How to prevent New York from becoming a roadblock to the development of Bitcoin in the United States

In the eyes of Joi Ito, leader of the MIT Media Lab, virtual currency will be the technology with the most development potential in the next decade.

In recent years, start-ups specializing in virtual currency technology have received a lot of capital, and venture capitalists have provided these start-ups with more than $600 million in funding. In addition to these start-ups, laboratories of large companies such as UBS, IBM and Intel are also researching virtual currencies, hoping to drive the development of virtual currencies.

Among the many virtual currencies, the most famous one is Bitcoin. People can use this virtual currency to transfer money without the help of a bank; they can also use it to write simple, enforceable contracts without the help of a lawyer; and of course as a form of currency, people can also use it to buy physical goods, from small things like football tickets and concert tickets to real estate. Using Bitcoin to buy virtual goods is even easier. And for ordinary users, the biggest advantage of using Bitcoin is the ultra-low transfer fees, which can sometimes even be ignored.

Many people believe that Bitcoin will have the same impact on us as the Internet has on traditional industries, and it will challenge existing regulatory rules. And with ultra-low transfer fees and the increased trust between people in online transactions, it is likely to drive the total amount of e-commerce to continue to rise.

As with other emerging technologies, it is not yet clear how Bitcoin and other virtual currencies will be regulated.

But one thing is certain, that is, if we formulate good regulatory rules, more virtual currency companies will receive investment, which will create more jobs and provide consumers with faster and safer financial services in the future.

This month, New York State Department of Financial Services (NYDFS) Director Benjamin Lawsky will introduce a new regulatory rule called BitLicense. This regulatory rule will address a series of issues in the development of Bitcoin, such as helping consumers prevent online fraud, money laundering and other improper virtual currency activities.

New York can be said to be the "first bird" of the virtual currency regulatory mechanism. The regulatory rules they specify, whether good or bad, are bound to become the model of other states in the United States. If this is true, other states will copy New York's regulatory rules, then Bitcoin companies will face many regulatory obstacles, and only a few Bitcoin companies with the most abundant funds will be able to survive this regulation. And the reason they survive is not how good their products and services are, but because they have access to the most capital.

In my opinion, the BitLicense has four very important shortcomings that may have some unintended consequences.

Regular upgrades? No!

Regular application upgrades are a very exciting and practical feature. Regular application upgrades can bring more features to users and continuously improve the security of applications. Some well-known applications will make small upgrades and improvements to the application every once in a while, such as Facebook, which will be upgraded every two weeks to improve the user experience.

However, Bitcoin applications will not enjoy this treatment. The new regulatory rules stipulate that new versions of applications cannot be installed on ordinary users' phones before obtaining the consent of NYDFS. In other words, if Bitcoin companies want to upgrade their applications, they must first submit the applications to NYDFS for review. The consequence of this is that the speed at which users are exposed to new functions will be slowed down. This will also affect the development of Bitcoin in New York.

Even financing needs approval

For entrepreneurs, finding investors and successfully obtaining financing from them is already a very difficult thing. BitLicense will make it even more difficult. BitLicense stipulates that when Bitcoin companies raise funds, if the capital invested by investors exceeds 10% of the company's total assets, they must obtain the consent of NYDFS.

If the other 50 states follow New York's lead, it would mean that all Bitcoin businesses across the country would have to go through longer financing cycles, slowing down their product development and innovation.

You need both licenses.

Would you like to dip your French fries in ketchup and then mustard?

Unfortunately, NYDFS stipulates that Bitcoin businesses must dip their fries in ketchup and mustard. They stipulate that Bitcoin businesses must obtain two licenses at the same time: a payment transmission business license and a Bitcoin business license BitLicense. Almost everyone can see how much overlap there is between these two licenses.

Although it may not seem like a big deal to obtain two licenses at the same time, if all states in the United States follow this practice, it means that if entrepreneurs want to operate in all states, they will have to apply for 100 licenses!

The regulator is wrong

Some private enterprise e-wallet software will control the assets in the wallet. This is usually not the case with open source e-wallets.

When students or developers create an open source electronic wallet, if the electronic wallet itself cannot access the assets of the user community, then it should not be regulated. If they are also subject to regulation, it will affect the development and innovation of software, resulting in only private enterprises willing to make such software because they have enough funds to deal with regulation. When there is a cyber-funded crime, law enforcement agencies will not go to the open source community to find criminals, but will go to the Internet Service Provider (ISP) to find the most troublesome, because the Internet is where the crime occurs. BitLicense is indeed regulating Bitcoin wallet software, not ISPs, so it can be said that their regulatory targets are fundamentally wrong.