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A BitLicense regulates businesses operating with digital currencies, such as virtual currency control, administration, maintenance, storing, holding, issuing, exchange operations, related-software development, etc. Following the collapse of Mt.Gox in 2013, New York State created the BitLicense to protect consumers and the integrity of the financial industry in general (don’t forget that KYC policies aren’t implemented adequately on all crypto exchanges).
Following the rules of Department of Financial Services for virtual currency business activity (published in the New York State Register on June 24, 2015, see), anyone engaging in any of the following activities is required to obtain a BitLicense:
Note, that BitLicense does not apply to retailers that accept Bitcoin or to individuals trading or purchasing with it.
After officially introducing the BitLicense draft by DFS superintendent Ben Lawsky, more than 3,000 official comments were submitted to the DFS during the 45-day public comment period. A submission from Coinbase sums up the industry’s point of view
… There is no need to hold a nascent industry to standards that far exceed those applied to money transmitters under existing state and federal law.
Nonetheless, it is worth noting that in 2017 Coinbase obtained the BitLicense from the NYSDFS.
Although the intention of the regulations was to provide an opportunity for cryptocurrency companies to work in a protected environment ensured by the state, the laws turned out to be unacceptable not only from a regulatory point of view but also for purely financial reasons for many startups. environment ensured of industry representatives simply stopped working in the state of New York, and today, only 9 companies own the BitLicense: BitPay, Square, Xapo, Genesis Global Trading, itBit, bitFlyer USA, Coinbase, Ripple and Circle. In addition, Gemini and Paxos have special permissions for operations with cryptocurrencies.
The most famous companies that refused to obtain a license are the following: Kraken, Korbit, Poloniex, Bitfinex, LocalBitcoins, Genesis Mining.
At the annual Сonference of State Bank Supervisors (CSBS), during a report on measures to maintain order in the crypto industry, DFS Supervisor Maria T. Vullo noted the positive impact of BitLicense, a procedure for compulsory licensing of crypto business, which made a significant contribution to the formation of the crypto world. At the same time, many participants in the crypto community consider these regulatory measures to be unfounded and overwhelming to business development.
In early 2018, the New York State Assembly proposed to create an alternative to BitLicense (known as The New York Cryptocurrency Exchange Act (A9899). The new law provides for verification of the activity of cryptocurrency companies by third-party depositories and the prohibition of licensing fees for the conduct of the activities of such cryptocurrency companies.
According to Ron Kim (the author of A9899), all previous attempts to regulate cryptocurrency space in the U.S. have created barriers for companies seeking to develop and operate in the digital currency industry (note that today, a company must pay an application fee of $5,000, which not refunded in case of refusal be).
Is there an alternative for BitLicense? Not really. Not because the U.S. framework is ideal, but because the logic of the regulation itself is correct. The most crucial element for any crypto regulation is its intent, which should be the following: to control, to resolve disputes, and to administrate. Their existence must be understandable for crypto players. All crypto market participants must understand the necessity of such frameworks and only then will the market develop and function efficiently.
Without a doubt, crypto companies should maintain financial records in order and provide independent audits of their financial statements. In a similar vein, documenting internal processes, protecting customers’ assets, and making sure every employee understands how those processes work is quite reasonable. Ultimately, this is what the BitLicense requires.
At the same time, it is almost impossible for small crypto players and startups to implement all Bitlicense’s points while also paying the application fee. As a result, these requirements make these startups to look for another place for their activities in the cryptocurrency sphere.
Based on these conclusions, we can draw a main inference: the idea of crypto regulation itself is valuable and necessary for creating a good start for the long and painless existence of crypto industry. It remains only to develop and implement the relevant scope of the regulatory requirements that will help to protect market players’ interests and will not hinder general market development at the same time.
The crypto regulation gives the desirable transparency to the industry. The CER Team works on transparency on a daily basis.
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