NY regulator memo: Notice of Inquiry on Virtual Currencies

[Kluge]

I guess this explains why BitInstant has sort of stopped providing their services?

I'm not sure how US businesses can go forward without limiting the number of states they deal with, or cutting off service to the US altogether. It's a big fucking deal when a Bitcoin-oriented service snags a couple million in VC funds. For a "MSB" to be fully compliant and serve all the states, they need many multitudes more than that -- at no gain, except to have permission to operate. It's basically taking an enormous pile of money, dumping it in a pit, and having the company execs say "THAT'S how committed we are to this business." Compliance will snag a whole lot of business from people and companies which otherwise may not even consider buying BTC due to how risky using exchanges are right now.

I think there's going to be a bit of a blackout in the US from major service providers for years, but once funding and proper licensing is secured, we can get back off LocalBitcoins and sites too small to regulate, and enjoy safe trading from behind our desks again. While we're trading in a decentralized p2p way, though, the USG and states are almost certainly enabling money laundering and tax cheats -- so their priority shouldn't be in threatening service providers, but in establishing a path forward.

If regulators would just hold off and let these businesses grow to the point where they CAN fully comply, I think everyone'd be better off. Suggesting something like a five-year grace period would really be better for everyone involved than to start off a "conversation" talking publicly about enabling terrorism, child porn, and money laundering.

Just reading your post I can tell you haven't listened to this episode of Let's Talk Bitcoin:

http://letstalkbitcoin.com/post/57717761405/the-regulatory-question-inside-bitcoins-conference

The talk features a panel discussion from the recent Bitcoin Conference in New York, which included actual professionals in the regulatory space including from the U.S. GAO.

It's a big fucking deal when a Bitcoin-oriented service snags a couple million in VC funds. For a "MSB" to be fully compliant and serve all the states, they need many multitudes more than that -- at no gain, except to have permission to operate.

Not true. Again you need to listen to the talk. Also, not every Bitcoin related business is categorized as a money transmitter. If you want to sell fruit from your orchard, offer singing lessons, or babysitting services, for bitcoin you need no license, for example.

Is there a transcript of that? I sure don't hear of many Bitcoin businesses taking in hundreds of millions. There are ways around dumping money into bonds and fees for state-by-state MSB licensing -- you could partner with an already-licensed company, but that has its own costs (tangible and otherwise). Another idea I've heard floating around is to open a credit union to get around MSB licensing.

[iCEBREAKER]

Where is the list of all 2 dozen recipients?

[acoindr]

Is there a transcript of that? I sure don't hear of many Bitcoin businesses taking in hundreds of millions. There are ways around dumping money into bonds and fees for state-by-state MSB licensing -- you could partner with an already-licensed company, but that has its own costs (tangible and otherwise). Another idea I've heard floating around is to open a credit union to get around MSB licensing.

There might be a transcript, but I don't know where. LTB makes its content available in an open source way, and I think they mentioned someone making transcripts once...

Yes, you're correct about partnering with a licensed company as a cost effective option. That was one of the things discussed. There are a lot of cost saving considerations which is what surprised me most. Like you I had the 1M dollar figure as the starting point. Actually, registering at the federal level is not so costly. From there a business would also need licensing for the 50 states, but there is more to that. For example, whether or not a state requires a license if a business is not physically located there can be different. Some states, at least two, if I can remember being Montana and New Mexico I think, don't require any additional license.

So, yes, to operate in all 50 states and be fully compliant as a money transmitter is going to be costly, but there are options and already Bitcoin businesses making progress, for example, with partnering with existing licensed entities.

EDIT: also yes you're right, they mentioned banks are not subject to money transmitter licensing, so opening a credit union might work.

[superduh]

but guys.... bitcoins are a commodity not a currency! people can't get their facts straight

[Kluge]

Is there a transcript of that? I sure don't hear of many Bitcoin businesses taking in hundreds of millions. There are ways around dumping money into bonds and fees for state-by-state MSB licensing -- you could partner with an already-licensed company, but that has its own costs (tangible and otherwise). Another idea I've heard floating around is to open a credit union to get around MSB licensing.

