
Proposed New York State Virtual Currency Regulations [pdf] - mdelias
http://www.dfs.ny.gov/about/press2014/pr1407171-vc.pdf
======
dmix
Here is a Reddit comment breaking down the proposal:

[http://www.reddit.com/r/Bitcoin/comments/2aycxs/hi_this_is_b...](http://www.reddit.com/r/Bitcoin/comments/2aycxs/hi_this_is_ben_lawsky_at_nydfs_here_are_the/cizyqyz)

~~~
mrfusion
This line saddened me, "In fact, Satoshi would have commited a crime creating
Bitcoin without registration. (200.2n5)"

~~~
bobbygoodlatte
Well, Orville Wright didn't have a pilot's license :)

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zaroth
Wow, this is down in the weeds. E.g.

    
    
      (4)  include procedures for the maintenance of back-up facilities, systems,
           and infrastructure as well as alternative staffing and other resources
           to enable the timely recovery of data and documentation and to resume
           operations as soon as reasonably possible following a disruption to
           normal business activities; 
    
        ...
    
      (3)  Source code reviews.  Each Licensee shall have an independent,
           qualified third party conduct a source code review of any internally
           developed proprietary software used in the Licensee’s business
           operations, at least annually. 
    

A lot of these regs may have started out as Best Practices, but shouldn't
regulations focus on the What, not the How? Also, the right place for these
regs, if we must have them, are under FinCEN at the Federal level. If you
watch some of their presentations, some smart people working there whom I'm
sure would love to tackle this in a way that doesn't create an quagmire of
conflicting and overlapping state regs.

A little passage in some old document about interstate commerce comes to mind.

The great thing about Bitcoin is this only applies to 3rd party companies
wanting to assist you in transferring bitcoin, it doesn't apply at all to
individual transfers between private entities. So this will do a lot to
encourage private wallet software over centralized points of failure and
intelligence gathering. For that, at least, you can thank NY.

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olalonde
> Retained earnings and profits of in invested in US dollars. They may not
> keep any profit in Bitcoin. (200.8b)

Bitcoin businesses cannot keep profits in Bitcoin? This is just too ridiculous
to be true...

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rektide
Rrriiight. Good luck making it past the Commerce Clause, trying to thieve what
is an enshrined Federal power ("To regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes").

Who are these chumps that so enjoy playing with themselves in the public
forum? Why do they think they're not stepping all over the constitution by
imposing burdens on commercial activities that happen to intersect with NY?

~~~
murbard2
They'll have no problem making it past of the commerce clause. The law doesn't
matter, politics do.

The rule of law is not a self-enforcing principle, it's a political
equilibrium built around a consensus. Checks and balances mean that it's
somewhat detrimental to depart from this consensus, which is why it's stable.

However, it's not a very tight equilibrium. The restoring forces are weak, and
they keep weakening over time.

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vinalia
I understand the state's fear after the Mt. Gox fallout but their effort seems
too overreaching. How could they possibly enforce _all_ citizens and
businesses involved in cryptocurrencies to have licenses, hold 10 years of
records, etc.?

OTOH, would there be a way to hold currency exchanges legally accountable
without breaking cryptocurrencies?

There are too many stupid exchanges that scam peoples' coins and this seems
like a barrier to adoption for lots of people. It would be nice to just push
$100 from a bank account into a bitcoin account (like paypal does).

~~~
wcummings
> It would be nice to just push $100 from a bank account into a bitcoin
> account (like paypal does).

Literally coinbase

~~~
wmf
Which may become literally illegal under these new regulations.

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blazespin
Ben Lawsky posts on Reddit:
[http://www.reddit.com/r/Bitcoin/comments/2aycxs/hi_this_is_b...](http://www.reddit.com/r/Bitcoin/comments/2aycxs/hi_this_is_ben_lawsky_at_nydfs_here_are_the/)

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paulrr
Matt Levine has excellent commentary on this:
[http://www.bloombergview.com/articles/2014-07-17/bitcoin-
ban...](http://www.bloombergview.com/articles/2014-07-17/bitcoin-banking-will-
be-boring)

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tjaerv
Erik Voorhees's response, at length:

[http://moneyandstate.com/reflections-right-privacy-
response-...](http://moneyandstate.com/reflections-right-privacy-response-
nydfs-bitcoin-proposal/)

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mrfusion
What happens if the entities aren't based in NY?

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wmf
If they have any customers in NY they need to follow NY laws. This is one of
the problems with money transfer laws in the US.

