If the gov man starts harassing me ... this is why: August 5, 2014 DFS Office of General Counsel - Dana V. Syracuse, New York State Department of Financial Services, One State Street, New York, NY 10004, Greetings Dana V. Syracuse, Money laundering, terrorist financing, and other criminal activities are of grave concern to both Virtual Currency operators and law enforcement organizations. Like old fashioned cash, Bitcoin related technologies can contribute to illicit activity. Neither the business community nor the public want Virtual Currencies to fall into the realm of black markets. Practical and informed regulation is needed in this industry to ensure a safe and accessible experience for all participants. Please know that the distributed computing technologies that make Bitcoin possible are extremely powerful to change the world drastically. We will all have a better outcome if regulators work amicably with the developers of these systems. Because of the shear power of distributed technologies, we need lawmakers to produce regulations which are perceived by all to be fair for all and in the best interest of all. We need smart rule-making that specifically enables innovation, openness, and fairness. These are the traits that have made Virtual Currencies popular in the first place, and it is imperative that the rules governing them inspire the same confidence among all people. Practically speaking, virtual currencies handle worldwide transactions for free. Savings accounts, payments, transfers and trading are all essentially free when done using virtual currencies. As software and services are built on top, these services can and will be made available to the poorest among us for free. Smart, innovative, regulations will help all consumers safely realize that promise sooner. Besides the coming help for consumers, virtual currencies are also perfectly suited for business much the same as web-pages are. Nearly every successful business today has a web presence in some form and no one can argue against the value that web pages have provided both to business and consumers. Every business should have its own digital currency for several practical reasons: to manage coupons, promotions, in store credit, exchanges, and gift cards. In order to fully utilize the benefit of Virtual Currencies, businesses also need the ability to utilize other practical functionality which is offered by digital assets. Many of these new features are currently in early design and implementation stages. Examples include brilliant work that will allow for automated accounting, automated repurchase of inventory, Cut and Paste business models, smart contracts, payroll, etc. A primary concern of the BitLicense regulation is that there are no built in allowances to promote ongoing innovations that promise to streamline a spectrum of business and financial processes. While Virtual Currencies are an amazing equalizing force for both consumers and business, the distributed computing eco-system has already evolved to provide even more business and financial services. Now, whole systems of trust and business relationships are being developed and managed by open source computer code. These systems are fair, transparent, and help all participants get exactly what they were expecting out of any business relationship. Programmers are attempting to build a world where no one cheats because the computing arrangement over which deals are made prevent any participant from cheating. Ongoing development of the underlying distributed computing software systems is crucial to a favorable outcome for consumers in this world. Additionally, when all virtual currency and distributed computing related software is kept open source, these streamlined business activities become just as affordable to implement for Jans Sandwiches as they are for Walmart and Starbucks to implement. A practical example of how the New York BitLicense regulations might harm consumers is as follows: Imagine that a consumer has $1.73 left on 12 different stores gift cards. From personal experience, these cards get lost when the balance drops into that range because its more trouble than its worth to claim that last bit of value. However, with a trade-able store credit and the magic of Virtual Currencies, the consumer is now empowered to trade those (12) random $1.73 cards in for (1) $20.76 card to the store of his or her choice. Of course business owners should have the right to choose whether or not they want to participate, but this arrangement is obviously fair to the consumer who purchased the credits at fair value. Clearly, section 200.3 (c)(2) of proposed regulation is not sufficient to allow small businesses to offer many of the consumer enhancing services which Virtual Currencies easily make possible. Businesses need the freedom to issue their own virtual currency as easily as starting up a web-page, and it is in the best interest of consumers that they be allowed to trade any virtual currency freely. FinCEN made a good common sense adjustment in their regulations on small businesses with regard to the buying and selling of precious metals. For example, as long as a business owner keeps their buying and selling at a hobby level of less than $50,000 per year, they are exempt from licensing. This is a very effective way to let someone design a business model and try it out; if they can make money, they can then seek investors and progress towards full compliance with standard regulatory policies. We can set the expectation that new digital currency business ventures shall be vigilant to prevent their services from being used to launder money or finance terrorists without the costs normally associated with a full KYC/AML program compliance. At minimum, New York should allow for a Bit-Startup-License that costs a reasonable amount, $25.00 per year for example. It should be issued by FinCEN so that there is only one license required nationwide. It should be for businesses who have annual revenue of $250,000 or less and there should be an automatic inflation adjustment since we would want this regulation to be just as practical 25 yrs. from now. The simple, straight forward process of retaining customer identities on accounts could be as simple as keeping a drivers license and utility bill on file. A simple requirement to track large transactions over 10K per day is also manageable. By keeping all of the required processes low cost, simple, and practical, we can prevent money laundering and criminal activity without hindering the amazing innovations that digital currencies represent. As a bonus, we might actually create new jobs in this country where they are needed most. If a state must amend the FinCEN rules it would be most practical for all that they keep the amendments to federal regulation to a minimum; otherwise consumers will incur increased costs and lower quality services. There is a huge cost of lost opportunity which is not considered accurately in the — RIS, a Regulatory Impact Statement which is required by New York law. We small and start-up business owners have friends and family that also see the vision for benefit that Virtual Currencies offer to all of mankind. We