BitLicense

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A BitLicense is the common term used for a business license for virtual currency activities, issued by the New York State Department of Financial Services (NYSDFS) under regulations designed for companies. [1] [2] [3] The regulations are limited to activities involving the state of New York or a New York resident. People residing in, located in, having a place of business in, or conducting business in the State of New York count as New York Residents under these regulations. [4] The license was introduced and designed by Benjamin Lawsky, New York's first Superintendent of Financial Services, in July 2014. [5] Chartered entities do not require an explicit BitLicense, but may instead proceed with virtual currency activities via limited purpose trust charters approved by the NYDFS. [6]

Contents

Overview

The regulations define virtual currency business activity as any one of the following types of activities:

The two following activities are excluded from the definition of virtual currency business activity:

History

On July 17, 2014, the department released details on a proposed "BitLicense", which places regulations on any company or person that uses cryptocurrencies residing in New York. [7] The proposed regulations were officially published in the New York State Register on July 23, beginning a 45-day comment period. [8] [7] [9] On February 25, 2015, a revised proposal notice was published, beginning another 30-day comment period. [10]

It came into effect on August 8, 2015. At least ten [11] bitcoin companies announced they were stopping all business in New York State because of the new regulations. [12] [13] The New York Business Journal called this the "Great Bitcoin Exodus". [12]

In September 2015, Boston-based Circle was granted the first BitLicense, although in December 2016 the company had pivoted away from its bitcoin exchange to focus more on payments. [14] [15] [16] [17]

Two virtual currency limited purpose trust company charters were approved by the NYDFS in 2015, the first in May 2015 to itBit, now Paxos Trust Company, and the second charter in October 2015 to Gemini. [18]

In October 2015, an article 78 was filed in the Supreme Court of the State of New York challenging the authority of the New York State Department of Financial Services to define virtual currency. [19] Justice St George heard the case on October 10, 2017, [20] and dismissed the case on December 27, 2017. The case is currently on appeal.[ citation needed ]

On June 13, 2016, XRP II, LLC, an affiliate of Ripple Labs, was approved for a BitLicense. [21]

On 22 March 2017, Coinbase was awarded the second BitLicense. [22]

In November 2017, Tokyo-based bitFlyer was awarded the fourth BitLicense [23] and Genesis Global Trading was awarded the fifth BitLicense in May 2018. [24]

In June 2018, Hong Kong–based Xapo was awarded the sixth BitLicense [25] and Square, Inc. was awarded the seventh BitLicense. [26]

BitPay was awarded the eighth BitLicense in July 2018. [27]

In November 2018, Texas-based Coinsource, an operator of Bitcoin Teller Machines, was awarded the twelfth virtual currency license or charter. [28]

In November 2018, New York–based institutional Bitcoin provider NYDIG was awarded a BitLicense. [29]

In January 2019, Robinhood Crypto LLC, a subsidiary of Robinhood Markets Inc., and Moon Inc., dba LibertyX were awarded a BitLicense. [30]

On April 9, 2019 Bitstamp USA, Inc., a subsidiary of Bitstamp Ltd. was awarded a BitLicense. [31]

One day later, the NYDFS rejected Bittrex's application, citing concerns over capital requirements and lax anti-money laundering controls. [32]

On December 3, 2019, SoFi Digital Assets, LLC, a subsidiary of Social Finance, Inc. was awarded a BitLicense as well as a money transmitter license. [33]

On December 11, 2019, the NYDFS proposed a revision to BitLicense whereby a licensee can offer any coin from a public list on the NYDFS website. The revision is still pending. [34]

In May 2020, Eris Clearing, LLC, a subsidiary of ErisX, secured a Virtual Currency License. [35]

On June 24, 2020, DFS proposed a new conditional licensing framework that makes it easier for start-ups to enter the New York market. Under the proposed conditional licensing framework, entities may apply for a conditional license when partnering with an existing entity authorized by DFS to engage in virtual currency business activity. [36]

On October, 21, 2020, PayPal was the first entity approved for a conditional license in partnership with Paxos Trust Company. [37]

Related Research Articles

<span class="mw-page-title-main">Digital currency</span> Currency stored on electronic systems

Digital currency is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital currency may be recorded on a distributed database on the internet, a centralized electronic computer database owned by a company or bank, within digital files or even on a stored-value card.

A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may accept credit card payments, wire transfers or other forms of payment in exchange for digital currencies or cryptocurrencies. A cryptocurrency exchange can be a market maker that typically takes the bid–ask spreads as a transaction commission for its service or, as a matching platform, simply charges fees.

Virtual currency, or virtual money, is a digital currency that is largely unregulated, issued and usually controlled by its developers, and used and accepted electronically among the members of a specific virtual community. In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically." A digital currency issued by a central bank is referred to as a central bank digital currency.

