NY regulator memo: Notice of Inquiry on Virtual Currencies

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

That's why no one has, or is ever likely to make *publishing* bitcoin software illegal.  Though censorship is routinely implemented -- loli pron is illegal just about all over the world.

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.

Who suggested banning cryptography?  That's ur paranoia talking.

3. Banning or regulating p2p would cause an uproar.

Huh? See 1 & 2.  See also: Pirate's Bay, LimeWire, eMule, Napster.  No one had to mess with p2p to make certain file content (warez, rips, etc.) less available.

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?

Child pron is also just strings of bits, as is classified information, database dumps & jacked CC info.  Some strings of bits are legal, some are not.

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.

Uh huh.  That's why lawmakers rarely boot a speedball & chug half a quart of JD before writing lawz.  Exactitude.

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[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.

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

You can though, and the indicator of this in my book is the fact that many of these companies are non-operational. There is no indication of wrongdoing mentioned in the subpoena.

In fact...

As innovative products emerge, it is critical to take steps that allow new technologies and industries to flourish, while also working to ensure that consumers and our national security remain protected.
...
As such, the Department of Financial Services (DFS) has launched an inquiry into the appropriate regulatory guidelines that it should put in place for virtual currencies.

Ignore all the mamzy pamzy anti terrorist nonsense and you get to what they are after: hey we see that our regulatory framework might not best suited for digital currencies and we are afraid to stifle innovation but we are also unwilling to allow illegal activity to go on. Please prove to us you aren't doing anything illegal and tell us how your business works so we can start to figure this thing out.

[marcus_of_augustus]

Would you put Lawsky (or anyone from NYFDS) on payroll to administer a IT system holding bitcoins?

(NB: looks like he has a shiny 4-screen monitor bank ... all with empty windows desktops )

It's going to be ages, if ever, these guys can "have a conversation" about bitcoin. Imagine how ridiculous it would look if they started sending legal letters out to Bittorrent companies ...

[westkybitcoins]

As innovative products emerge, it is critical to take steps that allow new technologies and industries to flourish, while also working to ensure that consumers and our national security remain protected.
...
As such, the Department of Financial Services (DFS) has launched an inquiry into the appropriate regulatory guidelines that it should put in place for virtual currencies.

Ignore all the mamzy pamzy anti terrorist nonsense and you get to what they are after: hey we see that our regulatory framework might not best suited for digital currencies and we are afraid to stifle innovation but we are also unwilling to allow illegal activity to go on. Please prove to us you aren't doing anything illegal and tell us how your business works so we can start to figure this thing out.

This is the State of New York we're talking about. I don't for one second believe they're as benignly concerned as your post would suggest.

[JackH]

I dont get this, how exactly will they ACTUALLY stop Bitcoin? There is talk, more talk and even more talk. All the rules and regulations in the world, wont do shit to Bitcoin. The reality is that thousands of users ARE using it, regardless of what someone is saying, simply because they know they cannot be touched. So what is this all for? One last hurrah by regulators?

[DeathAndTaxes]

I dont get this, how exactly will they ACTUALLY stop Bitcoin? There is talk, more talk and even more talk. All the rules and regulations in the world, wont do shit to Bitcoin. The reality is that thousands of users ARE using it, regardless of what someone is saying, simply because they know they cannot be touched. So what is this all for? One last hurrah by regulators?

They can't stop Bitcoin "core" but they can make it prohibitively expensive/difficult to operate as an entity on the line between virtual and fiat.  They can either those malice or ignorance drive out most of the competitors in the US, leaving only a few massively capitalized entities (next gen banks) to remain.  Granted Bitcoin itself will "go on", and no the US isn't the whole world, but it doesn't make it good news.

[TippingPoint]

Worst case, government(s) could ban the purchase, sale, transfer, or possession of Bitcoins, by executive order.

Government(s) could ban the purchase, sale, or transfer of Bitcoins without a license and associated detailed "record keeping".

