One of New York's top financial regulators is laying out a new policy on Bitcoin and other virtual currencies after a flood of public feedback encouraged the agency to scale back its proposed rules.
New revisions to the proposal would trim some requirements on Bitcoin-related businesses, and clarify others. Among the key changes? Companies covered by the regulations will no longer be required to store the addresses of every person involved in a Bitcoin transaction — an idea privacy hawks have said would deter people from adopting virtual currencies. Now, companies regulated by New York's so-called BitLicense will only be required to gather transaction information from their own customers, said Ben Lawsky, New York's superintendent of financial services, at a Washington conference Thursday.
In addition, covered companies will only have to store that information for seven years, down from the 10 years Lawsky's agency, the department of financial services, was previously considering.
"Virtual currencies really sit at that crossroads of the much more lightly regulated tech sector and the more heavily regulated financial sector," said Lawsky, who added that all financial companies ought to be supervised to "ensure that consumers' money doesn't just disappear into a black hole."
That said, the new rules will be clarified to cover only those companies that actually engage in sending money from one place to another, said Lawsky. They won't apply to software companies that offer consumers Bitcoin "wallets" where they can store their digital cash. Nor will the rules apply to retailers that simply take bitcoins as payment for goods and services. Private individuals who "mine" or invest in bitcoins won't be required to apply for a license from the state government, either.
All this is great news for Bitcoin proponents, many of whom feared that too many rules on virtual currencies would strangle an innovative new payment method in the crib. Some advocates would probably prefer to see even weaker regulations. But many in the industry acknowledge that some rules are necessary to enhance Bitcoin's legitimacy, to prevent fraud and to ward off catastrophic implosions similar to the one that befell the popular bitcoin exchange Mt. Gox earlier this spring.
Once they're officially published, the new proposed rules will be subject to a new 30-day comment period where members of the public can weigh in on the idea. Lawsky said the last round of feedback drew more than 3,700 comments.
"I'm sure that the new draft is better than the old draft," said Jim Harper, a senior fellow at the Cato Institute who's studied virtual currency issues. "The remaining question is going to be whether it's good or not. … The thing to look at is, 'Will it create consumer confidence more than it undercuts innovation?'"