What is a BitLicense?

What is a BitLicense?

A BitLicense is an informal name for the New York state license required of cryptocurrency businesses to operate within the state.

While a lot of cryptocurrency transactions can and do happen “off the grid,” many companies working in cryptocurrency choose to register for licenses to do business and to comply with relevant state and federal regulations and reporting requirements. Different states have different requirements for the businesses that operate within them. In New York state, the applicable license has come to be called the BitLicense.

To the public, it signifies a certificate of legitimacy for companies emerging from a shadowy realm racked with speculators and fraud, also amid rumors of money laundering schemes for terrorists and drug cartels. The fact that there is a state license made just for cryptocurrency businesses gives the industry a feeling of having “made it” out of the underground and into mainstream America, the biggest economy in the world, while consumers, who tend to get the most protection at the state level, receive the reassurance that these businesses are being regulated, or at least that is the intention.

Despite making strides in the right direction, the New York Department of Financial Services has only approved 3 companies for the BitLicense at the time of this writing. It attempted to regulate exchanges and companies whose business was focused on financial services in the cryptocurrency world, but excluded merchants who accepted cryptocurrencies as payment and individuals who use cryptocurrencies as investments. Over 20 companies were given safe harbor protection to continue operations if they filed the required paperwork with the state, but many of these applications are still pending, and many companies with a reputable history in the sector have been denied the license.

Others, such as Kraken, one of the largest exchanges, which is based in San Francisco, shut down their New York offices seemingly in protest to the NYDFS overextending their reach, a reaction which has been echoed by other companies and leaders in the cryptocurrency industry. There has been a filing with the Supreme Court called “Article 78” to contest whether the NYDFS has the authority to act in the capacity that they have been. Until this matter gets sorted out in early 2018, we are not likely to see much movement on this issue. Currently, the payment protocol Ripple and the exchange Coinbase are the only companies operating with an issued BitLicense.