A few weeks ago, Bitcoin Magazine reported that the prestigious Massachusetts Institute of Technology (MIT) Media Lab announced the launch of a Digital Currency Initiative, to be directed by former White House senior adviser for mobile and data innovation Brian Forde.
Soon afterward, lead Bitcoin developer Gavin Andresen announced that he and other Bitcoin Core developers were joining the MIT Digital Currency Initiative, which gives MIT the roles of leadership, funding and co-ordination of Bitcoin technical development. In parallel, Bitcoin policy think tank Coin Center claimed the role of interface to policy makers and regulators, with the publication of a framework for state digital currency regulation.
Now, MIT and Coin Center are beginning to act jointly as Bitcoin representatives in policy and regulatory discussions, and expressing the concerns voiced by the Bitcoin community about the initiative of the superintendent of the New York Department of Financial Services (NYDFS) Benjamin Lawsky, who is expected to issue this month a new regulation called BitLicense, much stricter than the agile framework proposed by Coin Center.
On March 27, Coin Center issued a detailed commentary to the current BitLicense text, in the hopes that some further adjustments may ensure that New York State becomes a leader in the financial technology of the future.
In a recent Medium post titled “How to Prevent New York from Becoming the Bitcoin Backwater of the U.S.,” MIT Digital Currency Initiative lead Brian Forde praises the Coin Center commentary, and, in particular, the idea that regulations should strike a middle ground in such a way as to protect both consumers and digital innovators.
“If done right, along the lines of what has been proposed by Coin Center, [regulation] will increase investment in digital currency start ups, create jobs and allow consumers to receive cutting-edge financial services of the future, faster and safer,” says Forde. “And it’s challenging to balance consumer protection, competition and prevent money laundering while also enabling innovative new industries to grow and prosper.”
Similar arguments have been used to justify agile and enlightened Bitcoin regulatory frameworks, for example by the Isle of Man government, which wants to offer “Freedom to Flourish” to digital innovators while protecting consumers and keeping crime out.
Forde welcomes the initiative of Lawsky and his team to provide regulatory clarity for the emerging technology of digital currencies, but issues a clear warning that the current BitLicense text has four fundamental flaws:
The NYDFS would like to review and approve all software updates for Bitcoin apps;
NYDFS approval would be required to raise a round of financing if any new investor provides an investment for more than 10 percent of a Bitcoin company;
BitLicense proposal requires Bitcoin companies to get both a money transmitter license and a BitLicense – even though they have substantial overlapping requirements;
The NYDFS would like to regulate Bitcoin wallet applications – even open source software that doesn’t control users’ funds – instead of specific illegal behaviors, which would be like trying to regulate Internet browsers instead of fighting online crime.
Regarding the last point, it’s worth noting that the framework proposed by Coin Center emphasizes that only operators with unilateral control of customer funds should be subject to a license requirement.
Forde is persuaded that, if the current BitLicense proposal is not significantly amended, New York would become a digital fintech backwater.
It’s easy to see what would happen in that case: Innovative companies would leave New York and move elsewhere, resulting in loss of jobs and technology leadership. If similar, unnecessarily restrictive regulations were to be adopted in the rest of the United States, innovative companies would just move abroad. The recent decision of Xapo to move its corporate headquarters to Zurich, Switzerland, should be a wake-up call for U.S. regulators.