“We understand, and to a degree, empathize with state regulators who are tasked with writing and enacting laws to protect their constituents. But more often, we hear the voices of those who believe that state regulations have very little to do with protecting people and see the impending Bitcoin regulations only as a means to control and reap profits for their respective states. As with the birth of most regulations, the truth is probably somewhere in the middle. If we had the regulators’ ear on the topic, we would want to get across the point that much like any industry, cryptocurrency has businesses of all shapes and sizes as well. BitLicense was not written with small businesses in mind,” said D’Agosta.
Furthermore, the current “version” of BitLicense requires Bitcoin startups and exchanges to meet a long list of qualifications before they can be licensed to operate legally. For most small exchanges and startups, it is extremely difficult to meet all the requirements and comply with the set of regulations detailed in BitLicense.
Including Poloniex, three bitcoin startups have shut down their operations in New York during the past few months and declined to comply with BitLicense, a set of rules that restricts operations of Bitcoin exchanges and demands startups to pay fees to operate legally.
Poloniex, a U.S.-based cryptocurrency exchange, has left New York due to the restrictions and limitations of the state’s BitLicense.
Impact on Users
For a relatively small exchange or startup like Poloniex, BitLicense’s requirement for Bitcoin startups to pay a $5,000 non-refundable application fee to operate and continue their services in New York is not an easy demand to satisfy.
“In the case of BitLicense, once you pay the application fee, you’re then facing a long list of requirements that would disqualify most small businesses,” D’Agosta said. “As a result, we find ourselves in No Man’s Land, where we very much want to service our New York customers, but we are not big enough to qualify for a BitLicense.”
“There are always pros and cons to regulations like BitLicense, but from a small business perspective, BitLicense is both limiting and frustrating,” Poloniex founder Tristan D’Agosta told Bitcoin Magazine. “For a small business like ours, a $5,000 non-refundable application fee is a nonstarter. Consider what would happen if every state in the union followed suit – it would cost $250,000 just to apply for licenses in all 50 states.”
The BitLicense drafted by The New York Department of Financial Services requires exchanges to “protect” customers by recording sensitive user data and provide the information to law enforcement when demanded. Ironically, ShapeShift founder Eric Voorhees stated that such “protection” leaves any bitcoin or cryptocurrency exchanges vulnerable to data breaches and hacking attacks, which may leak sensitive customer data.
While the number of Poloniex users in New York isn’t as high as other states, “given that we are a relatively small exchange that prides itself in the relationships we build with our community of users, the impact on us is big and noticeable,” said D’Agosta.
Coin Center Executive Director Jerry Brito told Bitcoin Magazine that Poloniex’s decision to shut down in New York is one he expects to see repeated in the industry. “It’s no surprise that small companies are ceasing operations because they can’t afford to go through the licensing process. A clear, certain, and graduated on-ramp for startups could have prevented this, but the final BitLicense only has a discretionary transitional license which is probably too uncertain for startups and investors to plan around.”
This article has been updated to provide a full quote by Tristan D’Agosta in its proper context. Bitcoin Magazine apologizes for the error and omission.
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