New York’s BitLicense costs $5,000

 

(Image courtesy Immersive Education Initiative.)

(Image courtesy Immersive Education Initiative.)

New York State Department of Financial Services has recently released a 31 page application for anyone who wants to engage in doing business with virtual currencies. The application is a convoluted and cumbersome to say the least. But most of all it is costly. If the objective was to create an entry barrier, then mission accomplished!

If an OpenSim grid owner uses Bitcoin-based currency only to buy or sell goods or services then there is no need to register.

But if someone stores virtual currency on behalf of someone else, then yes absolutely, they need to, or if a person is running a grid and wants and creates their own version of a Bitcoin-based currency — especially if the owner creates that currency for use exclusively on his own grid. Then they must register with both New York State and federal regulatory authorities.

If the grid accepts Bitcoin payments for another fictional virtual currency, that is a more complicated question. If the fictional currency cannot be redeemed for cash then no, there is no need to register. If the fictional currency is something like the Linden Dollar used to be, where it could be easily converted back to real currency, then yes, registration is necessary.

Potential costs

For starters, the BitLicense application fee itself is a whopping $5,000. But that is not the only thing bitlicense applicant will have to shell out the money for. Any BitLicense applicant will have to post a surety bond or set money aside in the trust account.

The decision on the amount of surety bond or trust account is left to the applicant. However the BitLicense application calls for an applicant to justify how the proposed sum will be sufficient for the protection of the customer. Implicit in that language is the notion that if New York deems the amount insufficient, the application can and will be denied.

Another potential source of costs for a potential BitLicense applicant is under “Information Regarding Financial Statements.” This subheading calls the applicant to provide DFS with audited financial statements prepared by an independent certified public accountant. These documents can be potentially costly.

coins

Background information

The BitLicense application requires every applicant to provide a list of other businesses – including in different states; current and former litigation; bankruptcy proceedings as well as myriad of financial liabilities for owners and directors.

Before the application can be submitted, any potential applicant must already be registered with FinCEN – a federal regulator. (If the reader wants to know who must register with FinCEN, read here)

Besides registration with FinCEN, any applicant must have Anti-Money Laundering policies and procedures that meet the guidelines provided by the Bank Secrecy Act. The applicant is directed to submit written policies and procedure along with the application.

In conclusion, the application process is quite complicated overall, but with that said not surprising. It will be interesting to see how the industry adjusts to this developing regulatory landscape

Related Posts

Alex Kadochnikov

Alex Kadochnikov is a partner at Gill & Kadochnikov. His primary focus is on commercial litigation, counseling start-up entrepreneurs, and employment-based immigration. He is also an expert on the rise and proliferation of virtual currencies and their effect on the legal and financial landscape.

  • For a grid to operate in BitCoin is high risk where BitCoin goes from being over-regulated (as described in this article), to not being regulated or even recognized as a currency as is the case in most of EU, to being forbidden in a number of countries. Large fluctuations in valuation also makes it high risk as a grid would want this to be as stable as possible.

    • Mircea Kitsune

      BitCoin not being regulated or recognized as a currency is the best solution, and probably what BitCoin was intended for anyway. The day uneducated idiots from governments are going to start sticking their dirty noses and regulations and demanding taxes in this area as well will be a dark one… people must defend virtual currencies from any government attention.

  • Mircea Kitsune

    So the war against BitCoin and virtual currencies has begun. This however is one where the people and BitCoin technology have a chance of winning, thanks to their anonymity and encryption abilities. Hopefully people will find a way to ignore this horrible license without being tracked, especially for things done online! We can only hope…

  • It seems that this application is required to run a virtual currency which is convertible in (or based on) bitcoins (or similar variable rate money). But for a currency like the izzie (Inworldz money, with a constant exchange rate, only through Paypal) it is not required. Right?