[TheButterZone]

No law prevents any "criminal" from doing anything. If everyone becomes a "criminal" merely for exercising their civil liberties (and we all are, committing 3 felonies a day according to http://www.amazon.com/Three-Felonies-Day-Target-Innocent/dp/1594035229 ), then very few can ever suffer "punishment". The government can only use fear of punishment for violating more laws than any human being can possibly comprehend as its stick, not imprison every single person/"criminal" that it "rules".

[acoindr]

Worst case, government(s) could ban the purchase, sale, transfer, or possession of Bitcoins, by executive order.

As I pointed out before bitcoins are actually stored in the cloud on thousands of computers worldwide. To "own" bitcoins really only means you know the private key allowing them to be sent somewhere else. Since brain wallets can store any number of bitcoins a law banning possession literally means telling people what they can and can't think.

[jimbobway]

I dont get this, how exactly will they ACTUALLY stop Bitcoin? There is talk, more talk and even more talk. All the rules and regulations in the world, wont do shit to Bitcoin. The reality is that thousands of users ARE using it, regardless of what someone is saying, simply because they know they cannot be touched. So what is this all for? One last hurrah by regulators?

Note that all of the bitcoin companies that received a notice of inquiry are U.S. based companies.  Bitcoin is a worldwide phenomenon and there is no way the U.S. can control companies beyond the borders of their jurisdiction.  I think the employees of the NY regulator who does research on bitcoin knows that bitcoin cannot be regulated.  However, they are paid by the state to do their job and write reports.  I bet that deep down in their hearts they know it is futile to control bitcoin.  They probably have bills to pay or a family to feed so they perform their jobs on a daily basis to earn their income.  It is unfortunate, though, that the leadership is muddling through the facts without acknowledging the truth.  I hope through the inquiries that it is the bitcoin companies that give the N.Y. regulators guidance instead of the other way around.

[billotronic]

Time to put a face on the name.

Benjamin Lawsky

http://www.youtube.com/v/cDQk4lGSEJQ

[westkybitcoins]

Worst case, government(s) could ban the purchase, sale, transfer, or possession of Bitcoins, by executive order.

That would be one of the worst things they could do. Plenty of early adopters would love that, as the price for bitcoins in the U.S. would surge as a result.

[jedunnigan]

As innovative products emerge, it is critical to take steps that allow new technologies and industries to flourish, while also working to ensure that consumers and our national security remain protected.
...
As such, the Department of Financial Services (DFS) has launched an inquiry into the appropriate regulatory guidelines that it should put in place for virtual currencies.

Ignore all the mamzy pamzy anti terrorist nonsense and you get to what they are after: hey we see that our regulatory framework might not best suited for digital currencies and we are afraid to stifle innovation but we are also unwilling to allow illegal activity to go on. Please prove to us you aren't doing anything illegal and tell us how your business works so we can start to figure this thing out.

This is the State of New York we're talking about. I don't for one second believe they're as benignly concerned as your post would suggest.

The only reason I will stand by my point in this conversation is because I have some (in)direct knowledge about the tech sector here in NY. For the past few (7-9) years quite a bit of discussion has gone on about how to make NY more attractive to technology companies. I even know a guy who spoke on panels on behalf of the tech community in front of state officials regarding this manner. Silicon Alley formed from this.

With technology follows money. Lots of it it. Many of the big VCs/angel groups dumping cake into Bitcoin businesses are here in NY, along with many of the companies listed in those subpoenas. These guys aren't they type to sit around and wait for someone to tell them it's okay to do something. They want answers to sure up their investments.

A beacon was sent out and this is the first formal response.

[Paladin69]

Probably time to start writing your senator and congressman.  We have a few friends in DC now.

[marcus_of_augustus]

Probably time to start writing your senator and congressman.  We have a few friends in DC now.

... better yet forward them an ounce of the finest from SR to demonstrate how effective bitcoins really are ...

