Sunday, July 20, 2014

More on the Incredible Tracking and Control Bitcoin Regulations Just Announced by the State of New York

Yes, tracking and control regulations by the state of New York.

Aaron Sankin at The Daily Dot reports:
If you want to start a virtual currency exchange or operate an online wallet service in the state of New York, you’re going to need a BitLicense... 
Applying for a BitLicense involves disclosing personal and financial information for top company officials, undergoing a background check, paying a fee, and providing details about the structure and business goals of the company. If the regulators see any shady behavior, licenses can be either suspended or revoked entirely following a hearing.

The proposal also introduces capital requirements, which are rules that nearly all financial institutions are required to follow requiring them to have a certain amount of cash (or other assets) on hand to ensure that a market downturn or bad business decision doesn’t suddenly sink the whole company and its customers’ investments with it. The minimum amount of capital each virtual currency financial firm will be required to carry will be determined by regulators on a case-by-case basis.

In addition, all firms applying for BitLicenses will be required to comply with a set of policies— including the preservation of all financial records for at least a decade, the submission of quarterly financial statements, the verification of customers’ real-world identities, and the logging all user transactions—which are designed to combat fraud and money laundering, as well as rules designed to ensure against data breaches and protect customers’ privacy.

The two things that stand out to me are these. For obvious reasons, this requirement by NYS:
  the verification of customers’ real-world identities, and the logging all user transactions
There goes Bitcoin anonymity. And please Bitcoin fanboys, don't tell me there are ways around this, like tumblers. Attempting to circumvent regulations will get you labeled a money launderer with severe penalties--and the government could very well be operating tumblers in the future to catch you.

The second thing that stands out is this. It is more technical in nature but hints at how Bitcoin operations will be controlled by the government, and the Bitcoin edge against Visa and Mastercard destroyed.
The proposal also introduces capital requirements, which are rules that nearly all financial institutions are required to follow requiring them to have a certain amount of cash (or other assets) on hand to ensure that a market downturn or bad business decision doesn’t suddenly sink the whole company and its customers’ investments with it. The minimum amount of capital each virtual currency financial firm will be required to carry will be determined by regulators on a case-by-case basis.
If capital requirements are determined on a  "case-by-case basis," then firms that are friendly to government regulators will have much lower capital requirements than others. Providing them with a huge edge. But more, as I have pointed out here at EPJ numerous times, the low transaction fee that Bitcoin offers versus Mastercard and Visa is largely because of the fact that up until now, Bitcoin has not been required to keep reserves against its transactions, as MC and V do because of government chargeback regulations.

The capital requirements on Bitcoins dealers are a first step in wiping out that edge. I expect government "consumer" reserve protection regulations to add to the cost of doing business in Bitcoin and wipe out any current edge Bitcoin has.

In short, Bitcoin is slowly being controlled and co-opted by the state. It is a two front attack. Bitcoin is not a libertarian answer to evade government tracking and control. It is a step further along the line of tracking and control. Viewed from this perspective government agents understand Bitcoin a lot better than so-called libertarian Bitcoin fanboys.

-RW

1 comment:

  1. I wonder if their way around this is going to be creating another standard digital currency and using that instead of Bitcoin. Kind of like a cat and mouse chase.

    ReplyDelete