Bitcoin Foundation vs. NYDFS: The Ongoing Fight for Bitcoin’s Freedom

One of the nice things about Bitcoin’s founder formerly having been a frequent poster on the BitcoinTalk.org forum is that it is quite easy to quote-mine them. One of my favorites has always been this gem:

“We don’t want to lead with ‘anonymous (currency)’… (or) ‘currency outside the reach of any government.’ I am definitely not making any such taunt or assertion.”

Satoshi is right, of course: it’s a dangerous thing to say; the existence of anything, that, in this age of a planet dominated by states and the coalitions thereof, might be uncontrollable by these ruling entities. One might even suggest that the anonymity so desperately clung to by Satoshi is a very strong implication of just how important they found this particular aspect of Bitcoin. While they certainly – certainly – knew exactly how un-anonymous Bitcoin would become, they also knew how easily misunderstood it would be. This is especially true in its infancy, when only the few who dared enter the void would see Bitcoin for what it truly was.

And those who fear the void? They would fight back – they would seek to control the uncontrollable. Regardless of Satoshi’s statement that he was not taunting governments with a currency outside their reach… Bitcoin is outside their reach. They can’t stop it – they can regulate how their citizens use it and seek to prosecute them when discovered; they can even attempt to ban it. But they can’t truly do either. This age of cryptography makes real problems for the state: the resources necessary to capture one individual committed to effective use of cryptographic tools far outweigh the resources available to the state once you consider just how many such individuals there are.

So what is left for governments to do? Some ban it; some others shadow-ban it.

But for the civilized regions of the world? They’ll regulate it, in one of two ways. The first is sensibly; mostly leave it alone, but perhaps write specific tax laws for it, fill in the corner-cases of law where Bitcoin has tread where none have before.

The second is a draconian manner. Regulate it to the point of absurdity and uselessness; make adherence to the law exceedingly complex, make infractions of it punished severely, and include restrictions that greatly limit the technology’s functionality. This is what the New York Department of Financial Services has done – or, at least, what they intend to do. But there’s someone on our side; on the side of technological advancement and personal economic freedom.

The Bitcoin Foundation. We may not agree with everything they do (or with how they select their board members), but I hope the community can come together and support their assault on the New York State Department of Financial Services (NYDFS). Today, they published a full comment alongside a blog post discussing the proposed regulations.

They challenge a lot of the key problems with the NYDFS’s proposal. It’s a big piece, so we’re going to try and break it down and cover just the most important points they had to make.

1. “digital” versus “virtual”

Governments have mostly chosen to use the word “virtual” when discussing cryptographically secured peer-to-peer currency networks. This word has a connotation of worthlessness. Digital is a word with a much stronger positive connotation – digital goods and assets can have great value. Music is a digital good, as are e-books. Virtual reality is a fake world. Bitcoin and other cryptocurrencies are more like music and e-books than like World of Warcraft gold – let’s use the right word.

2. Bitcoin should be regulated the same as equivalent traditional financial services.

The BitLicense proposal would regulate a number of services differently if they were handled using Bitcoin as opposed to using traditional systems. This is simple and bare technological prejudice. As the Foundation writes:

“…financial services that are the same from the consumer’s perspective and in terms of risk would be regulated differently simply because they use a different financial technology. Technology-specific regulation of Bitcoin would undercut competition between conventional financial firms and Bitcoin-based financial firms, depriving New York consumers of the quality improvements and price reductions that competition forces on both.”

Succinct and to the point: don’t bully us because we’re new in town.

3. The NYDFS should only regulate Bitcoin’s financial implications – nothing more.

The BitLicense is an incredibly broad set of regulations – so broad that a number of them would apply to non-financial uses of the Bitcoin blockchain. The blockchain has a very large number of potential uses, most involving the secure and decentralized storage and verification of various kinds of data. If the BitLicense restricts these uses, then the NYDFS is clearly overstepping their boundaries.

4. The BitLicense is a relatively clear violation of the Fourth Amendment protection against unwarranted searches.

The BitLicense requires Bitcoin businesses to perform, in the Foundation’s words, “detailed financial surveillance of their customers simply because of the possibility of future government investigations.” This runs counter to our legal system – innocent until proven guilty – and also counter to the Fourth Amendment, by requiring searches be performed without any suspicion of wrongdoing.

5. Show us the research.

The NYDFS has yet to release their intensive research and analysis that led to the creation of the proposed BitLicense. They originally claimed they would release it when the BitLicense proposal was released, but it now appears to be delayed until well after the License would be in effect – rendering it useless for discussion. The BTCF is pushing heavily on this point, and for good reason: we need to see justifications for the proposed onerous regulations. Several of the proposed rules make little or no sense, and the lack of transparency on behalf of the NYDFS has not helped to sway community opinion over the haphazard nature of the regulations – regulations which could use quite a lot of help.

So, what happens next? Only time will tell – but hopefully there will be an improved draft, the full research by the NYDFS will be released, and the comment period will be extended further. Fingers crossed.

Image credits:

Bitcoin Foundation logo – courtesy of Bitcoin Foundation

NYDFS logo – file photo

Bitcoin image – file photo