Bitcoin is on the verge of being regulated in the state of New York in a way that some of the most influential people in the industry said today could restructure the global financial power structure. If they're right, the center of global finance could very well move from Wall Street to a totally different coast, or country.
“Will the next Wall Street be built in Silicon Valley instead of New York?” asked Fred Wilson, founder of Union Square Ventures, during the morning-long State of the Bitlicense breakfast in midtown. “Will it be Estonia instead of New York?”
Wilson is an investor in Coinbase, which hosted today's event. He's a strong believer in bitcoin and supports the idea that cryptocurrencies should be regulated, but he's not a fan of the most recent incarnation of New York's bitlicense—regulation designed both to protect against money laundering and to give consumers an increased sense of confidence in companies that hold and transmit bitcoin.
According to Wilson, the bitlicense proposal before Benjamin Lawsky, New York State’s Superintendent of Financial Services, actually requires a heavier burden than for traditional banks. “We want people to understand this is the same animal and we want it treated the same way,” said Wilson.
London’s innovation-friendly regulation, passed earlier this year, makes it another candidate to replace Wall Street as the center of the future cryptocurrency economy, according to Fred Ehrsam, cofounder of San Francisco-based Coinbase.
The breakfast discussion, held at Aquavit on 55th Street, was a veritable who's who of power players in the bitcoin space. Among them: John Beccia and Paul Camp of Circle,Jerry Brito of Coin Center, Tim Byun of BitPay, Brian Forde of the MIT Media Lab, James Morgan of Genesis Trading, Hans Morris of NYCA Partners and the former president of Visa, Yuval Rooz of Digital Asset Holdings, Ryan Selkis of the Digital Currency Group, Scott Talbott of the Electronic Transactions Association, and members of the media.
Amon the questions raised were: what would it cost a startup to comply with the bitlicense rules? The answer shows the already high barrier to entry for impacted startups, even before the implementation of bitlicenses.
“I’m willing to share,” said Ehrsam. His company has more than $100 million in venture capital and is one of the most heavily capitalized companies in bitcoin. He said it took Coinbase two years and $2 million to be compliant with half the states.
One of the reps for Circle, a Boston-based company that's out to make it easier to store and trade Bitcoin and which has raised $26 million in venture capital, chimed in to say the costs to his company were comparable.
Other aspects of the bitlicense that were discussed include anti-money laundering concerns, how to distinguish between regulations for different kinds of bitcoin wallets, and what to do if the bitlicense is passed with the current high demands for startups.
“I think we need to wait and see what the bitlicense actually looks like. I think we then have to see what other states do,” said Brito, who wrote an influential early primer for bitcoin policy makers. “At some point, if we end up with a patchwork that’s untenable we’ll have to look at this and say, is this something that we want preemption?” The ‘p’ word, as Brito called pre-emption, would then require a federal regulator to step in. Not an attractive option for state-rights advocates.
The final result of the discussion will be a formal one-page summary to be sent to Lawsky and others. For entrepreneurs already invested in the bitcoin economy, or those looking to get into the industry, Ehrsam recommended continuing the dialogue with the on social media. “If people who are trying to build a business talk, it’s hard for regulators to ignore it.”
Ryan Selkis, investments director of the Digital Currency Group recommended a different approach, “Build something useful that will drive mainstream adoption. It’s duplicative right now to try to reinvent the wheel.”