules that would not stifle innovation, ensuring a bright future for bitcoin businesses in New York.
New York image via Shutterstock