The New York State Department of Financial Services (NYDFS) released the final draft of the Bitlicense on Wednesday, as Superintendent Benjamin Lawsky gave a speech in DC surrounding the topic of Bitcoin regulation. The Bitlicense has seen multiple revisions from Lawsky and the NYDFS, taking careful measures to release guidelines for businesses in the state of New York to innovate within Bitcoin.
The Bitlicense would allow businesses to work with customers in the State of New York. The process for an entity to acquire a Bitlicense includes a $5,000 fee and approval from the NYDFS. The Bitlicense defines what constitutes a "Virtual Currency" business and the requirements to lawfully operate in NY.
Feedback from the Bitcoin community regarding the final draft is less than positive so far. Coincenter's analysis of the Bitlicense noted new products would need approval from the Superintendent of the NYDFS, the presence of vague money laundering requirements, and the lack of a detailed onramp for startups.
For example, the Bitlicense fails to address multi-sig when it defines virtual currency business activity as conducting the "(2) storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;" and "(5) controlling, administering, or issuing a Virtual Currency." While the wording here in similar, there is ambiguity for when a business is holding user funds in a multi-sig configuration where both the user and the business have simultaneous control.
The architecture of multi-sig is innovative and adds increased security to a user's Bitcoin holdings. There are additional uses of multi-sig technology that do not directly involve the storing of user funds, such as voting. Under the vague guidelines of the NYDFS, it is unclear if businesses would need to obtain the Bitlicense in order to operate. If they do require the Bitlicense, then unnecessary regulatory pressure has been added to innovative companies that are not actually engaging in financial transactions.
Now that the Bitlicense is finalized for New York, it is expected that other states will begin launching their regulatory guidelines for cryptocurrency businesses.
Our firm will be writing separately regarding our comprehensive review of the regulations.