You’ve probably heard some version of the joke about the chemist, the physicist, and the economist stranded on a desert island. With a can of food but nothing to open it, the first two set to work on ingenious technical methods of accessing nutrition. The economist declares his solution: “Assume the existence of a can opener!”…
There are parallels to this in some U.S. state regulators’ approaches to Bitcoin. Beginning with the New York Department of Financial Services six months ago, regulators have put proposals forward without articulating how their ideas would protect Bitcoin users. “Assume the existence of public interest benefits!” they seem to be saying.
When it issued its “BitLicense” proposal last August, the New York DFS claimed “[e]xtensive research and analysis” that it said “made clear the need for a new and comprehensive set of regulations that address the novel aspects and risks of virtual currency.” Yet, six months later, despite promises to do so under New York’s Freedom of Information Law, the NYDFS has not released that analysis, even while it has published a new “BitLicense” draft.
Yesterday, I filed comments with the Conference of State Bank Supervisors (CSBS) regarding their draft regulatory framework for digital currencies such as Bitcoin. CSBS is to be congratulated for taking a more methodical approach than New York. They’ve issued an outline and have called for discussion before coming up with regulatory language. But the CSBS proposal lacks an articulation of how it addresses unique challenges in the digital currency space. It simply contains a large batch of regulations similar to what is already found in the financial services world.