The white hats should lead the way in bitcoin.
It’s a task as daunting as taking bitcoin mainstream and we fully support those dedicated to it. The New York State Department of Finance has produced a Bit License and mandated that August 8th 2015 is the effective date from which all companies dealing in bitcoin and operating in New York State or servicing New York State customers must either apply for a Bit License or cease operations in New York State and cease servicing New York State residents.
The Bit License is not black and white and certainly not all bad.
Reading over this document we see that it will clearly banish many of the shadier elements from the scene immediately. We can see by the most recent arrest of a Flordia bitcoin brokerage Coin.MX that NY State is pretty serious about stamping out sketchy activity and shady characters. We can’t comment on that particular case but from what we have seen the darkness in bitcoin comes from buyers looking to scam sellers of the magical irreversible internet money known as bitcoin, not sellers themselves. Thus we see that it is the buyer side that needs regulation not the sellers. Compliance rules that understand this vital fact will help cleanup the space.
The Bit License requires those who hold it to file quarterly reports and report any and all suspicious activity. Does this mean brokerages will be required to report everyone trying to cure their computers from ransomware? No one is sure now. Filing suspicious activity reports is all well and good but most of it should be on the buyer side as that is where 99.9% of bitcoin scams come from. Compliance isn’t necessarily a bad thing and a startup can adjust and grow into this routine of compliance given enough funding or sweat.
The Bit License is expensive.
While the fee to file is only $5000, the background check for each officer can cost anywhere from $2500 to $4000 depending on the firm hired and take anywhere from two to three months. Fred Ersham, co-founder of coinbase has estimated that filing for a Bit License realistically costs around $40,000. Filing costs aside, firms may be required to take out a bond which could be well over six figures depending on the scale of the business.
Dudes in dorm rooms are not going to be applying for a Bit License. That hurts all of us as it robs Bitcoin of it’s ultimate fuel, the ambitious and bright young minds just discovering it and all the killer apps yet to pop into their minds. Despite this massive burden we know that the startup spirit could conquer even this. Yet sometime it’s not the big obstacles that get you, it’s those sneaky little gremlins that can pop up at anytime and crush the brilliant pivot or feature that would elevate the entire space over night.
The Bit License is a long list of rules and prerequisites, Many of which make sense and are in accordance with similar legislation . Startups reading through such a list will moan and groan as each one hits the eyes but nearly all of them can be handled by a team dedicated enough. Then you get to Section 200.10 a…
Section 200.10 Material change to business
(a) Each Licensee must obtain the superintendent’s prior written approval for any plan or proposal to introduce or offer a new product, service, or activity, or to make a material change to an existing product, service, or activity, involving New York or New York Residents.
Is there any startup that could function like this?
The moment a startup agrees to this it ceases being a startup and is simply a dumb node in a network of giants. Innovation and the possibility of exponential value creation basically become impossible. Providing reports and strict KYC we can live with but anything that would utterly eradicate our one advantage and crush our best chance at realizing the vast society transforming potential of bitcoin we cannot abide by.
Section 200.10 is one ugly mofo and we simply cannot “grow into it” or work with it and contribute positively to the space. It would effectively snip a startups hamstrings, cut their achilles tendons and render them a gimped dwarf among giants. There is a way we can begin improving our situation and the first step is to always be bigger and better men by taking full responsibility of our condition as a community.
Give Lawsky a Break
Laying blame at the feet of any one man is a mistake. The bitcoin community demonizing Benjamin Lawsky just makes us look bad and shows that we don’t really understand the breadth of the challenge before us. If it wasn’t Lawsky writing the Bit License it would have been someone else, most likely an older guy who would never have bothered to do a Reddit AMA or been so cordial to the community. Let’s count our blessing here and man up and show the world that we know that no one person is to blame.
The Challenge Ahead
We are faced with restructuring a system that has been on CPR for a few decades now. The entire financial system needs a serious reboot and they aren’t letting anyone near the button. To do this right we must grow up and accept the situation as it is. this means hard and tough decisions that will test us all but we have no choice. The Bit License may actually be a blessing in disguise.