are working together to implement these technologies to provide innovative new services that will make peoples lives better. We can work our day jobs and go home at night and learn and program and make these innovations happen. We can do this, and we can do it without big money. When regulations require that small start-up businesses must obtain large amounts of capital to hire teams of people to perform arbitrary regulatory tasks, the natural effect is to prevent these small businesses from ever starting up. The natural effect is to prevent these engines of job creation from ever getting off the ground. What in these regulations will help someone in Jarrell, TX start an international trading company that provides jobs to disadvantaged mothers in South Carolina and Texas and valuable services to the citizens of New York and the rest of America? If there is no help, and if there is no consideration for cost of compliance for small businesses, then all should assume the obvious: These regulations are designed to keep power and money and opportunity firmly in the grasp of the clinched fists of those who have it already. People are desperate for jobs in this country. The people who have jobs are desperate to keep them. The whole of our current financial system is designed to systematically keep the average citizen in desperate conditions. It is designed to keep them working as cogs on a wheel working for the owners of the machines. There is pent up demand to change this, and when the time is right, change will come. The owners of the machines should realize that this is good for all. When people are free to realize their true potential, great progress is made that will benefit all. Would you rather be a king in 1292, or a lowly multi-millionaire today? Uninhibited development of digital currencies will make everyones lives better. Those who desire to keep a stranglehold on money will best serve their own interests by letting go and encouraging this renaissance. All of us will be better off if our current financial system embraces these innovations. Rather than attempt to stifle competition from digital currencies via regulation, the current financial services industry should compete with their own innovations that provide basic banking and investment services to individual consumers for free. People at the lower fringes of our economy are suffering. It is time for changes that are designed to help them succeed. Virtual Currencies, distributed computing, and automated business entities offer opportunity to all who are allowed to participate. To raise the barrier to entry in this field accomplishes no more than to push the poor further into poverty. Furthermore, the BitLicense regulations have failed to accommodate new distributed protocols that are currently in development or that have been recently released. These distributed technologies apply to more than money now. Whole business models will soon be implemented as a distributed computer script; and once those scripts are started, even the issuer has no control from that point forward. If the script makes profit, it will provide whatever service it provides forever. It will pay fees, investors, and vendors as stipulated in the founding instructions which are fairly and transparently programmed into the business model from the beginning. It is mind-blowing what can be done not only in the financial sector, but for all business. Human ownership is no longer required. Competition and constant honing of these scripts will lead to almost all services being delivered to consumers at near cost and many services for free. Fairness and transparency will be built into these systems because trust and reputation are the only real requirements for doing business. Any person who claims an interest in advancing the quality of human life is wise to protect and foster open source software development. Ad hoc, status quo regulations will not serve the common good in this case. It is imperative that these systems remain transparent and fair. If not, the real criminals will find a way to go dark and the general public will be saddled with ongoing economic hardship round the world. Despite the wild west and unregulated nature of Bitcoin, it has created many jobs and opportunity for a variety of people. The community has made every effort to protect its participants from losing money. As with stock market investing, some retail investors lose. The regulated economy does no better; when a company goes bankrupt, it is of little consequence to the holder of common shares when they receive a $2.51 settlement. Consumers are best served simply by warning them and educating them that the virtual currency sector is uninsured and that all invested funds are at risk. The proposed regulations admit that they do nothing to insure customer funds or the value of virtual currencies. Participants should be informed that to participate is to risk full losses. The proposed regulations do nothing to mitigate the risk of full losses, and therefore, the cost of implementing the regulations in their current form is not justified. These proposed regulations are appropriate only for a firm that does want to establish SPIC insurance protection for its customers. Finally, with regards to the prohibition of the release of new virtual currencies; this is not consistent with judicial precedent and should absolutely be removed from the proposed regulations. Open source code is protected free speech. Individuals have a fundamental human right to communicate freely and privately with each other. These proposed regulations will infringe on many peoples ability to freely communicate with persons in the state of New York. Conclusion Please consider withdrawing the BitLicense proposal at this time for the following practical reasons: 1. Virtual Currencies are international endeavours and are regulated more efficiently at the federal level. 2. These BitLicense regulations have no accurate consideration for the costs of lost opportunity from their effective suppression of low capital start-ups in the virtual currency and distributed computing industries. 3. There has been no demonstration of harm done --due to lack of regulation-- to consumers in the state of New York or elsewhere. 4. The application of existing law has been effectively used to curtail unlawful and damaging activities which use virtual currencies. Examples of good use of existing law include a ponzi scheme bust in Texas, the silk road bust, and the bankruptcy case for Mt.Gox. 5. These regulations have no educated provisions for distributed trading and data exchange systems like the NXT Asset Exchange platform, Open Tranactions, Mastercoin, Ethereum, or Maidsafe. 6. These regulations do not comply with previous court rulings. Two federal appeals courts have established the rule that cryptographic software source code is speech protected by the First Amendment (the Ninth Circuit Court of Appeals in the Bernstein case and the Sixth Circuit Court of Appeals in the Junger case). Thank you for taking the time to read these concerns. Sincerely, James Andrews
Posted on: Tue, 05 Aug 2014 20:52:25 +0000
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