Poloniex Leaves New York Due To BitLicense

Another Bitcoin business is leaving New York due to the BitLicense. Poloniex the U.S. based Altcoin and Bitcoin exchange is shutting its doors to New York residents on August 8. Customers of the site have been issued an email warning letting them know they must remove funds if they reside in NY.

Also Read: Ben Lawsky's Revolving Door

“In accordance with the New York State Department of Financial Services, Poloniex will no longer be allowed to provide services to residents of the State of New York starting on August 8th, 2015. If you are a resident of New York, please take appropriate measures to withdraw your funds by 11:59pm Eastern Daylight Time on August 7th, 2015. For more information or for further assistance, please contact our support staff by going to poloniex.freshdesk.com.”
— Poloniex Bitcoin Exchange

With the BitLicense full steam ahead lead by Ben Lawsky and lawmakers people are starting to worry about this stifling innovation and business. On the 24 of June the BitLicense was adopted by New York legislation and is now recognized by The New York State Department of Financial Services (NYDFS). Businesses operating with Bitcoin and virtual currencies must apply for the license within 45 days from its initial announcement. August 8th is the deadline for all Bitcoin companies to comply. The transcript reads:

"Any person engaged in virtual currency business activity that fails to submit an application for a license within 45 days of the effective date of this regulation shall be deemed to be conducting unlicensed virtual currency business activity."
— BitLicense Transcript

Shapeshift the crypto exchange based in Switzerland has also halted services in the State of New York due to the BitLicense. Founder Erik Voorhees believes the license is unethical, and exposes personal user information. Following this decision Voorhees created Please Protect Consumers a website that is against mass data collection and the sharing of personal user info. Voorhees company was applauded by many in the Bitcoin community to be the first to not comply with the state's regulations and data collection. Notably Andreas Antonopoulos tweeted out to fans after this announcement his perception of what Shapeshift did:

“Kudos to ShapeShift for refusing to become a honeypot of PII just to satisfy NY regulators.” — Andreas Antonopoulos via twitter

Recently former Superintendent of Financial Services of the NYDFS, Ben Lawsky who introduced the BitLicense stepped down. Lawsky has been a staunch supporter of its regulations has been accused of setting it up for his own newly created legal firm, The Lawsky Group. The group is said to be working directly with cryptocurrency and online security so its not a very far fetched allegation. However in an interview with American Banker Marc Hochstein Lawsky denied this accusation from the community. Lawsky says since leaving his post he is unable to work with anything BitLicense related which is against the law. Covering his recent resignation in the interview he does counter this argument, although it raises the question of his prior work and huge pushing for the license itself which seemly looks rather crony to the eyes of many Bitcoin supporters. Lawsky told Hochstein:

“The rules are very clear. I can't work at all for life on anything I ever worked on. If anyone said 'I want to hire you to help get a BitLicense from DFS', no can do.”
— Ben Lawsky Interview

Given that Lawsky in the same rebuttal still said he would work with Cryptocurrency related situations he had left himself a loophole in regards to the law he created. With the clock ticking faster towards August 8th many wonder if more businesses will refuse to operate with New York. It seems that regulations created by the BitLicense and Lawsky’s team are far too harsh for some companies to deal with.

The data collection is believed by the community to be unethical. With revelations given by Edward Snowden it's no wonder why the public is not too pleased with data collection this day in age. Cronyism as well is rampant in this country perverting capitalism in the worst of ways. The mixing of corporation/business and law is very crony when its meant to help the creators of the License. The community is not happy with Lawsky creating a handbook of laws created by fallible men and then suddenly starting a cryptocurrency law firm and his denial was not well received. It will be interesting to see what businesses use Lawsky's new legal firm or if he becomes boycotted in the same fashion as his recently created BitLicense.

“Financial regulators and policymakers need to recognize that when it comes to digital currencies and other new payments technology – the genie is already out of the bottle.”
— Ben Lawsky BitLicense Speech June 3, 2015

Eyes are watching for more companies to follow suit with Shapeshift, and Poloniex’s measures. The Genie is out of the bottle, yet many Genies are also leaving the bottle of New York state and its heavy regulation. Other harsher regulatory states such as California is also looking to enforce law on the virtual currency as well.

Do you think the BitLicense is cronyism? Let us know in the comments below.

