Bitcoin regulation to "come this year" says New York financial services superintendent

The financial services superintendent for New York, Benjamin Lawsky, has detailed plans to regulate the use of the digital crypto-currency Bitcoin by the end of this year.

Speaking at a currency conference in Washington D.C. yesterday, he said

Our objective is to provide appropriate guardrails to protect consumers and root out money laundering - without stifling beneficial innovation.

He proposes to issue 'BitLicenses' to all companies who deal with Bitcoins that would allow them to operate in the way that they currently do but also added that Bitcoin exchanges should be made to warn their customers of the volatility of Bitcoin value and of the irreversibility of Bitcoin transactions, saying

We've found in other areas of the financial world that strong, clear, concise disclosures are critical to earning the long-term trust and confidence of consumers... Virtual currency is no exception.

Bitcoin exchanges, such as MtGox, may also be forced to adopt 'know-your-customer' strategies which ensure that financial institutions keep an eye on customer behaviour and report suspicious activity to appropriate law enforcement departments. Exchanges may also be governed by rulings similar to those currently imposed on banks, although it is unclear exactly how that would work. Lawsky is even reported to be considering drawing up regulatory rules for individuals who use personal computers to 'mine' Bitcoins for themselves.

However, whether all of these steps could actually be implemented is another thing as Bitcoin was designed specifically to be unregulated and is decentralized by default, unlike 'conventional' economic systems. Lawsky also admits that the nature of how Bitcoin transactions operate will make it very hard for governments to regulate the currency. He still believes that proper regulation for Bitcoin could be possible though and could even add credibility to the currently unstable currency:

If we get those rules right, perhaps we can make New York and the United States a magnet for legitimate, well-regarded [Bitcoin] exchanges.

With many of the United States-based exchanges already shut down by the law, however, it is uncertain how much effect many of Lawsky's new regulations would have on the currency as many of the largest Bitcoin exchanges left operating, such as the Japanese MtGox mentioned above, are based in territories not under US control.

Lawsky's statements definitely prove one thing though: Bitcoin is beginning to become formally accepted by economists as a real currency, even if it is not necessarily regarded as a legitimate one, and is no longer the 'reserved' currency for basement geeks and people involved in the trade of illegal substances on sites such as the infamous Silk Road.

Source: CNN News

Report a problem with article
Previous Story

Visualized: 20 years of Microsoft's homepage

Next Story

Jolla's SailFish OS may be made available on older Samsung devices soon

17 Comments

Commenting is disabled on this article.

Not sure how I feel about government regulation on an e-currency, well as long as it is done as unobtrusively as possible. Dogecoin creator also stated recently that he is in favor of government regulation, lets see what it has in store. I still think there is a good future with ecurrencies, especially dogecoin right now being so cheap, I ordered 150K dogecoin from http://DogecoinUK.com recently, even if the value of dogecoin goes to 10pence per coin, i'll have made £15,000. Abit like a lottery ticket, only there's alot more chance of winning

Great, now the FED will get involved and just start creating bitcoins out of thin air like it does with dollars.....

Buttus said,
Great, now the FED will get involved and just start creating bitcoins out of thin air like it does with dollars.....

that's actually one thing nobody can do, and probably what scares them. You cannot create any amount of a certain cryptocurrency out of thin air as you have to abide by the block creation rules, and the very same network supporting the transactions is creating blocks at the same time you are and validating/invalidating any transaction or block you create.

gonchuki said,

that's actually one thing nobody can do, and probably what scares them. You cannot create any amount of a certain cryptocurrency out of thin air as you have to abide by the block creation rules, and the very same network supporting the transactions is creating blocks at the same time you are and validating/invalidating any transaction or block you create.

So create your own cryptocurrency. Samcoins.

Enron said,

So create your own cryptocurrency. Samcoins.


and that won't work either. You can create all the cryptos you want, but if nobody uses it then it will fail. Nobody will trust a crypto run by a government. GG.

Governments and the Banking cartels that control them are naturally more than a little anxious over digital currency. It'll be the same argument among the nodding dolts that support every little nanny state desire vs everyone else. Let the rationalization begin!

"He still believes that proper regulation for Bitcoin could be possible though and could even add credibility to the currently unstable currency"

Fool. BitCoin was created for a target userbase in mind. And for that userbase, the fact that it is decentralised *is* what legitimises the cryptocurrency. Due to its fundamental nature there is no way to control it in full and there will ALWAYS be a parallel economy whether the FED likes it or not.

Edited by pmdci, Feb 12 2014, 11:29pm :

What legitimizes a currency is when people can participate in trade with the currency. You cannot do that directly in most cases with bitcoins today which is why the market is so volatile.

