In 2013, after the fall of MtGox and the Silk Road scandal, the media seized Bitcoin and made it known to the general public. It was at this time that he acquired his sulphurous reputation, a reputation which he still finds it very difficult to depart from today.
American regulators then choose to look into the case of cryptocurrencies. Their task is complex: it is necessary to protect users, businesses and government at the same time, without hampering a potentially very promising technological impetus. The New York State Department of Financial Services, the NYDFS (New-York Department of Financial Services), which supervises the largest financial institutions in the world, decides to tackle this complex task …
Bitcoin in New York: an intruder at the heart of global finance
Wishing to get to the bottom of the subject, exhaustively, Benjamin lawsky, the director of NYDFS, talks to most of the players in the sector. Because despite its reputation as “Dark web currency”, several entrepreneurs have been taking bitcoin seriously for several years now and are looking to build a reliable ecosystem for it.
Their interest will converge with that of Lawsky, whose ambition is to install a rigorous framework that will allow the crypto ecosystem to grow on solid foundations. Bitcoin will be studied from every angle. For Lawsky, the currency of Satoshi Nakamoto is an unusual innovation that dusts off a sector – that of banks and payments -, which hasn’t changed since the 1970s.
The NYDFS then decides to adapt and subject the cryptocurrency sector to the rules in force for all financial institutions in the New York state: banks, credit organizations, investment funds … Not without difficulties.
A “BitLicense” for Bitcoin
In 2015, after two years of investigation and work, the “BitLicense” finally came out. It’s a permit that must be obtained by all companies located in New York or doing business there related to cryptocurrencies. They then have until August 8, 2015 to comply if they want to be able to continue offering their services to New Yorkers or if their head office is in the state.
BitLicense concerns any company carrying out the activities of:
- Storage, preservation or control of cryptocurrency on behalf of third parties
- Control, management or issue of a cryptocurrency
- Buying and selling cryptocurrency
- Execution of cryptocurrency exchange services
- Reception of a “Transmission” cryptocurrency (like Ripple for example), except in the case where the transaction has no financial purpose or monetary value
Two activities are nevertheless excluded from its scope:
- Development and distribution of software related to cryptocurrencies
- Retailers and consumers who use cryptocurrencies for the purchase or sale of goods or services, or for investment purposes
An obstacle course
An ideology called into question
The response to BitLicense is twofold. Some believe that Bitcoin can only grow well by agreeing to bow to the classic institutional and financial world. Others regret the constraints imposed on the dream cypherpunk by Satoshi Nakamoto.
Because BitLicense is not just an aberration in the philosophy of bitcoiners. She is also extremely binding and complicated to obtain. Because the requirement is identical to that governing the regulation of large financial institutions. Cryptocurrency firms must meet the same criteria in terms of security and of control. The procurement procedure is very rigorous.
The company must therefore provide the NYDFS accreditation service with its financial plans, cybersecurity and identification procedures. At the request of the government, it must be possible to transmit user identification information, their balance and the history of their transactions. There are voices rising to say that BitLicense is intrusion into users’ privacy. They will not be heard.
To top it off, BitLicense holders must also keep almost all of their data for 7 years. These must be available for consultation and accessible at any time upon any request from the NYDFS. For flexibility, we will iron.
Bitlicense Bitcoin: important constraints
The icing on the cake, the BitLicense award can quickly amount to tens of thousands of dollars! In addition to the $ 5,000 registration fee, there is the cost of auditing and inspecting the business. Even the past and background of the company’s managers and investors are scrutinized by independent inspectors …
A dozen companies decide to cease their activity in the state following the implementation of BitLicense.
This is particularly the case for Kraken, Bitfinex or Paxful. The New York Business Journal will call this movement “Great Bitcoin Exodus” or “Grand Exode Bitcoin”.
But other companies, very voluntary and cooperative in the development of BitLicense, submit their request. The company specializing in peer-to-peer payments Circle is the first to get the famous sesame in September 2015.
Gemini, the society of the brothers Winklevoss, follows soon after. In all these are not less than 24 companies that got their BitLicense since its creation. It is a guarantee of seriousness and quality, and the company which obtains it then has no difficulty in obtaining authorizations from other territories.
A constantly evolving license
The cryptocurrency industry is evolving fast, Bitlicense has to follow. At the end of 2019, 5 years after its establishment, the NYDFS proposes two modifications:
- The first is to facilitate requests to list certain cryptocurrencies without prior authorization: Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), Classic Ether (ETC), Litecoin (LTC), XRP, as well as two stablecoins, the Paxos Standard (PAX), and the Gemini Dollar (GUSD) are envisaged.
- The second is to provide a framework self-certification which would allow new cryptocurrencies to be listed and put into circulation, again without prior authorization.
Given the pace of development in the sector, the history of BitLicense has not finished writing! And with it is the registration of Bitcoin and cryptocurrencies at the heart of our globalized economic system that is at stake.
Bitcoin, cryptocurrency and Blockchain influencer and popularizer. My goal: to make these complex concepts accessible with passion on a daily basis on my networks.