A week has passed since the release of the New York Department of Financial Services’ proposed “bitlicense” rules, causing much weeping and gnashing of teeth among bitcoiners in the US. The rules are unfavorable to start-ups and create the impression that New York is hostile to cryptocurrencies, but they aren’t the Orwellian codex that they seem.
- If you don’t own a business in the State of New York and you weren’t planning on starting one, then these rules do not apply to you.
- If you own a business located elsewhere in the the US and you make a business decision not to provide regulated services to residents of New York State, then these rules do not apply to you. If you’re not sure what this means, you should consult an attorney regarding the concept of “regulatory nexus.”
- If you are located in New York, but you don’t hold bitcoin on behalf of another person or exchange bitcoin for non virtual currencies on behalf of others, these rules do not apply to you.
- If you reside in New York State and you are merely a user or a miner of bitcoin, personally or in your business, then these rules do not apply to you.
Under the proposed rules, New York residents and businesses can still mine, own, accept, spend, hoard, or exchange bitcoins for goods without a license. Merely transacting in bitcoin does not invoke the licensure requirements! In fact, you can do everything that is regulated by the State of New York all by yourself, without the need of an intermediary, by installing a bitcoin client on your own computer; you just cannot do it on behalf of others (but only in the State of New York).
Restrictive regulations are a fact of business in every country in the world. In many cases, the rules are both desirable and sensible, protecting private property and establishing a framework for enforcement of contracts, tort relief, etc. New York’s requirements are burdensome in the sense that start-ups, by definition, are chronically short on capital and thus unlikely to be capable of compliance. But that’s the point, isn’t it? Underfunded companies with weak business plans and incompetent management fail quickly and often, to say nothing of “businesses” that are actually outright scams or “managers” that are little more than thieves.
If companies like Mt. Gox or Neo & Bee (only the most recent examples, but there are many more) had been located in the United States and subject to the oversight of the relevant agencies, then they might not have ever existed. Or if they did, they might have been prevented from wiping out everyone associated with them. Bitcoin doesn’t need regulation or centralization to attract more users, but it does need to look like it exists in an orderly, lawful community.
Of course, if it is regulation in general that you find objectionable and not just these regulations, nothing that any government does will ever make you happy.