Images courtesy of Shutterstock, reddit and Redmemes

Bitlicense: Implications on Bitcoin's Credibility

The New York State Department of Financial Services, or NYDFS, has constructed a regulatory framework for Bitcoins. This 40 page document outlines New York's Financial Policy for businesses that receive, transmit, store or convert Bitcoins. With the directive of New York Department of Financial Services, Bitcoin’s dark web association might dissipate but only to the degree of consistency in which Bitcoin is regulated.

Government intervention could increase Bitcoin's trustworthiness in the eyes of the consumer. Since the beginning, Bitcoin has been heavily associated with illegal transactions. While the deep web’s initial adoption of Bitcoin led to its growing popularity, the negative sigma attached to Bitcoins has destructively impacted its growth. Bitcoin has is advantages and disadvantages but the general populous has only been exposed to the material of its application within the dark web.

Spector of Silk Road

The largest and most popular deep web site, Silk Road did $200 million of business in 28 months. This site among others helped popularize Bitcoin and influenced the conversion price to soar to unprecedented levels of around $1000 per coin. As expected, the currency suffered after the government shut down the Silk Road marketplace, sentencing the founder, Ross Ulbritch to life in prison. News sites have been flooded with news of his conviction on charges of money laundering, distribution of controlled substances and commissioned murder. With the media magnifying Ulbritch's charges, Bitcoin was under more scrutiny than ever before; this only poured salt on Bitcoin's wounded reputation.

With Bitlicense's, Bitcoin's application in illegal transactions has the possibility to be significantly reduced or even ousted. Bitlicense requires companies to report suspicious behavior to the NYFSD but in reality the majority of hindering illegal transactions will come from the verification and recording process. In Section 200.15 of the Anti-money laundering program, Bitlicense requires the following:

In addition to customer verification, Bitlicense requires the company to record the following information for each transaction the company executes:



-Date and Time
   -Amount
   -Names involved in the transaction
   -Account Numbers
   -Physical Addresses

As deep web users want to keep their identity anonymous, these policies will discourage New York individual’s from transferring Bitcoins to shady third parties. As a result, the affiliation between Bitcoin and the dark web will diluted.

With government sectors starting to take Bitcoin more seriously, its legitimacy is maturing. However government inconsistencies could curb the improvement that Bitlicense has on Bitcoin's credibility. Bitlicense directly undermines the Internal Revenue Service's policy of treating Bitcoin as property. In Notice 2014–21 IRS Virtual Currency Guidance under Frequently Asked Questions, Bitcoin is explicitly defined as property and not currency, as shown below.

The importance of government consistency cannot be overlooked. If Bitcoin has the potential to become a uniform global currency, then Federal and State agencies need to be in agreement with one another.



Although Bitcoin's attractiveness stemmed from being an unregulated form of currency, Wall Street players such as Goldman Sachs, Nasdaq and NYSE have acknowledged Bitcoin’s legitimacy. Such acknowledgments don’t go unseen, regulative government action was inevitable. The Department of Financial Service’s intervention could help accelerate Bitcoin's acceptance to fulfill its potential of becoming a uniform global currency. Be that as it may, inconsistencies in government policies can reduce the credibility government association has on Bitcoin while complicating the general public's interpretation of Bitcoins.

What do you think about BitLicense's invasive requirements?

Image Source: NYDFS Steven deCsesznak

Ben Lawsky's Revolving Door

BitLicense is extremely controversial in the Bitcoin community. Not only is it the first comprehensive body of Bitcoin regulation in the United States, but it is also the most restrictive. BitLicense was created by the New York Department of Financial Services (NYDFS), with Benjamin Lawsky -- the Department’s superintendent -- leading the charge.

Also read: FBI Director Calls for Decryption Tools to Combat "Going Dark," Bitcoin Users Affected

The Bitcoin community has vilified Lawsky because of his leadership role in BitLicense. Since the beginning, Lawsky and his associates at the NYDFS have touted their ability to engage with the community and produce safe legislation that preserves innovation in New York’s digital currency space. However, the community sees the Department’s actions in a different light. Bitcoiners admonish Lawsky for being stubborn and inflexible, failing to seriously take their opinions into consideration. These sentiments are not without reason, either; although BitLicense has been revised twice, most of the major stipulations that irk the community are still firmly in place in the final draft.

