Ben Lawsky and why BitLicense is a road to nowhereRecently, we heard the BitLicense is coming, but would not be the draconian net many in the bitcoin community fear – said superintendent of the New York State Department of Financial Services Ben Lawsky.
I am not going to discuss in detail his whole presentation of Mr Lawsky but just to summarize the main points as were put in MoneyBeat press release with our comments.
So software developers, bitcoin miners, and individuals (unless they also offer financial services) doing business in New York state won’t have to apply for a BitLicense, but traditional banks looking to get into digital currencies will (which is of course not such a problem for them comparing with average Joe running his business from a garage).
The virtual currency industry is at a bit of a crossroads regarding whether it will become an important part of the future financial system,” he said. “At DFS, we’re committed to proceeding thoughtfully since virtual currency could ultimately have a number of benefits for our financial system”- Absolutely, salvaging the old system it is the most prominent of them.
Mr Lawsky emphasized, however, that if companies want to provide financial services via digital currencies, they are going to have to accept some measure of regulation. “When it comes to safeguarding customer money at a financial company – and unregulated world of caveat emptor has never been a sufficient answer,” he said. How is he going to safeguard someone else’s money we do not know. I think however that we heard somewhere similar statements that a person needs “protection” from a powerful organization that knows better what is good for us. Sounds familiar?
He addressed several concerns and outlined some of the changes he expects to make, including a key complaint that the proposal be “technology neutral.” Mr. Lawsky said that the license will not cover software firms, or mining companies, but also said “we cannot stick our heads in the sand about the the fact that – when it comes to consumer disclosures, capital accounting, and other issues – there are real differences between fiat currency and virtual currency” – Well, yes Ben we all can see that. This means that you cannot apply the same or similar measures of regulation as the one existing in fiat system. Unless you want to outlaw the whole sector.
It will cover any company that wants to offer financial services via digital-currencies, whether it’s a start-up, tech company, miner, or traditional bank, he said – This is getting more complicated now. I though the miners were the untouchables weren’t they? Bitlicense for cloud hashing companies? Yes or no?
He said the department is aware of complaints about the cost of compliance, especially on how it will affect start-ups. “This is a difficult issue,” he acknowledged. “It requires a creative solution and we are working on that issue.” But these costs, whether for a start-up or a multinational, are ultimately a cost of the business of financial services. – This is IMHO the most important statement as this basically means that the bitcoin industry will be not only regulated but also just taxed!
“Again, that is the basic bargain of financial services regulation. We do not, for instance, let someone run a bank out of their garage.” – the metaphor was actually wrongly used as we all know that companies like HP or Microsoft have started in garages.
The full presentation is available here:
http://cardozolaw.hosted.panopto.com/Panopto/Pages/Viewer.aspx?id=01b5be00-c8df-4688-a1dc-5302b6ca3c7eBitlicense is a very bad idea and it will bring only more mess and problems to the bitcoin community in the State of NY. However if someone is running a risky business protecting of his clients is an obvious must. There are many existing tools to effectively protect third parties from any wrong doings or other nefarious actions but the authoritarian government decisions who can or who cannot run the business from his garage is not a one of them.
The most true and practical that comes to my mind would be a liability indemnity insurance. If an entity is fully insured I see no problem with the fact that if something bad happens the clients’ claims would be satisfied by the insurers. Would Bitlicense offer this? I doubt. Why? Because it’s goal is to limit the access to the market and make it more difficult for the industry to develop. It is not protecting the consumers at all as such protection can be delivered only by the insurers who will be able to restore the financial position if a loss happens. Therefore Ben is not going to safeguard consumer’s monies in any way. And further we have not heard yet of any penalties for non compliance with the Bitlicense which I am sure are being brewed by the DFS.
But maybe there is also another aspect of this whole situation with the regulation, an aspect which I see as an opportunity. As the bitcoin economy is growing and getting more and more complex it is perhaps time to think of a self regulation? Why not create a licensing affiliation system operating without any borders which could be far more effective than a Bitlicense? There should be a body that could certify that such and such bitcoin business has all safety measures in place is reliable and can be trusted. This would accompany the liability indemnity policy up to the satisfying amount of bitcoin or fiat. Of course such business would have to be carefully checked and tested especially in the interests of the insurers who would be taking the risks. Today underwriting a bitcoin business is very difficult and costly but at some stage the industry will understand that blockchain is safer than the banks. Therefore I think such a solution would bring far more benefits to the consumers and maturity to the bitcoin economy. An attempt of imposing the Bitlicense is a very good opportunity to discuss the alternatives.
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