~~~
_archon_
This is an interesting question and answer. I personally believe that
legislation will be forced to change so that de jure can more closely resemble
de facto... But this will not happen (anytime soon) while NY lawmakers think
they can tax or regulate something.

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random8799
Desperation... haha, Bless their hearts for trying. 18th century paper
proclamations/thinking only go so far as technology progresses...

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fiatjaf
If you thing the State will ever do the right thing then you're wrong.

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innguest
This is absolutely ridiculous.

That some part of "The Government" thinks they can regulate something that is
_not theirs_ is laughable.

They've done (and continue to do) enough harm regulating their fiat currency.
Who gives them the right, and more importantly, how can they be so delusional
to think they can actually regulate something that is built in such a way as
to be regulation-proof?

Where's the torrent regulation PDF? These folks are clowns.

~~~
wdewind
> They've done (and continue to do) enough harm regulating their fiat
> currency.

It is extraordinarily easy to point out how shitty a job the Fed has been
doing from a society that completely depends on it. When you compare how the
American financial system has been doing compared to the rest of the world the
results are astoundingly in our favor.

I find it difficult to understand how Bitcoin enthusiasts can so thoroughly
discount how well our current system actually functions. There are no
questions that there are deficiencies in the current system, but the Btc
community hasn't seemed to even identify what they actually are, much less
propose solutions in any reasonable way.

Propose, for instance, how HSBC would be prevented from laundering money for
literal international terrorists and drug dealers. Or remittances, another Btc
enthusiast favorite: do you really think the fees you are paying Western Union
are related to flipping bits and not to keeping massive stores of cash,
securely, in remote locations? Maybe some day cash wont be necessary, but we
are extremely far from that point, and until we are there Btc remittances are
essentially useless.

> That some part of "The Government" thinks they can regulate something that
> is not theirs is laughable.

That some part of our culture thinks it is reasonable to create a new currency
and _not_ have the government regulate it is laughable.

~~~
slg
>I find it difficult to understand how Bitcoin enthusiasts can so thoroughly
discount how well our current system actually functions. There are no
questions that there are deficiencies in the current system, but the Btc
community hasn't seemed to even identify what they actually are, much less
propose solutions in any reasonable way.

A large percentage of the Bitcoin community's view on this front appears to be
"past regulations have occasionally failed, therefore we shouldn't have any
regulations." This makes no sense. It would be like your home being broken
into and so you decide that you are better of leaving your door unlocked.

~~~
wdewind
> It would be like your home being broken into and so you decide that you are
> better of leaving your door unlocked.

Couldn't agree more. TLDR: bring back Glass Steagall.

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murbard2
Please, explain to me what difference the Glass Steagall act will make when
commercial banks can issue paper that will be bought by deposit banks?

Oh, were you just repeating an Occupy Wall Street meme?

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wdewind
I'm not exactly sure what you mean by commercial banks issuing paper, and
deposit banks buying. I think you mean investment banks issuing securities and
commercial banks buying?

The reason Glass Steagall is important is because it stops commercial banks
from needing to behave like an investment bank. Especially with publicly
traded banks, you have entirely different types of investors with different
expectations investing in investment banks vs. commercial banks, and that puts
a huge amount of pressure on the commercial side of a merged bank to behave
with similar risk profile to its ibank sibling. When they aren't merged there
is significantly less pressure to buy higher risk securities. I think there's
huge value in having both an aggressive ibanking system and a separate, stable
commercial banking system, so yeah, I think we should bring back Glass
Steagall.

The occupy wall street quip is unnecessary, don't do that stuff.

~~~
murbard2
I did mean investment bank, thanks for correcting.

How are investors putting pressure on a bank? Investors are the owners of the
bank, they don't "put pressure", they manage their property. Investors will
want their property to grow and issue dividends as much as possible -
investment bank or not. Calling it a deposit bank isn't going to change that.

