Between the proposed virtual currency regulations in New York and those already established in Texas, the future of Bitcoin would be brighter if more states follow the Lone Star State's example, says Jacob Farber, senior counsel for Perkins Coie LLP.
If New York's strict guidelines become official regulations, obtaining a license to transmit digital money would be a significant burden, possibly stifling the expansion of the digital currency market, says Farber.
New York is proposing that companies registering for a BitLicense would need to fully expose and document the details of every transaction, including information about the businesses or individuals receiving the bitcoins and about those they do business with, says Farber.
Full disclosure is only part of the New York proposal, which establishes many other rules on the transmission of bitcoins. These restrictions would make it difficult for the currency to become mainstream, Farber said during the North American Bitcoin Conference in Chicago.
Perkins Coie has built a reputation for helping startups find a space in the virtual currency industry. Farber works out of the Seattlebased international law firm's Washington D.C. office.
Compared to New York, "Texas has a very thoughtful, workable guidance," Farber says.
Texas banking regulators set guidelines in April, saying that virtual currencies would not be treated as money, but Texans could use them to buy and sell goods and services free of regulation. Digital currency exchanges would be subject to state licensing rules for money wiring services, while also following net worth and security guidelines.
Companies interested in being Bitcoin transmitters need to weigh in on the New York proposal during the 45-day period the state established for feedback, Farber adds. The feedback process in New York begins July 23.
The rules New York set could become an example to other state regulators, he warns.
"New York is the first one out of the gate with something this strict, so others, including California, could follow," Farber says.
And even if a company is not based in New York, "if you have a New York customer or advertise [digital currency] in New York, you would fall under the rules," he says.
Ultimately, every virtual currency transmission across the country would fall under the "know your customer" rules if the stricter guidelines in New York become more widespread, Farber says.