What’s more is that Lawsky has recently announced his plans to leave the NYDFS and start a private consulting firm in the near future. What will he be consulting on? Naturally, Lawsky’s firm will focus on helping digital currency companies navigate New York’s virtual currency regulatory environment -- the one Lawsky created.

This move has made Lawsky out to be even more of a Bitcoin villain. Not only did he oversee what many people consider to be the death of Bitcoin in New York, but now he is trying to profit from it in the private sector. Given that a large bulk of the digital currency community come from libertarian backgrounds, there is a lot of outrage surrounding the construction of Lawsky’s revolving door.

BitLicense alone is bad enough. It’s requirements are so restrictive and its reach is so extensive that it could affect the entire US Bitcoin economy -- and possibly digital currency businesses across the world. The bloated regulation has already claimed its first victims; ShapeShift and Eobot have cut off their services to New York, and BTCGuild is shutting down completely -- citing BitLicense as a partial reason.

These initial service suspensions and closures is grim foreshadowing of what faces the New York digital currency economy. BitLicense is so restrictive that only the biggest, wealthiest, and most well-connected Bitcoin companies will be able to operate in New York -- whose large, finance-driven economy otherwise offers a promising Bitcoin market. Even if smaller companies do manage to meet BitLicense’s requirements, the cost of doing so will put them at a marked disadvantage against larger competitors with more resources and influence.

Now, Lawsky is adding insult to injury by injecting a layer of cronyism into an already depressing regulatory landscape in New York. Of course, the idea of giving compliance guidance to budding businesses is not bad; if there must be regulation, people might as well help each other navigate it. However, Lawsky is offering advice on how to deal with the burden that he created.

The moral implications of such an action are undoubtedly questionable. As mentioned above, it is one thing to help fellow entrepreneurs navigate an unfortunately brutal regulatory environment. But to profit from the very burden that you orchestrated is under-handed, greedy, and morally and politically corrupt. Intentionally or not, Lawsky is making Bitcoin businesses worse off for his own personal gain. If Lawsky truly wanted to help firms in New York, he would have fought for their freedom to innovate instead of profiting from their struggle and misery.

With this new consulting firm, the possibility of a cronyist and elitist Bitcoin economy in New York is much more likely to come to fruition. Essentially, Lawsky is providing the top firms with a direct link to the NYDFS. With his political connections and intimate knowledge of BitLicense, Lawsky is equipped to open the floodgates for companies that wish to use the law against competitors. In public choice theory, this phenomenon is known as regulatory capture, where private firms use their resources to influence the government in their favor.

Unfortunately, Lawsky’s questionable transition from the public to private sector is nothing new, It happens all the time in the mainstream economy. Regulators spend several years crafting new legislation or beefing up existing laws only to take jobs helping companies get around those same rules. Then, after a few more years, they reenter the bureaucracy and get to work making the web of regulation even more ensnaring. Banking, health care, agriculture, energy, or anywhere else, the revolving door exists wherever there are rules telling firms what they can and cannot do.

Of course, there must be some balance between ensuring that customers know what they’re buying and avoiding suffocating companies with rules. However, attempting to strike that balance means that there will always be predators around to derive personal benefits from the laws. It is discouraging that politicians and bureaucrats seem to desire that personal gain more often than wanting to preserve that balance between anarchy and intervention.

How can we achieve the right mix of regulation and laissez-faire without creating the revolving door? Public choice economists have tried to find an answer to that question for decades, and so far it seems like they have been unsuccessful. Maybe it’s impossible to get the perfect mix, perhaps we just have to accept the fact that there will be corruption and cronyism as long as the government tries to tell people what to do.

But maybe it’s possible that laissez-faire is better than a system of corrupted consumer protection. Although it isn’t politically feasible, experimenting with a hands-off approach might reveal that the spontaneous order produces market-based consumer protection. If such experiments confirm that hypothesis, then the antics of Lawsky and countless other bureaucrats will be rendered unnecessary. Whether or not we will ever get to conduct free market experiments, though, remains to be seen.  

What do you think about Lawsky's plans to create a private BitLicense consulting firm? Let us know in the comments below!

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Disclaimer: The views are of the author and not necessarily those of Bitcoin.com
Images: Pixabay, Wikimedia Commons