The New York Bitlicense and Crypto Regulation

Technology and its adoption rarely match the pace of regulation. Entrepreneurs and builders of emergent technologies often experience friction with regulatory authorities if there is some ambiguity around whether the legacy frameworks apply within the new paradigm. 

In the case of cryptocurrency — where the asset is pseudonymous, non-repudiable and operating under a fundamental set of rules outside of any sovereign control — the clash between the old and the new is inevitable. Between the shutdown of the Silk Road marketplace and the collapse of Mt. Gox, regulatory state authorities began to implement specific regulations for businesses dealing with crypto assets in any administrative capacity. 

On July 17, 2014, the New York State Department of Financial Services proposed the “BitLicense,” a business license that imposes strict restrictions on digital currency businesses operating within the state of New York that provide custodial, exchange and/or transmission services for customers. 

Authored by New York’s first superintendent of financial services, Benjamin Lawsky, the license was heavily criticized by the industry for its inhibitive, expensive demands, as the sheer costs of acquiring the license would make it impossible for small to medium-sized businesses to remain compliant. When the BitLicense came into effect on Aug. 8, 2015, 10 prominent cryptocurrency companies left New York in what the New York Business Journal called the “Great Bitcoin Exodus.”

While the NYDFS is currently planning to revisit the BitLicense, the regulatory framework set a precedent for how authorities at the state and federal levels can choose to cultivate or inhibit commercial and technological innovation. In 2020, the NYDFS introduced the conditional BitLicense — a variation of its standard framework for crypto regulation. PayPal began offering crypto assets, including Bitcoin, on its platform the same year under a conditional BitLicense.

Since its inception, the U.S. regulatory landscape for crypto ventures has become a patchwork state-by-state affair with a pervasive lack of clarity to this day. Although crypto industry regulation has historically had its gray areas, a number of U.S. regulatory bodies have come forward with various actions and enforcements. Included in the mix: the Securities and Exchange Commission’s crackdown on initial coin offerings after 2017 and the Office of the Comptroller of the Currency’s approval of U.S. national banks to offer digital asset custody services in 2020.

In terms of more localized U.S. regulation, state crypto laws can vary, resulting in different U.S. platforms opening availability for customers of some states before others, as seen with Binance.US, for example. Wyoming, in particular, has positioned itself as a region in support of crypto and blockchain industry growth on a number of levels. 

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