Bitcoin continues on the path toward broader usage this week, as U.S. state governments and IT tech vendors make moves.
The New York State Department of Financial Services (DFS) released its proposed framework for Bitcoin regulation on July 17. The framework involves the proposed BitLicense, which will regulate Bitcoin and other virtual currency services in New York State.
The BitLicense includes a number of key stipulations intended to protect consumers and help prevent fraud. One of requirements is an asset stipulation such that companies that receive the BitLicence have an amount of virtual currency in its reserves that is equal to the amount that is owed. DFS also wants BitLicensed companies to have a bond or trust account to further protect users.
The DFS also wants there to be some form of virtual currency receipt that consumers can get that provides a telephone number of the BitLicense holder so questions and complaints can be lodged. DFS also wants each licensee to have an established consumer complaint policy in place, as well as disclosure on the potential risk of virtual currency use.
Going a step further, DFS also wants each BitLicense holder to be in compliance with an anti-money laundering program that includes the verification of account holders.
All told, on the surface, what the DFS is asking for isn’t all that extraordinary. The idea of having reserves makes some sense and is not unique to virtual currencies. Traditional banks are all required to have reserves and are required by various regulations to have a certain amount of liquidity as well. Protecting consumers and attempting to limit the risks of fraud and money laundering also seem like good ideas that are common attributes of other financial mechanisms, as well.
There are, however, some questions in the Bitcoin community about the DFS rules. Benjamin M. Lawsky, Superintendent of Financial Services at DFS participated in a Reddit discussion on the new rules, which solicited lots of questions. Among the top questions is the issue of who is required to have a BitLicense and when the new regulation will come into effect.
DFS is planning on formally publishing the regulations July 23, which will be followed by a 45-day comment period. The timing of the regulation is also an issue for the Bitcoin Foundation.
“The DFS, of course, took more than six months to put together its BitLicense proposal, and these are New York’s financial regulation experts,” Jim Harper, Global Policy Counsel at the Bitcoin Foundation wrote in a blog post. “It seems like the public—non-experts, including startups and small businesses around the nation and world who might want to serve New York customers—should have at least that long to digest the proposal and comment.”
Regardless of what the DFS actually ends up adopting and when, the rules further serve to legitimize Bitcoin as part of day-to-day business in the financial capital of the world, New York.
Coincidentally, this past week Google started adding Bitcoin pricing to its search index. A simple search like “1 Bitcoin to USD” will now provide users with a Bitcoin exchange rate. Google has been providing its search engine users with conversion rates for physical currencies for several years.
Overall, Bitcoin continues to build momentum and adoption in 2014 despite what could have been an extinction level event in February with the collapse of Mt. Gox.
Mt. Gox, which had been the leading exchange in the world for Bitcoin, collapsed after a hacker attack that robbed it of 750,000 Bitcoins valued at $473 million at the time. The fact that Bitcoin continues to thrive despite that calamity is proof positive that virtual currency and Bitcoin are here to stay.
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.