BitLicense goes live

Tuesday 09 June 2015

The controversial BitLicense has been launched, but what will be its effects?

This week’s blog post comes courtesy of Jordan Farino, bitcoin entrepreneur and owner of BitLicense.org. Jordan runs the Bloctopus store, a bitcoin-themed clothing outletin Atlanta, Georgia. This article is an abridged post. The full version is available at BitLicense.org.

After two years in the making, Wednesday finally saw the unveiling of the long-awaited BitLicense, the regulatory framework within which bitcoin businesses will have to operate in New York state. The BitLicense is the legacy of Benjamin Lawsky, New York’s Superintendent of Financial Services – otherwise known as the state’s chief regulator – who will shortly step down from his post for a career in the private sector.

Lawsky

Lawsky: staring into the middle distance as he contemplates the next disruptive technology to hamstring

BitLicense in brief

The BitLicense is a wide-ranging set of regulations that will apply to many businesses that engage in cryptocurrency transactions. Its scope is broad, but its chief focus is on companies that act as intermediaries between the traditional finance system and the decentralised, hard-to-police world of cryptocurrency. It was crafted with substantial feedback from bitcoin service providers and the cryptocurrency community, a process which saw a number of concessions added – particularly for software developers, who will not be forced to purchase a license in order to build blockchain applications, as initially planned.

Essentially, then, the BitLicense regulates those who deal with customer’s money: the middlemen who stand between the banks and the blockchain, and through whose hands funds must pass if these two radically different parts of the modern finance system are to be bridged. Its provisions encompass cyber security, money laundering, consumer protection, capital reserves and other measures more generally relevant to money transmission businesses – though the rules are more stringent than for banks and money transmitters that operate in New York. Some of the requirements in the 44-page document include:

  • The purchase of a $5,000 BitLicense by anyone engaged in any virtual currency business activity.
  • Companies must employ one or more Compliance Officers, ‘responsible for coordinating and monitoring compliance with... applicable federal and state laws, rules, and regulations.’
  • Official audits must be carried out regularly, and at least every two years.
  • Firms that want to apply for both a BitLicense and a money transmitter license will not be required to submit duplicate applications.
  • Licencees have a responsibility to ‘monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity,’ with enhanced due diligence for non-US citizens and verified identity for customers who transact more than $3,000.
  • The document appears to prohibit fractional reserve practices for businesses that hold customers’ cryptocurrencies.

To learn more about the significance and reaction of the BitLicense, read the full article here.


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