New Yorks Department of Financial Services (NY DFS) has recently issued guidance on its BitLicense proposal, which would create a transitional license for Bitcoin.
The BitLicense is an attempt by NY DFS to regulate the developing Bitcoin industry and is closely watched as a potential model for regulations in other states. Most agree that a level of regulation plays an important role in consumer protection.
On the surface, the NY DFS seems to be on the right track towards Bitcoin regulation. However, a closer look at the NY DFS BitLicense proposal reveals some pretty significant issues. In particular, the BitLicense requires merchant payment processors to collect the names and addresses of each party to a Bitcoin transaction.
This means that any merchant using these payment processors must collect an individuals personal information and provide it to the payment processor. While it might be considered normal for a customer thats ordering a product online to have it shipped to their home address, its certainly not the experience customers are used to when ordering coffee or paying for a meal at a restaurant.
In addition, this requirement destroys one of the biggest benefits to society that Bitcoin providesanonymity.
Were in an era where securing personal information requires complex security and surveillance, whether by merchants, banks or government agencies. The Internet continues to accelerate technology innovation at a much faster pace than slow moving merchant and banking infrastructures can keep up with. For this reason, merchants find themselves lacking the skill sets, the technologies, and more importantly, the margins in their business to secure our most confidential information.
Bitcoin solves this problem for both consumers and merchants, lowering transaction fees and removing the security burden. Increased margins will lead to additional capital to invest in their core business, jobs and innovation.
Unfortunately, the way that the NY DFS BitLicense proposal is written, it explicitly strips consumers and merchants of Bitcoin's biggest benefits, thus reducing consumer protection and increasing merchants costs.
Requiring payment processors to collect personal information on every transaction forces merchants to do it on their behalf, thus destroying the huge opportunity that Bitcoin presents to solve the global data security crisis. Requiring this information on every transaction also makes spending Bitcoin at your local retailer more complex than using dollars or credit cards, which significantly stagnates adoption and innovation.
According to the NY DFS, these rules are introduced to protect us from terrorism and money laundering. In the world of fiat currencies, these draconian AML and KYC regulations are normally reserved for large transactions in excess of $10,000, and not enforced on local shop owners selling pizza and coffee. Unfortunately, the NY DFS BitLicense as written, may impede Bitcoin adoption by applying these rules broadly across all types of Bitcoin transactions. Its an incorrect, flawed approach, thats bad for business and innovation in New York.
The pace of technology innovation continues to accelerate, as evidenced by the many industries that have been reshaped over the past 20 years due to innovation. In contrast, financial services and banking have seen very little progress over this time period. This is all about to change, as Bitcoin ushers in a new wave of innovation and disruption that has the potential to lift millions out of poverty and create new and exciting business opportunities.
As a society we should foster this innovation and guide it in order to improve our lives. Bitcoin presents us with a huge opportunity as a society to change direction and move away from large centralized repositories of data, to a more decentralized and secure solution.
Trevor Murphy is CTO of Bitstash.