(ps: kids and idiots should not try this at home)

[westkybitcoins]

As innovative products emerge, it is critical to take steps that allow new technologies and industries to flourish, while also working to ensure that consumers and our national security remain protected.
...
As such, the Department of Financial Services (DFS) has launched an inquiry into the appropriate regulatory guidelines that it should put in place for virtual currencies.

Ignore all the mamzy pamzy anti terrorist nonsense and you get to what they are after: hey we see that our regulatory framework might not best suited for digital currencies and we are afraid to stifle innovation but we are also unwilling to allow illegal activity to go on. Please prove to us you aren't doing anything illegal and tell us how your business works so we can start to figure this thing out.

This is the State of New York we're talking about. I don't for one second believe they're as benignly concerned as your post would suggest.

The only reason I will stand by my point in this conversation is because I have some (in)direct knowledge about the tech sector here in NY. For the past few (7-9) years quite a bit of discussion has gone on about how to make NY more attractive to technology companies. I even know a guy who spoke on panels on behalf of the tech community in front of state officials regarding this manner. Silicon Alley formed from this.

With technology follows money. Lots of it it. Many of the big VCs/angel groups dumping cake into Bitcoin businesses are here in NY, along with many of the companies listed in those subpoenas. These guys aren't they type to sit around and wait for someone to tell them it's okay to do something. They want answers to sure up their investments.

A beacon was sent out and this is the first formal response.

Huh. That's actually fairly interesting, but I can't help but wonder if they've actually *achieved* their goal of improved tech-industry-friendliness in the last several years. I'm not sure that the formation of a tech-oriented locale actually demonstrates that.

Time will tell.

[jedunnigan]

As innovative products emerge, it is critical to take steps that allow new technologies and industries to flourish, while also working to ensure that consumers and our national security remain protected.
...
As such, the Department of Financial Services (DFS) has launched an inquiry into the appropriate regulatory guidelines that it should put in place for virtual currencies.

Ignore all the mamzy pamzy anti terrorist nonsense and you get to what they are after: hey we see that our regulatory framework might not best suited for digital currencies and we are afraid to stifle innovation but we are also unwilling to allow illegal activity to go on. Please prove to us you aren't doing anything illegal and tell us how your business works so we can start to figure this thing out.

This is the State of New York we're talking about. I don't for one second believe they're as benignly concerned as your post would suggest.

The only reason I will stand by my point in this conversation is because I have some (in)direct knowledge about the tech sector here in NY. For the past few (7-9) years quite a bit of discussion has gone on about how to make NY more attractive to technology companies. I even know a guy who spoke on panels on behalf of the tech community in front of state officials regarding this manner. Silicon Alley formed from this.

With technology follows money. Lots of it it. Many of the big VCs/angel groups dumping cake into Bitcoin businesses are here in NY, along with many of the companies listed in those subpoenas. These guys aren't they type to sit around and wait for someone to tell them it's okay to do something. They want answers to sure up their investments.

A beacon was sent out and this is the first formal response.

Huh. That's actually fairly interesting, but I can't help but wonder if they've actually *achieved* their goal of improved tech-industry-friendliness in the last several years. I'm not sure that the formation of a tech-oriented locale actually demonstrates that.

Time will tell.

You're totally right about that. Ask most they will say NY has not accomplished what they set out to do.

[TheButterZone]

Government always accomplishes what it sets out to do (which is 180 degrees from what it publicly claims it sets out to do).

[jubalix]

Government always accomplishes what it sets out to do (which is 180 degrees from what it publicly claims it sets out to do).

this exaclty +1000

eg drugs,
better education
freedom
etc etc

too many rich people/companies can minimize tax with CC's fot it not to work, and they can buy votes.

[marcus_of_augustus]

Government always accomplishes what it sets out to do (which is 180 degrees from what it publicly claims it sets out to do).

quite right ... and they invariably accomplish it so well that they have to double the size of the program and extend it for twice as long ...