This week’s bitcoin review takes a look at New York’s proposed bitcoin business regulations.
Regulation is a hard, but necessary medicine to swallow
Bitcoin has an identity problem. The voices in the community are numerous and diverse: We need to use it for remittances! No, we need it in consumers’ hands! No, focus on merchants! Let’s use it for day-trading! All of these voices are a bitcoin community and together they make up what we know as bitcoin today.
These diverse voices, however, can also drown out the calls to preserve the anonymity that was once one of the virtual currency’s primary appeals — not least because it provided a payment platform for nefarious ends. Those voices are quieter now but haven’t gone away. It’s also why currencies like Darkcoin and the proposed DarkWallet are attracting attention — there’s still appeal for an anonymous payment system that only requires the blockchain to move bitcoin around the planet.
That brings us to the state of New York Department of Financial Service’s proposed bitcoin regulation: BitLicenses. Simply put, the regulations are strict.
Benjamin Lawsky, superintendent of the NYDFS, had been talking with the bitcoin community through public hearings and a Reddit AmA. This week, he unveiled the NYFDFS proposed bitcoin regulations, which will be posted on July 23 for a 45-day window for public comment.
Most of the regulations set high-security standards, like FBI background checks for employees, and many of these the bitcoin community seems OK with. However, some of the requirements of the BitLicense requirement go against a lot of the ideas early bitcoin users had about what the currency could be. For example, to avoid money laundering, businesses must have the name and physical address of BOTH parties in the transaction:
As part of its anti-money laundering compliance program, each firm shall maintain the following information for all transactions involving the payment, receipt, exchange or conversion, purchase, sale, transfer, or transmission of Virtual Currency: (1) the identity and physical addresses of the parties involved; (2) the amount or value of the transaction, including in what denomination purchased, sold, or transferred, and the method of payment; (3) the date the transaction was initiated and completed, and (4) a description of the transaction.
That’s a far cry from the entirely anonymous early days of sending bitcoin from wallet to wallet without knowing who is on the other end. Bitcoin goes from being the internet’s version of cash to a highly traceable form of money that’s every movement (in a BitLicensed company, at least) is tracked.
There are many other regulations as part of the proposal, and I recommend reading TwoBitIdiot’s dissection of the good, the bad and the ugly of proposal.
My own two cents is that I believe bitcoin will benefit from New York’s BitLicensing in the long term. The cryptocurrency has been fighting so hard for validity and to shake its risky reputation that having a company that passes the high bar set by these standards would carry a certain level of trust. Companies outside of the bitcoin space would hopefully be more comfortable working with companies that have a BitLicense in New York.
This may be a dividing moment for the bitcoin moment, as people choose between those pushing it to go mainstream, and those who burrow back into the deep web to find another virtual currency. Bitcoin now has a new face and the community will have to embrace its new identity.
The market this week
Last week, I said the price might dip below $600 if it continued on its downhill slide. Well, the market proved me wrong. Bitcoin price spiked between Friday and Saturday, jumping from $614 to $634. It’s since gone down, but only to a closing price of $622 last night. It seems less likely to fall below $600 next week unless there are some skittish players pulling out of the market because of the BitLicense announcement.
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post.
In other news we covered this week:
- Shopify pits two of bitcoin’s largest payment processors head-to-head and lets its merchants choose: accept bitcoin via Coinbase or BitPay?
- In the European bitcoin scene, Elliptic took in $2M to help firms handle bitcoin.
Here are some of the best reads from around the web this week:
- What if the value of your digital coins were based on personal reputation? Wired takes a look at a new, but somewhat unconventional altcoin called Document Coin.
- Facebook, meet bitcoin (kinda). BitPay released Get Bits, a Facebook app where people can sign up and say that they have bitcoin to connect with others. Of course, you can’t trade bitcoin on Facebook yet, but it does link you with your Facebook friends that you trust to buy bitcoin.
- There’s a bet between Ben Horowitz and Felix Salmon over bitcoin (and the winner gets a pair of Alpaca socks). Fortune thinks Horowitz will win, but only in spirit.
- Someone hacked CNET’s user database over the weekend and put it up for sale for bitcoin — but in the end, it was all just a publicity stunt.
- Bitcoin heads to SouthAfrica after PayFast, a payment processor, started accepting bitcoin. The WSJ said its one of the first payment processors anywhere to incorporate the cryptocurrency.
Bitcoin in 2014
The history of bitcoin’s price
A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the four Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e, LakeBTC and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST).
Photo from StevanoVicigor/Pond5