Far from perfect. Poorly fitting. Superficial.
The comments were just some of the many that poured in today as members of the bitcoin and digital currency ecosystem gave their first impressions of the final version of the BitLicense, New York’s long-awaited regulatory framework for the industry introduced today.
While hardly surprising given the two-year debate over the measures, the comments point to the sharp disconnect between headlines touting the regulation as a milestone achievement and the reaction of those affected by its provisions.
Even if the BitLicense succeeds at “legitimizing” the industry, it’s clear that its participants were after something more – the chance for innovation in the sector to advance in a way they feel is more in line with the permissions given to past emerging technologies.
“They changed so little with this version, it’s laughable,” Yale Law School’s Elizabeth Stark told CoinDesk.
The author of a petition for the bill to include safe harbor provisions for early-stage startups, carve outs for micropayments and other such leniencies, Stark’s comments may have been expected, but they were far from solitary.
Executive director Jerry Brito said:
“The only consolation is that now businesses have clarity on some other obligations. It’s a mixed bag, is the best that can be said about the BitLicense.”
The tone of Brito’s remarks was characteristic of general social media conversation, which saw groups such as the Bitcoin Foundation and individuals like BitFury board vice chairman George Kikvadze vocally denounce the law, while investors and unaffected parties like VC Barry Silbert and BitGo CEO Mike Belshe shrugged off the update.
While concerns or indifference dominated the Internet conversation, the overall sentiment was more balanced, with some praising the laws as a best effort that will move conversation forward as it seeks to make real Lawsky’s “gut feeling” that the industry will succeed.
“Would I welcome lighter touch?” Circle CEO Jeremy Allaire asked. “Sure, but I think it’s an important stake in the ground.”
Elsewhere in its release, Coin Center took aim at the BitLicense for being too technology-specific, a charge that implies the law imposes a higher threshold for compliance on bitcoin startups than those in traditional financial services.
Also attacked was a lack specificity most visible in the grey area that the regulations will likely leave for startups working on products that don’t fit the templates of existing business models.
For example, Allaire noted that questions about private key custodianship, in which a company may hold one key to a client’s funds, but not all, was not covered, a point visible in the online discussion.
— Ryan Selkis (@twobitidiot) June 3, 2015
Other representatives from the technology’s business community were open about their disappointment, but suggested they would seek to work with the NYDFS as it seeks to carry out the provisions of the BitLicense.
“For a company like Circle, it’s very cut and dry,” Allaire said. “For others, not so much.”
In statements to CoinDesk, John Collins, head of policy and government affairs at Coinbase, struck a familiar attack against the law’s inconsistencies with federal guidelines.
“It’s troubling that this nascent industry is being subjected to more onerous regulations than those typically applied to legacy financial institutions,” Collins said.
Boost VC CEO Adam Draper took a similarly negative approach to the announcement. Draper, whose startup incubator recently invested in 21 bitcoin companies are part of its Tribe 5 batch, had previously attacked the law for what he said would be the added legal costs of compliance.
“It’s going to be expensive to start a bitcoin startup. Innovation will be restricted to those with the money,” Draper told CoinDesk. “It’s not ideal.”
Still others took a more balanced tone, even formerly outspoken critics such as Allaire, whose bitcoin wallet and brokerage recently raised $50m from investors including Goldman Sachs and IDG Capital.
Allaire told CoinDesk that, over time, his concerns were assuaged as provisions that called for duplicative financial crime reporting and a lack of clarity in regards to what changes to its product and investor team would require approval from the NYDFS.
“When the first draft of the BitLicense emerged, at that point in time, we were outspoken in what our concerns were. Some specific provisions were in there were technically impossible for us to comply with, so we either had to stop using bitcoin or see that changes were made,” Allaire said.
MIT Digital Currency Initiative (DCI) director Brian Forde also praised Lawsky and the NYDFS for making the changes it had requested to bill, suggesting that the law is likely to have a positive impact on the ecosystem by encouraging new interest and financial support.
Forde told CoinDesk:
“It’s great to see that active voices in the bitcoin community were heard by Superintendent Lawsky and his team, and they updated regulations and made clarifications that will protect consumers and spur more investment in entrepreneurs building companies in this space.”
Juan Llanos, a former risk and compliance expert that Bitcoin Foundation was more measured, voicing his belief that the rules are “pretty standard” in context of those for traditional financial institutions.
However, he also spoke to the disconnect between both sides on the issue.
“What I think has caused so much agitation here is the combination of the DFS having made explicit certain requirements that had been implemented via examination before (eg cybersecurity obligations) with the relative inexperience of a new generation of entrepreneurs that didn’t expect the financial services world to be so restrictive,” he said.
Innovative business models
In his speech, Lawsky called for regulators and technologists to commit to an ongoing dialogue regarding legislation, though comments illustrated how immediately some of these discussions may be needed.
Stark, for example, took issue with the idea that startups would need a license to “issue a virtual currency”, which she argued would hurt the growing number of bitcoin 2.0 projects seeking to use cryptographic tokens to incentivize communities.
Though exceptions were made for the use of tokens for non-financial purposes, Stark predicted the industry will see a broader trend toward decentralization, though at the cost of ease of use for consumers.
Both Allaire and SKBI research fellow Tim Swanson, for instance, differed on how business models such as those advertised by 21 Inc and bitcoin mining firms in general would be viewed under the law.
While Allaire suggested he thought distributing mining technology and sharing the gains would be excluded, Swanson framed this as more of an unanswered question.
“When a miner sends work to a pool, the pool typically keeps the reward money on the pool before sending it to the miner or until the miner manually removes it. Would mining pools be considered a custodian or depository institution since they control this asset?” he asked.
Given the sizable media attention, however, the BitLicense has arguably already succeeded at casting the industry in a more positive light.
This, Allaire argued, would help the industry secure more partnerships and build better businesses. Others like Chamber of Digital Commerce president Perianne Boring said her nonprofit group would work to level the playing field for smaller startups, which she argues will lack a “clear onramp” to the industry.
Together, the comments suggest the BitLicense may in fact be just as much a milestone as it is a stepping stone in a longer dialogue between regulators and the industry, one that could have a wide impact in the US.
The California Department of Business Oversight, the agency tasked with considering bitcoin regulation under its state law, indicated that it would be assessing the law as part of its own fact-finding on the industry.
“As we consider how we want to approach virtual currency, we have closely followed regulatory developments in New York and elsewhere,” a spokesperson told CoinDesk. “We will analyze the rules unveiled today as we continue our deliberations.”
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