There might be a transcript, but I don't know where. LTB makes its content available in an open source way, and I thought they mentioned someone making transcripts once...

Yes, you're correct about partnering with a licensed company as a cost effective option. That was one of the things discussed. There are a lot of cost saving considerations to be compliant which is what surprised me most. Like you I had the ballpark 1M dollar figure as the starting point. Actually, registering at the federal level is not so costly. From there a business would also need licensing for the 50 states, but there is more to that. For example, whether or not a state requires a license if a business is not physically located there can be different. Some states, at least two, if I can remember being Montana and New Mexico I think, don't require additional license.

Montana & SC. New Mexico is sorta-kinda free of extra MSB registrations unless there's a "negotiable instrument" involved.

I'm not sure how many states still don't consider online doing businesses in their state to be regulated by their laws - but that's probably substantial, too. Still, unless you're going to discriminate by state (which is totally valid), the costs for getting all states' MSB licensing is quite a few million. Just for my little state of MI, it's >$500k in bonds and fees, >$500k for CA, and it's probably similar in other states.

[acoindr]

Montana & SC. New Mexico is sorta-kinda free of extra MSB registrations unless there's a "negotiable instrument" involved.

I'm not sure how many states still don't consider online doing businesses in their state to be regulated by their laws - but that's probably substantial, too. Still, unless you're going to discriminate by state (which is totally valid), the costs for getting all states' MSB licensing is quite a few million. Just for my little state of MI, it's >$500k in bonds and fees, >$500k for CA, and it's probably similar in other states.

Yes, but you only make a down payment on the bonds, based on the credit rating of the owners or something like that. Like I said, people really should listen to the talk. I found it very insightful.

[yayayo]

Ehhhh.... you and your country's national security - ever lasting excuse for anything; from dropping atomic bombs to fighting cryptography.

Sad, but true.

A wise thing for Bitcoin companies to do is to stay out of the US. Go to countries with a more sane understanding of what to "regulate".


ya.ya.yo!

[ninjaboon]

Cross-posting from the Legal Subforum:

DFS seems to have learned from the industry’s reaction to the California DFI’s bare cease and desist letter.  DFS coupled their subpoenas with a public notice stating explicitly the purpose of their requests: to involve the industry in developing “appropriate regulatory guidelines” for the digital currency industry.  The Foundation will support its members and the bitcoin community as needed during this process.  This includes engagement with regulators and, where appropriate, legal defense.

The foundation is welcome to begin by publishing accounts of all the BTC it scammed out of members of the community, and by separating the treasurer and the executive functions. Ideally five minutes after it quits posturing as if it had any sort of relevance whatsoever.

The gall of the MtGox-BFL pushers, incredible.

You mean the Bitcoin Foundation.  Well I'm an Annual Member and Marco is also a BTCGLobal adviser.

[evoorhees]

Here is the list:


BitInstant
BitPay
Coinabul
Coinbase Inc.
CoinLab
Coinsetter
Dwolla
eCoin Cashier
Payward, Inc.
TrustCash Holdings Inc.
ZipZap
Butterfly Labs
Andreesen Horowitz
Bitcoin Opportunity Fund
Boost VC Bitcoin Fund
Founders Fund
Google Ventures
Lightspeed Venture Partners
Tribeca Venture Partners
Tropos Funds
Union Square Ventures
Winklevoss Capital Management

[jimbobway]

Seems like the state of New York is very "nice" compared to California.  Remember when California sent that notice to the Bitcoin Foundation threatening jail and fines? New York is actually asking somewhat nicely in this inquiry.  If it weren't for the weather I would move out of California.

Nevertheless, it doesn't matter what California, New York, or any other state does.  In the end Bitcoin cannot be controlled.

[shackleford]

I will go out of my way to have nothing to do with companies that bend a knee to our corrupt ass out of control government.

[jedunnigan]

I spoke to a few of the served entities tonight, and I know a few of them aren't even operational yet. This is clearly an attempt to start a dialogue.

I am however worried for the likes of BitInstant because I believe they have been operating in NY without a license. I may be wrong about that. Otherwise people should have nothing to fret over.

