MIT Calls Out 'Critical Flaws' in New York's BitLicense

MIT Digital Currency Initiative director Brian Forde has issued a new blog post in which he aims to draw attention to four "critical flaws" in the approach so far taken by the state of New York to regulate the digital currency industry.

Coming one month after his appointment to the position, the piece finds Forde seeking to voice the leading US university's interest in bitcoin and the blockchain as technologies that could contribute to the global good. The DCI was announced in April following a year of additional grassroots efforts on campus.

Perhaps most notably, Forde contended that the regulation ultimately enacted by the New York State Department of Financial Services (NYDFS) should strive to help grow and mature the industry, rather than simply protecting consumers.

Forde wrote:

"If regulation is done right, it will increase investment in digital currency startups, create jobs and allow consumers to receive cutting-edge financial services of the future, faster and safer."

Forde went on to argue that, as the first US state to craft a specific regulatory framework for the industry, New York's BitLicense is among the most important regulations globally, influencing development both in the US and abroad.

However, he warned that, in its current state, the mass replication of the BitLicense would likely impose "substantial burdens" on all but the most well-funded companies.

Bitcoin backwater

Among the issues presented by Forde is the fact that, under the current guidelines, bitcoin companies operating in New York would need to have all app updates approved.

The process, he contended, would slow down features and fixes and turn New York into the "bitcoin backwater of the US".

Forde also drew attention to a provision that would mandate bitcoin and digital currency startups receive approval if they sought to give away more than 10% of their company to investors.

If applied en masse, he argued, this would mean startups could need such approvals in all 50 states to secure working capital.

New York's approach to regulation, however, already stands in contrast to states including Vermont and North Carolina, which have taken steps to regulate the industry under existing regulation.

The need for startups to potentially undergo similar treatment in other states again emerged when Forde cited how the BitLicense would, in effect, require two licenses – a money transmitter license and a state-specific license.

Repeating history

Finally, Forde called on the NYDFS to draw on the history of the Internet when making its final adjustments to the bill, regulating Internet service providers (ISPs) not web browsers, or in other words, companies that control funds and are not pure technology operations.

"Similar to an ISP, the controller of assets is where the transfer of money happens, and they can provide the information needed to address potential money laundering or illicit uses," Forde explained.

Forde ended his statements with a call of patriotism, encouraging the NYDFS to embrace the free market ideals of America by creating a healthy but competitive landscape for bitcoin and blockchain startups.

"If changes to the proposed BitLicense are not made, only a handful of the most well-funded companies will survive — not because they are providing the best product or service, but because they have access to the most money," Forde continued, adding:

"And that’s not the competitive environment that creates the world-changing startups for which America is known."

MIT image via Wikipedia