BitLicense Part 1 - Can Poorly Thought Out Regulation Drive the US Economy Back into the Dark Ages?
An Op-Ed piece penned by Veritaseum Chief Contracts Officer, Matt Bogosian
This past weekend (despite American Airlines' best efforts), Reggie and I made it to the Second Annual North American Bitcoin Conference in Chicago. While there were some very creative (and very ambitious) ideas on how to try to realize the disruptive Bitcoin protocol, one of the predominant topics of discussion was New York Superintendent of Financial Services Benjamin Lawsky's proposed Bitcoin regulations (the BitLicense proposal) - percieved by many participants at the event as an apparent attempt to regulate Bitcoin out of existence.
Even assuming that the entities sought to be regulated under the (seemingly draconian) BitLicens[ing] proposal qualify as "financial services institutions" (which I think is tenuous and highly debatable), to say that the proposal is in violation of New York's statutory mandate, "[t]o encourage, promote and assist ... other financial services institutions to effectively and productively locate, operate, employ, grow, remain, and expand in New York state ... [and] ... [t]o establish a modern system of regulation, rule making and adjudication that is responsive ... to the needs of the state's consumers and residents," (NY Fin. Svcs. Law, § 102(a), emphasis mine), is not only an understatement, it's probably totally irrelevant. Courts typically (and perhaps frustratingly) don't second guess legislators and regulators on whether their laws have any correlation to any stated goals, even if those laws have the exact opposite effect of what was alleged as intended. Instead, courts leave that to the voters, effectively saying, "If you don't like the law, change the legislator," and we all know how effective that is.
In other words, Orwell was (still) right. The stated purpose of BitLicenses is not corollary to the apparent purpose - which is to maintain the status quo. Status quote doesn't contemplate disruptive innovations like the blockchain. Unless and until a higher authority intervenes (with higher authority potentially defined as you - the reader, the consituency and particularly the avid and concerned social media user) Lawsky's proposal, if achieved, will quite likely end (or at least drive underground) the most significant economic and technological breakthrough known to this century, not only in New York, but very likely the United States.
Imagine if Lawsky had been Superintendent in 1994. Imagine that (for whatever reason) Lawsky felt compelled to frustrate the dissemination of another set of disruptive innovations known as the Internet Protocols.
By analogy, imagine that he proposed a regulatory scheme known as "PacketLicense", wherein anyone routing IP packets that arrived at or passed through devices located in or belonging to residents of New York had to acquire a PacketLicense (unless they were a New York bank, or a retailer incorporated in New York), which (in small part) involved fingerprinting everyone employed by the owner of the device, or any affiliate of that owner. In retrospect, we would laugh at its absurdity, and likely recoil in horror imagining the economic Armageddon such a regulation would cause.
But that is precisely what Lawsky is trying to do with the blockchain. Others have provided extensive treatment on various parts of the proposal. Over my next few posts, I will add my voice to that chorus by providing detailed analysis (and possible fixes) for some of the requirements that I find particularly bothersome. Stay tuned.
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