How New York state wants to regulate bitcoin

New York has proposed new regulations to the online currency bitcoin, making it the first such state to address the cryptocurrency at a government level. What bitcoin regulations will New York lawmakers want to adopt? 

Benoit Tessier/Reuters/File
A Bitcoin (virtual currency) paper wallet with QR codes and coins are seen in an illustration picture taken at La Maison du Bitcoin in Paris July 11.

The era of bitcoin regulation is finally upon us. 

On Thursday, New York became the first state to propose regulations to the online currency bitcoin.

Benjamin M. Lawsky, the superintendent of New York's Department of Financial Services, announced a plan to create regulations for bitcoin companies based in the state. Bitcoin business that buy, sell, and store bitcoins would be required to have a license and follow all of the new regulations. The rules come as an attempt by New York lawmakers to crack down on the buying and selling of illegal goods and money laundering using the cryptocurrency. Customers who use bitcoins to buy goods don't need to worry: A license for simply using bitcoins isn't necessary. 

The plan, known as "BitLicense," includes rules for consumer protection, prevention of money laundering, and cybersecurity. BitLicense also includes mandatory background checks and regular inspections for businesses. 

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation," Mr. Lawky said in a statement. "Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”

Regulating bitcoin still has a long way to go, and New York can only do so much. But Lawsky said he hopes that New York sets a precedent for other states.

“I think ultimately, these rules are going to be good for the industry,” Lawsky told The New York Times. “The question is if this will spread further.” 

New York regulators have been working on the proposed regulations for a year. Before the regulations are finalized, there is a 45 day public comment period, starting July 23. After that, the DFS will make any necessary changes. 

Bitcoin is a form of virtual currency that was created by programer Satoshi Nakamoto in 2009. The currency has become popular amongst some in recent years. Well known stores, like online retailer Amazon, have begun to accept the cyrptocurrency as payment for goods and services. BitPay, a bitcoin exchange, is even sponsoring an NCAA football bowl game this winter.

Though it is gaining in popularity, it has a long way to go before it becomes mainstream tender. Earlier this year, the Internal Revenue Service said that bitcoin is not a currency, but a form of property. 

New York's move to regulate the exchange and use of bitcoins is a move to gain the trust of customers, but the online currency is still extremely volatile. Earlier this year the price of bitcoin fell 67 percent after Mt. Gox, the largest online exchange, declared bankruptcy. Until the volatility is figured out, it could be hard for it to gain the trust of the average consumer.

“Bitcoin businesses in the US have been looking forward to being regulated,” Gil Luria, an analyst at Wedbush Securities, told The New York Times. “This is a very big important first step, but it’s not the ultimate step.”

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