<span class="mw-page-title-main">New York State Department of Financial Services</span> Responsible for regulating financial services and products

The New York State Department of Financial Services is the department of the New York state government responsible for regulating financial services and products, including those subject to the New York insurance, banking and financial services laws.

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It has, from a financial point of view, grown to be its own asset class. However, on the contrary to other asset classes like equities or commodities, sectors have not been officially defined as of yet, though abstract versions of them exist.

<span class="mw-page-title-main">Bitstamp</span> Bitcoin exchange based in the UK

Bitstamp is a European cryptocurrency exchange founded in 2011. It is the world’s longest-running cryptocurrency exchange. It allows trading between fiat currency, bitcoin and other cryptocurrencies, such as the U.S. dollar, the euro, the pound sterling, Ethereum, Litecoin, Ripple, Bitcoin Cash, Algorand, Stellar, and USD Coin. Business operations are conducted from its registered headquarters in Luxembourg City, with a satellite office in Ljubljana.

<span class="mw-page-title-main">History of bitcoin</span> Cryptocurrency

Bitcoin is a cryptocurrency, a digital asset that uses cryptography to control its creation and management rather than relying on central authorities. Originally designed as a medium of exchange, Bitcoin is now primarily regarded as a store of value. The history of bitcoin started with its invention and implementation by Satoshi Nakamoto, who integrated many existing ideas from the cryptography community. Over the course of bitcoin's history, it has undergone rapid growth to become a significant store of value both on- and offline. From the mid-2010s, some businesses began accepting bitcoin in addition to traditional currencies.

<span class="mw-page-title-main">Legality of cryptocurrency by country or territory</span>

The legal status of cryptocurrencies varies substantially from one jurisdiction to another, and is still undefined or changing in many of them. Whereas, in the majority of countries the usage of cryptocurrency isn't in itself illegal, its status and usability as a means of payment varies, with differing regulatory implications.

<span class="mw-page-title-main">BitPay</span> Bitcoin payment service provider

BitPay is a cryptocurrency payment service provider headquartered in Atlanta, Georgia, United States. It was founded in May 2011 by Tony Gallippi and Stephen Pair. BitPay provides crypto payment processing services for merchants.

<span class="mw-page-title-main">Bitcoin ATM</span> Kiosks facilitating the purchase of Bitcoin

A Bitcoin ATM is a kiosk that allows a person to purchase Bitcoin and other cryptocurrencies by using cash or debit card. Some Bitcoin ATMs offer bidirectional functionality, enabling both the purchase of Bitcoin and the sale of Bitcoin for cash. In some cases, Bitcoin ATM providers require users to have an existing account to transact on the machine.

Circle is a peer-to-peer payments technology company that now manages stablecoin USDC, a cryptocurrency the value of which is pegged to the U.S. dollar. It was founded by Jeremy Allaire and Sean Neville in October 2013. Circle is headquartered in Boston, Massachusetts. USDC, the second largest stablecoin worldwide, is designed to hold at or near a stable price of $1. The majority of its stablecoin collateral is held in short-term U.S. government securities.

Xapo Bank is a private bank headquartered in Gibraltar, which operates globally and is licensed as a virtual asset currency provider by the Gibraltar Financial Services Commission. As of 2023, the company offers stock market trading to its clients in Europe.

United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securities and Exchange Commission also requires registration of any virtual currency traded in the U.S. if it is classified as a security and of any trading platform that meets its definition of an exchange.

Kraken is a United States–based cryptocurrency exchange, founded in 2011. It was one of the first bitcoin exchanges to be listed on Bloomberg Terminal and was valued at US$3 billion in January 2024. The company has been the subject of several regulatory investigations since 2018, and has agreed to cumulative fines of over $30 million.

Gemini Trust Company, LLC (Gemini) is an American cryptocurrency exchange and custodian bank. It was founded in 2014 by Cameron and Tyler Winklevoss.

Bitcoin was designed by its pseudonymous inventor, Satoshi Nakamoto, to work as a currency, but its status as a currency is disputed. Economists define money as a store of value, a medium of exchange and a unit of account, and agree that bitcoin does not currently meet all these criteria.

Keith A. Noreika is an American lawyer who specializes in the regulation of financial institutions. He served as Acting Comptroller of the Currency from May 5, 2017, to November 27, 2017, following the 30th Comptroller of the Currency, Thomas J. Curry, and preceding the 31st Comptroller of the Currency, Joseph Otting. Noreika rejoined the law firm of Simpson Thacher on January 8, 2018. He joined Patomak Global Partners as Executive Vice President and Chairman of its Banking Supervision and Regulation Group on July 5, 2022.

bitFlyer is a private company headquartered in Tokyo, Japan and founded in 2014. It operates one of the largest cryptocurrency exchanges with 2.5 million users and develops other crypto-related technology.

