Since New York became the first state to propose virtual currency regulations two weeks ago, Bitcoin enthusiasts have had a mixed reaction on whether the new rules will help legitimize the virtual currency or whether they will thwart innovation and threaten the very freedom that Bitcoin was meant to promote. The draft legislation has also exposed a division among virtual currency companies with enough resources to comply with the regulations and those without.
On Tuesday, some Bitcoin supporters are planning to send an open letter to Benjamin M. Lawsky, New York State’s top financial regulator, requesting more time to comment on his proposed legislation.
“Many of us are individuals or small start-ups operating on limited budgets without access to extensive legal resources,” the letter states. “This imposes a substantial burden as we seek to understand the proposed rules and their current and future impacts on our businesses, open-source projects and educational research.” The letter also refers to “inconsistent statements” and opaque language in the draft regulations.
The letter, which has about 400 signatures, including many big names in the virtual currency industry, says the 45 days allotted for comments is not enough time for interested parties to provide adequate feedback on “both the broad scope and detailed components of the proposed rules.” The letter requests 45 additional days.
“We really want to make this a collaborative and engaging process with regulators,” said Austin Walne, who wrote the letter. “We want to have a dialogue, and we want more time to have it.”
A self-described technologist and Bitcoin enthusiast, Mr. Walne teamed up last week with Elizabeth Stark, an entrepreneur, to gauge reaction to the letter. The response, they said, was overwhelming. Hundreds of people, including executives from Bitcoin companies backed by venture capital, as well as students and users of Reddit, signed the letter. Among those who have added their signatures are Barry Silbert of SecondMarket, who runs a Bitcoin investment fund, and executives from the Bitcoin company BitPay.
When it was introduced in 2009 by a programmer, or group of programmers, Bitcoin appealed to anti-establishment enthusiasts and technology buffs who operated on the fringes of the financial system. Now, as virtual currency becomes more accepted in the mainstream, start-ups could find themselves unable to comply with regulations that seem to favor more established financial companies.
“If only companies that have already raised tens of millions of dollars in funding can succeed, we can say goodbye to the Bitcoin start-up ecosystem,” Ms. Stark wrote in an opinion article on TechCrunch last week. “In effect, New York’s proposed regulations will throw the baby out with the bathwater.”
The regulations, introduced by Mr. Lawsky’s office, the Department of Financial Services, are intended for virtual currency companies operating in New York and include rules on consumer protection, the prevention of money laundering and cybersecurity. A “BitLicense” would be required for Bitcoin exchanges and for companies that secure, store or maintain custody or control of the virtual currency on behalf of customers. Merchants that accept Bitcoin for payment, like Overstock.com, would not need to apply for a license.
Mr. Lawsky said the rules, the product of a nearly yearlong review, are intended to inspire consumer confidence and promote commerce by encouraging more companies to come to New York.
Still, virtual currency start-ups have taken issue with the extent of the regulations, some of which are stricter than existing rules for traditional financial institutions. Opponents of the rules have argued that start-ups simply don’t have the resources to comply with certain licensing requirements, including onerous reporting rules, hefty capital requirements and robust cybersecurity programs.
“I think most people were surprised that it is such a broad, sweeping regulation,” said Jim Harper, global policy counsel at the Bitcoin Foundation. “It seems meant to create an entirely new regulatory regime for Bitcoin.”
The public currently has 45 days from July 23 to comment on the proposal, after which Mr. Lawsky’s office intends to make changes to the rules and send them back out for review for another 30 days. So far, Mr. Lawsky said, his office has received “thousands of comments” on the proposed regulations.
Though there has been vocal opposition to the rules, there is also a significant camp that considers the rules an important step to bringing Bitcoin and other computer-based currencies into the mainstream.
“This is a very good thing for Bitcoin,” Gil Luria, an analyst at Wedbush Securities, said when the regulations were introduced. “It may end up being one of the most important milestones in the development of Bitcoin.”
Mr. Lawsky said on Tuesday that he was willing to address concerns that the regulations as they stand would squeeze smaller companies. He said he would also consider extending the comment period.
“This is certainly a unique situation where we’re trying to regulate in an evolving, high-tech, innovative environment, and we want to make sure we get it right,” Mr. Lawsky said. “We will certainly think through very carefully the very obvious comment that, when it’s a small start-up, they’re going to have less resources in terms of compliance.”