“What is the difference between a pure software play and a custodial wallet? What kinds of exchanges do act as custodians? These are highly fact-specific questions, and the way that the BitLicense is drafted — for better or for worse — it seeks elasticity. It wants to be flexible. I think that’s, on one side, good drafting. On the other side this speaking in metaphor makes it difficult to apply.”
Fitting a Round Peg in a Square Hole
The problems associated with stifling innovation through regulation were also brought up by Winkelspecht during this part of the conversation. The Gem CEO explained some of the issues that small startups face when it comes to regulatory uncertainty in the Bitcoin industry:
Regulation has always been a contentious issue in the Bitcoin industry. Some members of the community wish to avoid any regulation at all costs, while others want to work closely with regulators to bring clarity to the space as soon as possible. A panel on Bitcoin regulation was recently featured at the American Banker Digital Currency Conference, and it was during this discussion that GemCEO Micah Winkelspecht, Chainalysis VP of Business Development Jonathan Levin,Chamber of Digital Commerce President Perianne Boring, and Bitcoin FoundationRegulatory Affairs Committee Chairman Marco Santori were able to discuss the various challenges for Bitcoin startups in the face of impending digital currency regulations around the world.
Photo BTC Keychain / Flickr (CC)
One of the clearest signs that Bitcoin is difficult to regulate is the elasticity with which the regulation was drafted. As Santori mentioned, there may be unique situations where it is unclear whether or not a startup needs a BitLicense.
“When you think about this new definition of what it even means to own something, it totally transforms the way we think about solving these problems. One of the problems that we have with the regulations the way they’re written is that they’re really geared for trying to fit a round peg in a square hole, in that they don’t take into account the fact that the entire definition of custody and control can change. And so, what does custody or control mean?”
For now, it appears there is plenty of work to be done in creating more regulatory clarity for Bitcoin companies and ensuring that innovation is not halted in the name of various legal costs.
It’s difficult to force Bitcoin into the current legal framework because, as Winkelspecht noted, certain aspects of the peer-to-peer digital cash system may require completely new legal definitions. Winkelspecht provided one such example during the panel discussion:
The BitLicense has been the center of attention when it comes to Bitcoin regulation since it was first announced by Former Superintendent of Financial Services for the State of New York Benjamin Lawsky, so it made sense that it was used as an example piece of regulation throughout the panel discussion. During an early portion of the conversation, Santori offered his thoughts on one of the core issues with the BitLicense, which is the broad nature of the language found in the regulation:
Winkelspecht took the issue of broad regulation in another direction when he discussed multi-signature addresses. After explaining what multi-sig addresses are and what they can accomplish, he noted how this kind of innovation could force changes in various legal definitions:
Is the BitLicense Too Broad and Flexible?
“We’ve actually pushed — so for the legislation in California — we’ve actually written to the senate to try to get them to add a line, which just defines what they mean by custody or control. That was actually left out of the recent legislation.”
Boring discussed ways in which a nonprofit incubator could bring along smaller new businesses before they had the ability to comply with the BitLicense. The Chamber of Digital Commerce had submitted the incubator idea to the New York Department of Financial Services as a possible solution to the regulatory issues troubling Bitcoin startups during the second comment period for the BitLicense, but the concept was never rolled into the final draft. During his own remarks, Winkelspecht went out of his way to support Boring’s suggestion.
“It’s still very, very murky and very unclear, so from a startup company who’s trying to figure out where you fit in the eyes of the law, it’s very difficult . . . Not having that level of clarity makes it extremely hard to do things like raise investment and actually try to build a sustainable business around it . . . We work every day with brilliant developers who are building solutions, and these are the guys who are actually innovating on things. They need the flexibility to try a lot of things and fail at a lot of things. If you raise the bar of what it takes to just get started, you are massively decreasing the innovation that’s going to come out of that space.”
Raising Startup Costs Decreases Innovation
Coinbase Adds First Ethereum Token to Professional Trading Platform
Crypto exchange startup Coinbase is adding the 0x protocol token to its professional trading platform, Coinbase Pro.
Announced Thursday, the exchange said in a blog post that it had begun accepting
SpankChain Says Hacker Returned Stolen Crypto Funds
A hacker who stole 165.38 ETH from the SpankChain platform has returned the funds.
The payment platform focused on the adult industry announced Thursday that the hacker, who stole the funds from th
Korea's Largest Bitcoin Exchange Sells Stake in $350 Million Deal
Bithumb, currently the largest cryptocurrency exchange in South Korea by trading volume, just confirmed it has sold more than 38 percent of its total ownership to a blockchain consortium based in Sing
Nevada's Utilities Agency Eyes Blockchain for Energy Credit System
The Public Utilities Commission of Nevada, a government agency charged with supervising and regulating power utility services in the state, is looking to implement blockchain for its energy credit tra
Fake News Site Used New Zealand Prime Minister to Pump Bitcoin Startup
A fake news site has used the likeness of New Zealand Prime Minister Jacinda Ardern to promote articles on Facebook aimed to pump a crypto startup.
Local media source Stuff reported Friday that sev
FinCEN Blasts Iran's 'Malign' Use of Crypto to Bypass Economic Sanctions
A U.S. regulator is urging domestic exchanges to help prevent the Iranian regime from using cryptocurrency to bypass economic sanctions.
The Financial Crimes Enforcement Network (FinCEN) published
3 Bitcoin Price Factors That Suggest Bears Are in Charge
The prospect of a deeper drop in bitcoin prices has increased, price-volume analysis indicates.
The world's most valuable cryptocurrency, which had been trading sideways since September 22, fell sh
Leading Auction House Christie's to Record Art Sales on a Blockchain
London-based Christie's, one of the oldest and most noted art auction houses in the world, is turning to blockchain tech to securely store sales and provenance data.
The firm, which has a history g