Paxos Trust Company is a New York–based financial institution and technology company specializing in blockchain. The company's product offerings include a cryptocurrency brokerage service, asset tokenization services, and settlement services. ItBit, a bitcoin exchange run by Paxos, was the first bitcoin exchange to be licensed by the New York State Department of Financial Services, granting the company the ability to be the custodian and exchange for customers in the United States.

The general notion of cryptocurrencies in Europe denotes the processes of legislative regulation, distribution, circulation, and storage of cryptocurrencies in Europe. In April 2023, the EU Parliament passed the Markets in Crypto Act (MiCA) unified legal framework for crypto-assets within the European Union.

References

[38] [39] [40] [41] [42] [43] [44] [45] [46] [47]

  1. ↑ Michael J. Casey (3 June 2015). "NY Financial Regulator Lawsky Releases Final BitLicense Rules for Bitcoin Firms". WSJ.
  2. ↑ "New York lays out requirements for a 'BitLicense'". Fast FT.
  3. ↑ Kaja Whitehouse, USAToday (3 June 2015). "'Bitlicense' rules regulating bitcoin released". USA TODAY.
  4. 1 2 "Regulations of the Superintendent of Financial Services, part 200: virtual currencies" (PDF). Department of Financial Services. Archived from the original (PDF) on March 28, 2017. Retrieved April 13, 2017.
  5. ↑ Jose Pagliery, CNN (18 July 2014). "New York unveils Bitcoin license rules". CNN.{{cite web}}: |author= has generic name (help)
  6. ↑ "BitLicense Frequently Asked Questions". www.dfs.ny.gov. Archived from the original on 2018-09-26. Retrieved 2018-11-06.
  7. 1 2 New York State Department of Financial Services (July 17, 2014). "NYDFS Releases Proposed BitLicense Regulatory Framework for Virtual Currency Firms" (Press release). Archived from the original on 2014-09-23. Retrieved July 19, 2014.
  8. ↑ New York State Register , Vol. XXXVI, Issue 23 (July 23, 2014) Archived September 5, 2017, at the Wayback Machine , pp. 14-16. Rulemaking I.D. No. DFS-29-14-00015-P.
  9. ↑ Cameron Fuller (31 January 2014). "Bit Licenses: How Will New York Regulate Bitcoins?". International Business Times.
  10. ↑ New York State Register , Vol. XXXVII, Issue 8 (February 25, 2015), pp. 17-18. Rulemaking I.D. No. DFS-29-14-00015-RP.
  11. ↑ Roberts, Daniel. "Behind the "exodus" of bitcoin startups from New York". Fortune. Retrieved 10 October 2016.
  12. 1 2 Michael del Castillo (August 12, 2015). "The 'Great Bitcoin Exodus' has totally changed New York's bitcoin ecosystem". New York Business Journal.
  13. ↑ "Bitcoin company ditches New York, blaming new regulations". Fortune. June 11, 2015.
  14. ↑ Paul Vigna (Sep 22, 2015). "Circle Gets First 'BitLicense,' Releases CirclePay, New Service". WSJ.
  15. ↑ Karen Freifeld (September 22, 2015). "NY regulator issues first license for bitcoin company". Reuters. Archived from the original on September 23, 2015. Retrieved June 30, 2017.
  16. ↑ Curt Woodward (September 22, 2015). "Circle gets first bitcoin license from New York regulators". betaboston.com. Archived from the original on September 23, 2015. Retrieved September 23, 2015.
  17. ↑ NYDFS (September 22, 2015). "Press Release - NYDFS Announces Approval of first BitLicense application from a virtual currency firm". ny.gov. Archived from the original on January 31, 2018. Retrieved September 23, 2015.
  18. ↑ "DFS CONTINUES TO FOSTER RESPONSIBLE GROWTH IN NEW YORK'S FINTECH INDUSTRY WITH NEW VIRTUAL CURRENCY PRODUCT APPROVALS". www.dfs.ny.gov. Archived from the original on 2018-09-11. Retrieved 2018-11-06.
  19. ↑ "Article 78 against NYDFS". Archived from the original on 2016-11-07. Retrieved 2016-11-06.
  20. ↑ "New York State Supreme Court Hearing Transcript" (PDF). Archived from the original (PDF) on 2017-10-31.
  21. ↑ "Press Release - June 13, 2016: DFS Grants Virtual Currency License To XRP II, LLC, an Affiliate of Ripple". Department of Financial Services. Retrieved 2020-05-06.
