Coinbase published the full text of their response to the NYDFS, and helpfully included a three-point summary of their major points for casual readers.
- “We feel the BitLicense is duplicative of the current money transmitter regulations which are a more appropriate form of regulation for the future of digital currency.
- Certain aspects of the proposed recordkeeping and anti-money laundering requirements would eliminate the core utility of Bitcoin and cryptocurrencies, substantially hindering the innovation which all of us including, purportedly the NYDFS, find so promising.
- Any regulation of virtual currencies at this stage should take care to exclude non-financial use cases and companies who are not storing Bitcoin on behalf of customers.”
Perhaps the most damning of these criticisms is the first, although it is couched in polite language. Calling the BitLicense “redundant” with existing money transmitter rules, Coinbase argues that the regulation is unnecessary, inefficient and expensive for all parties, while doing little to reduce risk for consumers or curbing illegal activity. “The current money transmitter licensing system already has a great deal of overlap between each state, requiring companies to go through the same processes up to 48 times, including fingerprinting, surety bonds, capital requirements, costly on-site examinations, and reporting obligations,” Coinbase explained. “Adding a BitLicense would further duplicate this effort.”
The statement also noted that compliance with the BitLicense would stifle many of bitcoin’s innovations by “requiring the collection of information not supported by the protocol” such as the names, account numbers and physical addresses of all parties in a transaction. To address this, Coinbase recommends explicit language in the rules that would limit the scope of the BitLicense to companies that hold customers’ bitcoins. In other words, the banking-like rules should only apply to banking-like businesses.
Given Coinbase’s new role as the bitcoin payment processor for PayPal, the timing of the response is almost certainly intentional. It’s one thing for the NYDFS to write rules for an industry with a negligible economic footprint in New York, but with a very different one to face off against eBay, a global company worth around $65 billion. With rumors swirling that Coinbase may be in the “grooming” process for an eventual eBay/PayPal acquisition, the NYDFS now has to consider the cost of unfavorable regulation and courtroom battles now that bitcoin has such a powerful ally.