To purchase a good or service, I have to first convert the bitcoins into a currency I can use for trade. That is USD in many parts of the world, especially in the US. To that end, an easy way to control it is either at the bank to prevent conversion or at the business transaction end to prevent direct trade. This doesn't stop the black market but it does it make it harder for it to be used as a currency by legit businesses that would want to offer it as an option.

With legit businesses, it would not be hard to regulate their activities because they still have to record the transactions for their own bookkeeping. This can help prevent fraud and protect consumers who are wanting to engage in legal transactions which can bolster the legitimacy of the currency.

There is still a lot of gray areas with how to deal with the black market and handle fraud but what is being proposed could be a great start.

This is regulations for exchanges. It doesn't affect peer to peer bitcoin transactions. The anarchists can keep on doing what they want, but if they want to convert it to USD with a US Exchange, they'll have to follow some rules.

Just like if you wanted to live a cash only life, you would avoid banking regulations.

For most of us, this is a good thing. You need to be able to trust the exchange points between fiat and BTC.

E-Rock-001 said,
For most of us, this is a good thing. You need to be able to trust the exchange points between fiat and BTC.

However, BitCoin was not created for most of you. Hardcore BitCoin users would rather exchange BitCoins directly for products, or for a tender with tangible value (eg: gold, silver, etc). BitCoin was created by people who demonise FIAT money and central banks.

If the US FED does that. Not bother, people would just not deal with Exchanges based in the US.

libertas83 said,
What legitimizes a currency is when people can participate in trade with the currency.

You do not have to exchange BitCoins to participate in trade with it.

@pmdci are you in a position to sell me milk, eggs, hamburgers, a house, all the computer parts I want, chocolate, flowers, or anything I want with bitcoins?

No, will be the answer in most cases making bitcoins relevant in free trade until the places I shop accepts bitcoins directly. And to the point we are making, that legally will never happen without government approval. For people who have something to trade directly sure it can be used but the vast amount of purchases come from people buying from a merchant.

In other words, one million dollars worth of bitcoins has no value if I can't go purchase from a electronic store that $50,000 OLED TV that I want or go buy that Yacht if bitcoins cannot be accepted.

So yes the government can still regulate legal trade even with a currency like Bitcoins and it must do so. I'm a libertarian so the ideas of Bitcoin is intriguing to me but I also recognize the evil necessity of government to protect me from fraud and protect my rights. Read the first 5 pages of Common Sense by Thomas Paine on that.

libertas83 said,
@pmdci are you in a position to sell me milk, eggs, hamburgers, a house, all the computer parts I want, chocolate, flowers, or anything I want with bitcoins?

I am not a 7-11, but I am in a position to sell the goods and services I provide in BitCoins. Having said that, nothing impedes a 7-11 to start accepting BitCoins.

You fail to see that when FIAT money was introduced, the same questions came up. Why accept paper with no tangible value rather than gold.

As for being a libertarian, I find that puzzling since you still believe that a government should manage the currency. Is like saying you are a capitalist who wants everybody to earn the same salary. Maybe you follow a libertarian school I am not familiar with (certainly not mine, the traditional one). Could you name me an author or two that I could read to get more familiar with the concepts you follow? I'm all up for sharing ideas.

I didn't say manage the currency, I said regulate and I don't mean regulate it like the Fed. This isn't the wild wild west. The Free Market doesn't work without government involvement at some level. No government is anarchy.

Just like the ISO, you need to have standards set for conducting business. There are laws to protect the business and laws to protect the consumer. That is the role of government, to ensure that a free market can conduct its transactions safely and securely. Now, in the US our government has gotten out of control and so has the Fed so I'm not arguing that the Fed should come in and regulate it like they do FIAT currency. Also, Constitutionally in America, the government does have a right to regulate currency.

I will take an illegal activity as an example. If you go to a drug dealer today and buy pot, the dealer can give you bad product, steal your money, or rip you off. Of course, you can't go to the police because you are doing something illegal too. If pot were legal, then government could intervene on your behalf to protect your interests.

I'm all for putting in checks and balances on government power and making sure they don't tip their hat in the wrong direction like today. But none of that deters from the fact that to conduct business in a free market you need a third party to protect interests on both sides.

pmdci said,

However, BitCoin was not created for most of you. Hardcore BitCoin users would rather exchange BitCoins directly for products, or for a tender with tangible value (eg: gold, silver, etc). BitCoin was created by people who demonise FIAT money and central banks.

If the US FED does that. Not bother, people would just not deal with Exchanges based in the US.

I still don't see the problem. You and I could still conduct a transaction directly in BTC whether these regulations go through or not. However, it would allow someone who wanted to get into BTC to convert their fiat to BTC from an exchange that has some legal protections. Once more people have BTC and can do business in it, they'll keep the BTC.

BTC needs to get to critical mass before that can happen. In my opinion this can only help get more people to start participating and does nothing to hamper the original intention of the bitcoin network.