BitLicense - a breakdown

Since June 24th when New York’s BitLicense was published in the state register, companies have had a 45 day grace period in which to either exclude New York residents from their services or comply with the legislation. As the deadline has drawn towards  Saturday the 8th of August we’ve seen companies split down this fault line. 

The New York BitLicense scheme is legislation designed to regulate any company dealing in any virtual currency that has consumers in the state and to protect residents of New York.

The requirements to attain a license have been set relatively high, with a $5000 non-refundable application fee and the application process being described as ‘Orwellian’ and taking in the order of 30 days to complete. 

Some companies have seen this as a necessary evil or an opportunity to show their credentials as trustworthy organisations. Bitstamp, Coinsetter and MonetaGo have all successfully applied for a license. 

Many others have responded by removing operations from New York and blocking residents. Bitfinex, Bitcoinpaygate, BitQuick, Coinfloor, Kraken, Paxful, Poloniex, and Shapeshift have all excluded either New Yorkers or Americans entirely. 

The companies pulling out of New York have cited a range of reasons and some none at all. The Bitcoin exchange Kraken objected both to the requirements placed on their business but they also protested the damage that could be done by the legislation not providing ‘on-ramps’ for start-ups. Paxful, a website for buying bitcoins, also cited the overly onerous cost to companies in attaining the license and went on to comment on how the legislation requires companies to get permission from regulations to introduce any new product.

While many major players have applied and received the license it’s unclear what benefit this will bring to customers in New York and as the city competes against London and other financial centres this may put Wall Street innovators at a disadvantage. The New York response should be compared against that of the UK’s Financial Conduct Authority who, in June of last year, established Project Innovate specifically designed to help small firms become authorised and have taken a hands-off approach to firms using virtual currencies.