  22. ↑ "DFS AUTHORIZES COINBASE, INC. TO PROVIDE ADDITIONAL VIRTUAL CURRENCY PRODUCTS AND SERVICES: Coinbase is the Second Company to Receive DFS Approval to Offer Trading of Emerging Digital Currency Ethereum and the First to Offer Litecoin in New York". New York Department of Financial Services. 22 March 2017. Archived from the original on 18 May 2018. Retrieved 2019-10-28.
  23. ↑ "DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITFLYER USA, INC". www.dfs.ny.gov. Retrieved 2018-11-06.
  24. ↑ "DFS Continues Actions to Support Responsible Innovation in New York's Fintech Industry". www.dfs.ny.gov. Archived from the original on 18 May 2018. Retrieved 2018-11-06.
  25. ↑ "June 14, 2018: DFS Continues to Advance Responsible Growth in New York'S Fintech Industry with New Virtual Currency Approvals". www.dfs.ny.gov. Archived from the original on 2018-06-18. Retrieved 2018-06-18.
  26. ↑ "June 18, 2018: DFS Grants Virtual Currency License to Square, Inc". www.dfs.ny.gov. Archived from the original on 2018-06-18. Retrieved 2018-06-18.
  27. ↑ "July 16, 2018: DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITPAY, INC". www.dfs.ny.gov. Archived from the original on 2018-08-27. Retrieved 2018-11-06.
  28. ↑ "November 1, 2018: DFS GRANTS VIRTUAL CURRENCY LICENSE TO COINSOURCE, INC". www.dfs.ny.gov. Archived from the original on November 6, 2018. Retrieved 2018-11-06.
  29. ↑ "Press Release - November 14, 2018: DFS Grants Virtual Currency and Money Transmitter License to NYDIG Execution, LLC". Department of Financial Services. Retrieved 2021-01-17.
  30. ↑ "January 24, 2019: DFS CONTINUES TO ADVANCE RESPONSIBLE INNOVATION IN NEW YORK'S FINTECH INDUSTRY". www.dfs.ny.gov. Archived from the original on January 25, 2019. Retrieved 2019-01-24.
  31. ↑ "April 9, 2019: DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITSTAMP USA, INC". www.dfs.ny.gov. Retrieved 2019-04-09.
  32. ↑ Chavez-Dreyfuss, Gertrude (10 April 2019). "Bittrex virtual currency license rejected by New York financial regulator". Reuters.com. Reuters. Retrieved 30 September 2021.
  33. ↑ "Press Release - December 3, 2019: DFS Grants Virtual Currency and Money Transmitter Licenses to SoFi Digital Assets, LLC". Department of Financial Services. Retrieved 2020-01-24.
  34. ↑ "Press Release - December 11, 2019: Financial Services Superintendent Linda A. Lacewell Announces New Proposed Regime for Listing of Virtual Currencies". Department of Financial Services. Retrieved 2020-06-13.
  35. ↑ "Press Release - May 06, 2020: DFS Grants Virtual Currency and Money Transmitter Licenses to Eris Clearing, LLC". Department of Financial Services. Retrieved 2020-05-06.
  36. ↑ "Press Release - June 24, 2020: DFS Superintendent Lacewell Launches Series of Virtual Currency Initiatives". Department of Financial Services. Retrieved 2021-08-28.
  37. ↑ "Press Release - October 21, 2020: Superintendent Linda A. Lacewell Announces PayPal To Be the First Approved Entity for DFS Conditional BitLicense". Department of Financial Services. Retrieved 2021-08-28.
  38. ↑ "Benjamin Lawsky unveils New York's historic BitLicense framework - New York Business Journal". New York Business Journal. 3 June 2015.
  39. ↑ "Fmr New York bitcoin watchdog can't help bitcoin startups get license - Fortune". Fortune. June 11, 2015.
  40. ↑ Ian McKendry (3 June 2015). "After N.Y. Makes 'BitLicense' Official, Focus Moves to Who's Next". American Banker.
  41. ↑ "NYDFS BitLicense Draft - Business Insider". Business Insider. 17 July 2014.
  42. ↑ "What BitLicense Regulations Mean for Bitcoin". NASDAQ.com. 10 June 2015.
  43. ↑ "New York Outs Final BitLicense For Bitcoin And Other Digital Currency Companies". Tech Times. 2015-06-06.
  44. ↑ "New York Regulator Finalizes First-Of-Its-Kind Plan To Govern Virtual Currency With "BitLicense"". Consumerist. 3 June 2015.
  45. ↑ "UPDATE 2-New York regulator issues final virtual currency rules". Reuters. 2015-06-03. Archived from the original on 2015-10-10. Retrieved 2017-06-30.
  46. ↑ Mariella Moon. "New York sets rules for running Bitcoin exchange businesses". Engadget. AOL.
  47. ↑ "Companies burdened by BitLicenses real cost - EconoTimes". EconoTimes. 2015-08-14.
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