First US Cybersecurity Bill Would Hinder Bitcoin Companies

New York Governor Andrew Cuomo and the New York Department of Financial Services (NYDFS) have officially announced the first cybersecurity proposal in the United States, aimed at protecting consumers and financial institutions. Once the proposal takes effect, it will affect all financial license holders in New York State, including Bitcoin companies holding BitLicenses.

Once the 45-day notice and public comment period has passed, the proposal will be officially enacted and all regulated financial entities, including Bitcoin companies, will have to comply with the following provisions:

Develop a cybersecurity plan; adopt a written cybersecurity policy; appoint a chief information security officer to be responsible for implementing, monitoring and enforcing the plan and policy; ensure that relevant policies and procedures are sufficient to ensure the security of information systems; non-public information may be obtained or held by third parties; other provisions that are conducive to confidentiality, authenticity and availability of information systems.

Negative Impact on Bitcoin Startups

Bitcoin companies, including exchanges and wallet providers, have been struggling to obtain expensive BitLicenses from the Financial Services Administration in order to continue operating in New York.

If the new cybersecurity law goes into effect, Bitcoin companies will need to spend a lot of money to comply with the corresponding legal provisions. This includes hiring a chief information security officer and implementing various government-required financial security plans and frameworks.

To obtain a BitLicense, Bitcoin companies must provide all personal sensitive data to law enforcement to comply with Know Your Customer (KYC) regulations. This cybersecurity proposal will force Bitcoin companies to store more sensitive user data on their private servers and databases. This will make their entire platform, software, system or app vulnerable.

More importantly, the US government has never been good at handling confidential data (government agencies have been hacked frequently). However, Maria Vullo, head of the New York Financial Services Department, said:

Consumers must have confidence that the financial institutions they choose will protect and appropriately handle their sensitive, nonpublic information.

No one knows whether the proposal will be passed. However, we can imagine that no matter how controversial the proposal of the New York Department of Financial Services is, the government will eventually pass it regardless, just like BitLicense at that time.

As New York State introduces more regulatory policies and an inappropriate financial framework, the pressure on Bitcoin companies to continue their core operations in such an unfair ecosystem will only increase.