NY to issue ‘BitLicense’ for virtual currencies

How to design and implement a regulatory framework for the plethora of peer-to-peer digital currency denominations that have risen to popularity recently is a conundrum that central banks, government authorities and financial regulators have thus far not managed to solve.

Even nations without a free market economy such as China and nations which restrict the flow of sovereign currency such as Argentina have been unsuccessful in mitigating the widespread use of Bitcoin in their jurisdictions, even subsequent to a comprehensive attempt by China to ban it. Of course due to its universal and virtual nature, Bitcoin could still be used by China’s citizens outside China and within, regardless of any preventative activity by the government.

Perhaps, in nations with a more liberal business environment, it is a case of if you can’t beat them, join them.

The State of New York could be poised to become the first jurisdiction to implement a set of rules which would regulate Bitcoin and other virtual currencies, as announced today by the state’s financial regulators.

The state would issue a regulatory license, called “BitLicense”, which would offer customer protection, something that American authorities are very good at, as well as ensure the prevention of money laundering and facilitate the enforcement of cyber security.

If implemented, the law would require all firms which transact in crypto currencies to hold a BitLicense, and be accountable to the New York State Department of Financial Services.

The new requirements include ensuring that all companies hold the entire amount of any denomination of virtual currency owed to a third party, and must keep receipts of all transactions.

The rules also impose strict demands on license holders to report any occurrences of fraud or anything that could be deemed illicit activity within 24 hours. One particular North American law enforcement agency, the US Marshal Office, hinted in the direction of legitimizing Bitcoin last month with its auction of 30,000 Bitcoins that had been seized from illicit traders, and could be purchased directly from the US Department of Justice by members of the public.

With several recent venture capital investments into Bitcoin related businesses, as well as the establishment of new Bitcoin exchanges in ultra-safe regions such as Switzerland, confidence from within both the technology and financial sectors has lept forward tremendously since last year’s volatile price fluctuations, government seizure of Silk Road for its part in illicit business, and this year’s demise of MtGox which cost its investors dearly.

Far from causing the financial regulators of western nations to wash their hands of it altogether, a move in completely the opposite direction has occurred, with Bitcoin being embraced commonly among investors, venture capital firms, banks and regulators alike.

With regulation in place in New York, and full facilities now available across the globe, with Switzerland’s SBEX offering fully regulated exchange facilities and a network of ATMs, many vocal Bitcoin advocates across America, and the recent installation of a Bitcoin ATM which dispenses local currency from Bitcoin accounts in Tel Aviv, Israel, digital currencies could well pave the way to a borderless financial landscape without the previously associated risks, yet free from governmental constrictions.

To many, this is likely to be an appealing combination.

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