shea256 / proposed-bitlicense-regulations Goto Github PK

Definition of Virtual Currency

We should split this definition into 2 definitions.

Current definition includes "resides, is located, has a place of business, or is conducting business in New York." How is anyone able to know if a potential customer is conducting any business in NY??

Of course, it could simply limit the license to actual NY businesses and omit the doing business with residents angle.

Context:

(b) Each Licensee shall be permitted to invest its retained earnings and profits in only the following high- quality, investment-grade permissible investments with maturities of up to one year and denominated in United States dollars

1. certificates of deposit issued by financial institutions that are regulated by a United States federal or state regulatory agency;
2. money market funds;
3. state or municipal bonds;
4. United States government securities; or
5. United States government agency securities.

Why is it that whenever a Licensee profits, it must use its Bitcoins to buy US-denominated assets? If all miners, tipbot creators, cryptocoin creators, and mining pool operators are required to get license, than isn't it unfair for them to use the profits only on US-denominated assets?

The application requirements are completely open ended:
200.4 (a.14) "such other additional information as the superintendent may require."

The issuing time is open ended:
200.6.b "The superintendent shall approve or deny every application for a license hereunder within 90 days from the filing of an application deemed by the superintendent to be complete. Such period of 90 days may be extended at the discretion of the superintendent for such additional reasonable period of time as may be required to enable compliance with this Part.

If application is denied, there seems to be no appeal process or higher authority. I recommend that some kind of provisional license be issued once the application is filed.

In the press, this regulation has been presented as not applying to normal consumers and merchants who use bitcoin. For instance, this interview with Benjamin Lawsky:
http://www.bbc.co.uk/programmes/p023dgg1
(statement starting at 11:20)

So I believe we can consider it a requirement for this regulation to actually not apply to consumers or merchants, and any deviation can be considered a "bug", and should be fixed.

I am particularly worried that consumers and/or merchants may be performing a "Virtual Currency Business Activity" if they exchange virtual currencies against fiat currencies, through section 200.2 (n) 4. If one consumer or merchant exchanges virtual currency for fiat currency with another consumer or merchant (or any other entity), they can be thought of as providing conversion services to each other. On sites like localbitcoins.com, this is a normal consumer activity, and as such it should not be regulated, as stated above.

It it not clear how to distinguish consumers and merchants from other entities that somehow, for some reason, should be regulated. The root cause may be that a solid justification is missing why those other entities (whatever they may be) should be regulated, and consumers and merchants should not.

My proposed solution would be to remove any regulation requirements, for which it can not be proven that they cannot apply to consumers or merchants. 200.2 (n) 4 would be one candidate for removal.

Any other suggestions?

Free countries write laws this way (see http://en.wikipedia.org/wiki/Everything_which_is_not_forbidden_is_allowed). Yet 200.2n essentially defines everyone who touches digital currencies as a "Virtual Currency Business Activity" and then grants specific exemptions in section 200.3c. This puts the onus on the Business to prove they are exempt.

Instead, the document should attempt to define "Virtual Currency Business Activity" in positive declarative statements, without needing a negative exemption.

For example, does a bitcoin-Ebay need a license? They transfer money from person A to person B. Bitcoin-Ebay ITSELF is not selling the good... I'm sure we can come up with many even more ambiguous examples.

Context:

Section 200.2

(l) Transmission means the transfer, by or through a third party, of Virtual Currency from one Person to another Person, including the transfer from the account or storage repository of one Person to the account or storage repository of another Person;

(n) Virtual Currency Business Activity means the conduct of any one of the following types of activities involving New York or a New York Resident:

• (1) receiving Virtual Currency for transmission or transmitting the same;
• (5) controlling, administering, or issuing a Virtual Currency.

The following expresses my interpretation of 200.2 (n)(1):

Virtual Currency Business Activity means (...) receiving Virtual Currency [as a payment] for [providing the service of] transmission or transmitting the same

Since mining is an integral part of Bitcoin and other digital currencies, I think it needs to be clarified, if the above quoted subsections apply to miners which, depending on the interpretation, ...

1. transfer Virtual Currency from one person to another
2. receive a payment for this service in form of transaction fees
3. create or issue new units of Virtual Currency

The 1 to 1 capital requirements and requirements that the identities of the sender of an amount of crypto must be known are too tough to be complied with. If not revised it going to make it impossible for wallet providers and innovations such as the Dogecoin mmo voidspace (http://steamcommunity.com/sharedfiles/filedetails/?id=269740803) to operate.

Check out: http://www.wired.com/2014/07/ny_bitcoin/

New York's own labor laws prohibit fingerprinting as a condition of securing employment. Yet this section of the bitlicense requires fingerprints to obtain the right to do business in virtual currencies (i.e. be employed) in the state of New York. While this bitlicense may qualify as "otherwise provided by law", clearly the intention of the law is to strongly discourage required fingerprinting. And realistically how useful will fingerprinting be for an internet company dealing in immaterial money?

http://codes.lp.findlaw.com/nycode/LAB/7/201-a
"Except as otherwise provided by law, no person, as a condition of securing employment or of continuing employment, shall be required to be fingerprinted."

Note that fingerprints, a passport photo and a registration payment is required FOR EVERY EMPLOYEE. Is this required for every employee of other financial services? This is an onerous and expensive requirement for any large international financial company.