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Virtual Currency Clashes With The Real World

Sunday, 27 Jul 2014 05:35 AM

Bitcoin

By Dino Londis (Invests.com) – Last Thursday, the Superintendent Of Financial Services for the state of New York, Benjamin M. Lawsky, proposed regulations for virtual currency companies operating in the state. Lawsky proposed a “BitLicense” plan, which includes rules on consumer protection, the prevention of money laundering, and cybersecurity. It is the first such proposal by a state to create guidelines specifically for virtual currency.

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation,” Lawsky said in a statement. “Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”

The proposed Department of Financial Services (DFS) DFS BitLicenses will be required for New York firms engaged in the following virtual currency businesses:
- Receiving or transmitting virtual currency on behalf of consumers
- Securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers
- Performing retail conversion services, including the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency
- Buying and selling Virtual Currency as a customer business
- Controlling, administering, or issuing a Virtual Currency (This does not refer to virtual currency miners.)

As capital protection, New York companies would have to hold the same amount of virtual currency as they owed to their customers. But unlike banks, which are also subject to capital requirements, these companies would be allowed to hold some of it in virtual currency.

This kind of overhead will add servicing costs to Bitcoin and it’s uncertain how the costs will be passed on to customers. It’s also unclear how this will affect Bitcoin’s adoption in New York. Startups might incorporate elsewhere.

Still those kinds of protections would have helped the one million customers who were storing their Bitcoins at Mt. Gox. Once the largest exchange, Mt. Gox filed for bankruptcy and shuttered its virtual doors in February after it announced that it has lost $409 million.

This week, customers’ hopes of recovering some of their losses were dashed when the U.S. District Court for the Western District of Washington prevented the sale of “bitcoins.com.”

Responding to a motion by Bitcoin startup company CoinLab – which has been tangled in litigation since last May when a partnership soured – the court ordered Mt. Gox parent company Tibanne to preserve and account for all its assets. Coinlab wants the domain.

Mark Karpelès, former CEO of Mt. Gox, was hoping to recover $750,000 from the sale of the domain.

“I am really sorry for what happened and will do my best to make the outcome of the bankruptcy as best as possible,” Karpelès told The Wall Street Journal. “I really hope everyone recovers what they lost and that the culprit is caught,” he said.

The next meeting, including an update on the bankruptcy process, will be held in November.

Follow the DFS tweets @NYDFS. Superintendent Lawsky’s Twitter handle is @BenLawsky.

Bitcoin is currently trading at $599.

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