Bitlicense: Implications on Bitcoin's Credibility

The New York State Department of Financial Services, or NYDFS, has constructed a regulatory framework for Bitcoins. This 40 page document outlines New York’s Financial Policy for businesses that receive, transmit, store or convert Bitcoins. With the directive of New York Department of Financial Services, Bitcoin’s dark web association might dissipate but only to the degree of consistency in which Bitcoin is regulated.

Government intervention could increase Bitcoin’s trustworthiness in the eyes of the consumer. Since the beginning, Bitcoin has been heavily associated with illegal transactions. While the deep web’s initial adoption of Bitcoin led to its growing popularity, the negative sigma attached to Bitcoins has destructively impacted its growth. Bitcoin has is advantages and disadvantages but the general populous has only been exposed to the material of its application within the dark web.

Spector of Silk Road

The largest and most popular deep web site, Silk Road did $200 million of business in 28 months. This site among others helped popularize Bitcoin and influenced the conversion price to soar to unprecedented levels of around $1000 per coin. As expected, the currency suffered after the government shut down the Silk Road marketplace, sentencing the founder, Ross Ulbritch to life in prison. News sites have been flooded with news of his conviction on charges of money laundering, distribution of controlled substances and commissioned murder. With the media magnifying Ulbritch’s charges, Bitcoin was under more scrutiny than ever before; this only poured salt on Bitcoin’s wounded reputation.

With Bitlicense’s, Bitcoin’s application in illegal transactions has the possibility to be significantly reduced or even ousted. Bitlicense requires companies to report suspicious behavior to the NYFSD but in reality the majority of hindering illegal transactions will come from the verification and recording process. In Section 200.15 of the Anti-money laundering program, Bitlicense requires the following:

In addition to customer verification, Bitlicense requires the company to record the following information for each transaction the company executes:

-Date and Time
-Amount
-Names involved in the transaction
-Account Numbers
-Physical Addresses

As deep web users want to keep their identity anonymous, these policies will discourage New York individual’s from transferring Bitcoins to shady third parties. As a result, the affiliation between Bitcoin and the dark web will diluted.

With government sectors starting to take Bitcoin more seriously, its legitimacy is maturing. However government inconsistencies could curb the improvement that Bitlicense has on Bitcoin’s credibility. Bitlicense directly undermines the Internal Revenue Service’s policy of treating Bitcoin as property. In Notice 2014–21 IRS Virtual Currency Guidance under Frequently Asked Questions, Bitcoin is explicitly defined as property and not currency, as shown below.

The importance of government consistency cannot be overlooked. If Bitcoin has the potential to become a uniform global currency, then Federal and State agencies need to be in agreement with one another.

Although Bitcoin’s attractiveness stemmed from being an unregulated form of currency, Wall Street players such as Goldman Sachs, Nasdaq and NYSE have acknowledged Bitcoin’s legitimacy. Such acknowledgments don’t go unseen, regulative government action was inevitable. The Department of Financial Service’s intervention could help accelerate Bitcoin’s acceptance to fulfill its potential of becoming a uniform global currency. Be that as it may, inconsistencies in government policies can reduce the credibility government association has on Bitcoin while complicating the general public’s interpretation of Bitcoins.

What do you think about BitLicense’s invasive requirements?

Image Source: NYDFS