Bitcoin license moves step closer with N.Y. bank draft
By: lmandaro July 17, 2014 3:49 pm
The New York Department of Financial Services moved a step toward creating a bitcoin license that’s seen as helping move the digital currency into mainstream use. And it went right to core users of bitcoin, posting a copy of the regulation on the website Reddit.
The bank regulator issued a draft of its “BitLicense” regulatory framework for New York virtual currency businesses. There will be a 45-day public comment period.
“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation,” said Benjamin Lawsky, superintendent of financial services, in a statement.
As the hub of U.S. financial activity, New York has been one of the most aggressive states in developing a legal framework for using bitcoin, the digital currency that’s drawn intense interest and speculation — in part because it exists largely outside the traditional financial system and its regulatory controls.
The ability to exchange cash for bitcoin, and keep those transactions anonymous, has made the currency attractive to criminals. The online illegal-drug retailer Silk Road, which was shut down by federal authorities last year, had a huge stash of bitcoin. The government also shut down the online money transfer business Liberty Reserve, charging it with money-laundering and other activities.
But there’s a coterie of business leaders, particularly hailing from technology, who view bitcoin as an early game-changing technology that will become as widely used as the Internet. Netscape co-founder Marc Andreessen has pointed out that skeptics of the early Internet also knocked the early Web for its association with crime and porn.
That’s where a license from a banking regulator comes in. To leapfrog from a niche product to mainstream — say one known by the Web denizens that populate Reddit to one used by folks that never heard of Reddit — entrepreneurs say there needs to be a clear legal and technological infrastructure.
The banking regulator is laying out just that. The rules.
Among them: Each licensee must maintain a bond or trust account in U.S. dollars for the benefit of its customers.
A licensee will have to have policies and procedures to handle consumer complaints — a requirement that seems squarely aimed at preventing the situation customers of bankrupt bitcoin exchange Mt. Gox found themselves in.
For every exchange, each firm must record and keep the identity and physical addresses of the parties involved.
In the grown-up version of bitcoin, users won’t really be able to exist in the shadows.
– Laura Mandaro
Follow Laura at @lauramandaro