Businesses that handle virtual currencies in any capacity (management, administration, upkeep, storage, holding, issuance, exchange operations, related-software development, etc.) require a BitLicense to operate legally. Not all bitcoin sites have strong ID rules. The 2013 Mt.Gox crash prompted New York State to create the BitLicense.
Those who wish to engage in the following types of virtual money commercial action must first acquire a Bitcoin license in accordance with Department of Financial Services regulations:
- Transport of virtual money.
- Trusted possession or authority over virtual money belonging to another party.
- Trading in virtual currencies for a profit.
- Providing currency conversion services to clients.
- Having authority over a digital money and/or creating said coin.
The BitLicense does not affect Bitcoin traders or buyers.
Consequences of BitLicense for Cryptocurrency Licensing and Regulation
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More than 3,000 formal remarks were made to the DFS during the 45-day public feedback session following DFS director Ben Lawsky’s official introduction of the BitLicense document. The consensus of the sector is summed up in a proposal from Coinbase.
There is no reason to subject a new sector to regulations that are more stringent than those already in place for money carriers at the federal and local levels.
Even so, it’s important to remember that Coinbase was granted a BitLicense by the NYSDFS in 2017.
Despite the laws’ good intentions—to give bitcoin companies a safe, state-guaranteed environment—many entrepreneurs found them untenable for legal and financial reasons. BitPay, Square, Xapo, Genesis Global Trading, itBit, bitFlyer USA, Coinbase, Ripple, and Circle are the only businesses currently in possession of a BitLicense in New York, where the industry has seen a mass exodus since the adoption of the law. In addition, both Gemini and Paxos have been granted regulatory approval to conduct cryptocurrency-related business.
Kraken, Korbit, Poloniex, Bitfinex, LocalBitcoins, and Genesis Miner are just some of the well-known firms that have chosen not to acquire a license.
In a report on efforts to maintain order in the cryptocurrency industry, DFS Supervisor Maria T. Vullo highlighted the beneficial effect of BitLicense, a process for forced registration of cryptocurrency businesses, at the yearly Conference of State Bank Supervisors (CSBS). On the other hand, many people in the crypto community see these regulation measures as unnecessary and cumbersome to the growth of their businesses.
Substitutes for the BitLicense
The New York Bitcoin Exchange Act, introduced by the state assembly in the first months of 2018, is intended to serve as an option for BitLicense. The new legislation prohibits registration costs for the operation of bitcoin businesses and mandates that their actions be verified by independent depositories.
According to Ron Kim, the United States’ prior efforts to control the cryptocurrency sector have impeded the growth and development of digital currency businesses (note that today, a company must pay a $5,000 application fee, which is not reimbursed in case of rejection).
Is there something comparable to BitLicense? You can facilitate the process of obtaining a cryptolicense in Estonia by contacting Fintech Harbor Consulting. Not because the American system is perfect, but because the reasoning behind the rules is sound. The purpose of any crypto legislation is the most important factor to consider. It should aim to manage the industry, provide a mechanism for resolving conflicts, and streamline administration. Cryptographers must be aware of their presence. The growth and efficiency of the crypto market depend on everyone involved realizing the importance of these kinds of structures.