New York technology companies that develop or accept Bitcoin will soon be confronting a new regulatory environment for their products and services.
The department described its plan as a "fact-finding mission" with no firm deadline for new regulations or a date for the open forum. It will consider whether businesses that deal in Bitcoins should need a "BitLicense" allowing them to sell using the currency, and whether such businesses need to follow anti-money laundering laws that traditional financial institutions must, as well as requiring them to follow traditional regulatory and consumer protection guidelines.
"We are very encourage by the announcement in New York," says Carol van Cleef, a partner at law firm Patton Boggs, and an expert on currency regulation. "Obviously, the laws are clear that to engage in the kind of activity that is involved in Bitcoin exchange and other currency activity, one needs to be registered as a money service."
There are 48 different state laws regulating electronic money transmission, but getting a money transmitter's license is often costly and time-consuming, requiring businesses in some cases to have a minimum net worth of $1 million to $2 million in some states, in addition to bonding.
A license might be a low-cost, simpler alternative for businesses, van Cleef and others say.
"Virtual currencies may have a number of legitimate commercial purposes, including the facilitation of financial transactions," Benjamin M. Lawsky, superintendent of financial services at NYSDFS said in a memo on Thursday. "That said, NYDFS also believes that it is in the long-term interest of the virtual currency industry to put in place appropriate guardrails that protect consumers"
Bitcoin is a decentralized, highly-encrypted virtual currency invented in 2009 by a mysterious, reclusive programmer named Satoshi Nakamoto. It is most easily acquired through exchanges that trade the currency, whose value has fluctuated wildly from less than a dollar to over $400 today.
Bitcoin has also been the subject of regulatory scrutiny for its potential role in money laundering and financial crimes. The currency gained notoriety earlier this year for its role in facilitating transactions for the $1.2 billion online black market Silk Road, which was shut down by federal authorities in October.
At least one small business concern in New York doesn't think it should need a license for Bitcoin transactions. About two months ago the Lee family's five businesses, including a supermarket, pizza parlor, bakery, and nail spa began accepting Bitcoin.
"A BitLicense does not make sense, because for every other type of payment we offer our customers, we don’t need a special license," says David Lee, the general manager of Green Avenue Market, one of the family enterprises.
Lee says that he likes accepting Bitcoin transactions more than credit cards because he doesn't have to pay merchant-processing fees or deal with charge-backs, and it's just as quick at the point of sale.
What's more, Lee says, Bitcoin has drawn in a new set of customers the store might not get ordinarily. A couple of days ago, for example, one customer trekked the many miles from the Upper East Side of Manhattan to Brooklyn to purchase a half-gallon of organic milk using the virtual currency.
"The Bitcoin community is tight-knit and small, and those involved in Bitcoin are passionate about it," Lee says.