[pikapay]

Someone over at Hacker News said something very smart on this subject.  Quoted here in its entirety:

In a way, bitcoin itself is not really a currency, or money, it's more like an idea for exchanging messages. Bitcoin is really a decentralized messaging system which relies on cryptography and proof-of-work to maintain integrity. Should exchanging messages in the form of "I owe you x amount" over a p2p network be regulated or be made illegal?

However, The fact that it's used as a form of currency is just an interpretation of what Bitcoin is. There can be other interpretations for what bitcoin-type system can be used for, for example Namecoin is used for name registrations. The judge declared that bitcoin is money by making an interpretation.
If anything, Bitcoin is just software. It will be very difficult to regulate.

1. Software using encryption is protected speech (http://en.wikipedia.org/wiki/Bernstein_v._United_States). Regulating bitcoin as in bitcoin the software would be a form of censorship.

2. Bitcoin uses many of the standard principles of cryptography we already use in e-commerce. Banning cryptography would have enormous consequences for the economy of the internet in general.

3. Banning or regulating p2p would cause an uproar.

4. If buying bitcoins in exchange for dollars is really exchanging a string of bits for money, then if this is banned or regulated, would it also ban buying software or other digital goods for money?

5. The regulations can't be too broad, but can't be too narrow. Would the laws restrict only bitcoin as a currency or other applications of bitcoin as well? If too broad, then they will unintentionally restrict other uses of bitcoin too. If too narrow, a new system will pop up again.

https://news.ycombinator.com/item?id=6203085

If you'd like to shine the light back on Ben Lawsky and NYFDS, you can find them @BenLawsky and @NYFDS respectively.  Public opinion does seem to matter to them to some degree or the statement wouldn't have mentioned the importance of "technological innovation" in NY.

Let's continue to educate journalists, politicians and government officials and most of all, ourselves.

[samurai1200]

Second, don't imagine you have jurisdiction to make meaningful impact on the use of virtual currency. Bitcoin, for example, being a decentralized global currency extends beyond any one U.S. state, and indeed beyond the U.S. itself.

This piqued my interest. Are there US regulations regarding the use of, say, the Euro in the United States as payment for services or goods? I couldn't imagine so. If I want to use it and a business is willing to accept it, where's the bother? The focus of regulators in the US has only been (within my view) money exchangers because that's all they CAN regulate since it's the interaction with U$D that concerns them.

[pembo210]

Dear Benjamin Lawsky,

Transparency is a two-way street.

If you desire transparency of Bitcoin companies, please reveal:

1) When your central bank will stop printing money and debasing the currency used by millions of retirees for their savings.

2) Why nobody at HSBC was criminally charged with money laundering, despite their recent case which represented the largest money laundering scandal in history.

3) Whether you believe two consenting adults, in an allegedly free country, having been found guilty of no crime, have the right to do business privately between themselves.

Of course, you don't have to respond to these questions, and you won't. Yet, you'll force other people to respond to your questions with threats of theft (fines) and or kidnapping (imprisonment). How civilized.

+11111111111111



edit: Just saw BFL on the list... fffuuuuuuu

[Gabi]

I spoke to a few of the served entities tonight, and I know a few of them aren't even operational yet. This is clearly an attempt to start a dialogue.

I am however worried for the likes of BitInstant because I believe they have been operating in NY without a license. I may be wrong about that. Otherwise people should have nothing to fret over.

You don't start dialogue with subpoenas. This is clearly an attack on bitcoin, an attemtp to drive bitcoin companies away

[n8rwJeTt8TrrLKPa55eU]

Satoshi's well-crafted layer of anonymity now looks much more wise and much less paranoid.  Good for him that he's not going to get put through this (or any future) circus.

[DannyHamilton]

- snip -
You don't start dialogue with subpoenas.
- snip -

Perhaps that's how they do it in New York.

[marcus_of_augustus]

Someone might want to have the fungibility conversation with Lawsky ... for a regulator of monetary products he seems entirely ignorant of what properties good money needs to have ... it's like asking all cars that are not US made to have square wheels.

... also his name is just a little too cute for law guy ... really, it's like a joke that starts out "lawsky, copsky and thiefsky go into a bar for a brewsky ..."

[TippingPoint]

Time to put a face on the name.

Benjamin Lawsky