Much has already been written about the BitLicense hearings in New York now that they are officially in the books. But I took some time to reflect on what impact, if any, the panelists who testified before the New York Department of Financial Services committee (NYDFS) had on their inquisitors last week. During five panels over two days, sixteen industry experts gave over eight hours of testimony on all things Bitcoin to a panel charged with learning whether and how to regulate the industry in the world’s financial mecca, New York. Several things ate away at me over the weekend, and I don’t see reasons to be overly optimistic about Bitcoin’s future in the Empire State.
The tone of the representatives from the NYDFS was ominous from the opening statements, as Superintendent Benjamin Lawsky addressed the urgency of outlining clear regulatory guidelines for Bitcoin-related businesses under the cloud of the arrest of the Bitcoin Foundation’s Vice Chairman, Charlie Shrem. Certain lines of questioning, on-the-record statements and telling moments of candor from Lawsky himself reinforced that the bias of the NYDFS is to strictly regulate Bitcoin enterprises.
The clear message from most of the hearings’ panelists was that regulators should take care to avoid throwing “the baby out with the bathwater” when it came to placing compliance requirements on new Bitcoin ventures. Each party present had a clear vested interest in ridding the industry of its reputation as an anonymous payment network for child pornographers, drug dealers and fraudsters. Yet Lawsky quickly showcased an unreasonable expectation for purity when he explained that it was worth sacrificing 1,000 Bitcoin startups in order to stop one nefarious organization:
“If the choice is permit money laundering on one hand, but permit innovation on the other, we’re always going to choose squelching the money laundering. It’s not worth it to society to allow money laundering to exist to allow 1,000 flowers to bloom from innovation.”
His pointed statement reflected the committee’s entrenched bias to heavily regulate Bitcoin entities, one that seemed obvious before the hearings had even begun. Patrick Murck, general counsel of the Bitcoin Foundation, warned that the mere term BitLicense implied “forethought into regulating a technology” and that regulating Bitcoin differently from other payment systems would demonstrate a case of “the DFS picking winners and losers in the marketplace.” Lawsky himself seemed to confirm this forethought after the first panel. When I asked Lawsky directly whether he felt that existing regulations could be patched, rather than completely rewritten, in order to address Bitcoin’s complexities, he told me he did not. “There are enough new, unique characteristics to [Bitcoin] that it is not as simple as merely tweaking existing regulations,” Lawsky said. “Something more comprehensive is needed.”
Within the first two hours of the hearings, Lawsky had essentially decided that NYDFS would create BitLicenses.
Others may have hailed the two day hearings as productive or validating, but I just didn’t see it. Regulations would be a good thing for an industry currently operating in no man’s land, but not if they come with an exorbitant price tag that few if any start-ups could hope to afford. Perhaps the silver lining is that NYDFS will outline its position rather quickly.
"Hopefully, [regulations] are only several months away," Lawsky said. "We want to make sure we do this right."
I certainly hope so.
February 05, 2014 at 02:46PM