The risk profile of investors is also not a consideration. More risk
aggressive investors can simply leverage themselves. Investors want the risk
level that's appropriate for the business. They may disagree on what that
level is, but that disagreement will stem from different strategic outlooks
and not from personal preferences.

An again: so ibanks cannot fund investments from deposits? That becomes
entirely irrelevant the minute you have a liquid commercial paper market.
Instead of investing deposits, the ibank will simply borrow money short term
from a bank that has deposits. This is what happened in practice. It even
happened with companies like GE which became de faco ibanks thanks to their
high credit rating.

And yes, this means the deposit bank will be exposed to the risks the ibank is
taking. If you want to regulate that out, you'll have to require banks be
entirely in cash or treasuries. Glass-Steagall won't do.

~~~
wdewind
The goal is not to make it so commercial banks cannot buy certain securities.
The goal is to make it so they don't feel like they have to just to keep up
with the Joneses. If they decide independently that they want to run their
banks by investing in higher risk securities I'm fine with that, because in
the history of banking that's just not what's happened (until, of course, the
major parts of Glass Steagall were repealed). Commercial banks tend to have
very different customer bases than investment banks, and they have investors*
that they _can_ keep happy without investing in higher risk securities.

*Edit: /s/customers/investors

> Investors want the risk level that's appropriate for the business.

How do you determine the appropriate risk level for a business half of whom's
goal is to provide explosive growth and half to provide long term, stable,
lending?

> They may disagree on what that level is, but that disagreement will stem
> from different strategic outlooks and not from personal preferences.

I agree entirely. Don't you agree the strategic outlook of an investment bank
is entirely different than that of a commercial bank?

~~~
murbard2
>Don't you agree the strategic outlook of an investment bank is entirely
different than that of a commercial bank?

I do which is why banks will specialize in different niches regardless of
regulation.

No law prevents a cement making company from leveraging itself like crazy and
invest it all in high risk / high reward biotech research. And yet you don't
see that happening.

Also, you fail to address the argument that a liquid commercial paper market
gives ibanks de facto access to deposits.

~~~
wdewind
> No law prevents a cement making company from leveraging itself like crazy
> and invest it all in high risk / high reward biotech research. And yet you
> don't see that happening.

And yet we did see commercial banks taking massive risk and going bankrupt
because of it. Maybe that's ok though, I could certainly buy the argument that
that's just the market.

> Also, you fail to address the argument that a liquid commercial paper market
> gives ibanks de facto access to deposits.

I don't know what you mean by that. Do you mean ibanks can buy publicly traded
commercial bank stocks?

Edit: And let's bring this back around: if this is not the appropriate
regulation, what is? Open to hearing something better for sure.

~~~
murbard2
>And yet we did see commercial banks taking massive risk and going bankrupt
because of it

The depositors were insured, so the depositors didn't care. The bank
shareholders had a free call option from the federal government in the form of
an an implicit bailout guarantee, so they were incentivised to take as much
risk as possible.

> I don't know what you mean by that. Do you mean ibanks can buy publicly
> traded commercial bank stocks?

Without Glass-Steagall: commercial bank takes 90$ from Joe's 100$ deposit and
invests it in leveraged CDO^2 on Bhutanese real estate.

With Glass-Steagall: commercial bank takes 90$ from Joe's 100$ deposit and
buys 30-day debt from an ibank. The ibank use the money to invest in leveraged
CDO^2 on Bhutanese real estate.

~~~
wdewind
Yeah that all makes sense, but if we aren't going to prevent commercial banks
from buying high risk securities, it also seems like the FDIC shouldn't be
insuring them.

~~~
murbard2
The whole point is that _even_ if you prevent them from buying high risk
securities, they will buy AAA rated commercial paper from ibanks that will.

And surely you're not going to prevent a bank from making loans, that's their
whole raison d'etre (safekeeping of money is incidental).

Short of getting rid of central banking, I don't think you can do anything
about this.

~~~
wdewind
Yeah, I am convinced. Thanks for a great conversation.

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hawleyal
This is old.

The guy did an AMA a while back.

[http://www.reddit.com/r/IAmA/comments/1ygcil/as_requested_im...](http://www.reddit.com/r/IAmA/comments/1ygcil/as_requested_im_ben_lawsky_superintendent_of_the)

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natrius
This is not old. The proposed regulations were released today.

