New York’s proposed BitLicense regulations were not designed to cover second-generation projects and other ‘crypto 2.0’ blockchain technologies, according to answers from Department of Financial Services (NYDFS) superintendent Benjamin Lawsky.
Questions on how the NYDFS viewed innovations not primarily concerned with currency or exchange of value were put to Lawsky first at a recent presentation on BitLicenses in New York, and then again yesterday by CoinDesk’s Stan Higgins at the Money20/20 conference in Las Vegas.
Work is being done in this area, Lawsky said.
— Stephen Macaskill (@orderofstuff) November 3, 2014
Crypto 2.0 question
This raises questions over whether other forms of value and information transfer not directly emulating that of ‘currency’ as we know it could, or even should, be regulated in the manner of today’s financial products, according to a senior financial industry adviser on compliance issues.
Angus Champion de Crespigny, a New York-based anti-money laundering (AML) expert and senior manager in regulatory compliance technology at a global consulting firm, asked Lawsky for some clarification on the issue at New York’s Cardozo School of Law a couple of weeks ago.
Champion de Crespigny then discussed the answer in an article on Consumers’ Research, writing:
“I asked him how the use of second generation non-currency applications would be viewed in the eyes of the BitLicense, considering that the exceptions for personal use only apply to the use case of blockchain technologies as a currency.”
The regulation was not intended to capture or halt businesses working in that area, Lawsky replied. He acknowledged that small amounts of “currency” may be transmitted along with non-currency value like information and asset transfers on some crypto 2.0 platforms, but appeared to regard such amounts as insignificant and said the NYDFS was “still working out how to address that”.
Lawsky’s level of technical knowledge appeared impressive, Champion de Crespigny said, and it appeared the NYDFS had done a lot of research into the emerging blockchain technologies and understanding how they work.
No other official or body has yet produced an effective solution on how to regulate these new kinds of instruments, he added, writing:
“We haven’t before had the ability to so easily create new assets that could be stores of value and representations of ownership, computing power, namespace, or any of the other applications that are possible through the block chain.”
Value could soon be transmitted in many different forms, he said, adding that regulators could struggle to keep up. Financial regulation in the past has been “product based”, and far lighter regulation or monitoring may be more appropriate from here on.
Defining crypto industry
The latest NYDFS answers come as several representatives from the crypto 2.0 community, such as the Mastercoin Foundation and Counterparty team denied claims they had received information requests from the US Securities and Exchange Commission (SEC). The SEC itself, however, has not commented.
Platforms like NXT Asset Exchange, Counterparty or colored coins could distribute non-currency value in the form of shares or assets, while others like Maidsafe (safecoin), Ripple (XRP) and Ethereum (ether) were proprietary currencies used to drive those networks’ primary functions.
Champion de Crespigny’s role involves advising on financial regulatory issues, AML and even bitcoin and other digital currencies.
He became interested in emerging blockchain technologies through his own background as a software engineer and ‘white hat’ hacker. He also set up his firm’s cross-competency Digital Finance task force, which is tasked with researching the potential of blockchain and other new consensus technologies.
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