The eye watering price gyrations of Bitcoin, the seemingly endless supply of new coins being created via Initial Coin Offerings (ICOs), and the raucous bubble debate have captivated the investing public over the past several months. Long dismissed as a fringe financial product, Bitcoin and other alternative coins have been moving in fits and starts into the more mainstream investment ecosystem. Behind the colorful characters, rapid price changes, and daily disruption, the steady development of the blockchain ecosystem continues apace. While technologists and investors continue to break ground on technological innovation, the development of the Blockchain regulatory regime continues in various jurisdictions.
New York State was a first mover in attempting to develop the comprehensive regulatory regime for the digital asset industry. After two rounds of public comments, the New York State Department of Financial Services (NYDFS) began issuing what became referred to as BitLicenses. The process for obtaining BitLicenses from the NYDFS was widely perceived as being cumbersome and expensive, and while some of the better funded digital asset companies obtained the BitLicense and continued to service New York, the BitLicense regime was widely seen as driving digital asset market participants out of the state. Additionally, the departure of Benjamin Lawsky, the superintendent of the NYDFS and one of the prime drivers of the BitLicense program, robbed the BitLicense program of one of its primary boosters.
While the BitLicense program has been largely static since its launch, numerous other jurisdictions, both inside and outside of the United States have made progress on building a regulatory framework for the digital asset and blockchain ecosystem. Switzerland has had enormous success luring blockchain related businesses, giving rise to the “Crypto Valley” ecosystem. In remarks on January 18, 2018 the Swiss Economics Minister went so far as to say he wanted Switzerland to become “the-crypto nation.”
Momentum on this issue may be returning to New York however, as recently elected Assemblyman Clyde Vanel, representing the 33rd Assembly District in Queens, has introduced a series of bills in Albany designed to advance digital asset regulation in the state. Vanel’s proposed legislation aims to strike a balance between providing adequate consumer protection, while allowing enough freedom for the industry to develop effectively.
Assemblyman Vanel first became interested in Bitcoin before his election to the Assembly, during his time as an intellectual property attorney and technology entrepreneur. Vanel has now introduced five bills to the Assembly related to blockchain. The first bill would create a task force for the study of crypto-currency and the crypto-currency industry in New York State. Vanel hopes this bill would be able to bring all stakeholders together to further understanding of the issues. The second bill would create a law that would allow for blockchain to authenticate signatures in New York State. Arizona recently enacted a similar law, allowing for enforceable blockchain signatures. With the continued development of Ethereum based smart contracts, developing a regulatory framework that allows for enforceable smart contract validation is of paramount importance.
The third bill would allow New York State to use blockchain technology to protect New York State voting records. Vanel’s fourth bill that would create a task force to study the possible usage of blockchain technology to store data and information for New York State. Vanel’s fifth bill is perhaps the most ambitious of the five, calling for the creation of a task force to study the creation of a “New York Coin,” which would be used to tokenize New York bond issuance. The coins would be backed by New York’s bonds, hopefully allowing for easier record keeping.
Nationally, upbeat commentary by SEC Chair John Clayon and CFTC commissioner Christopher Giancarlo during a highly anticipated hearing helped place a floor under collapsing Bitcoin prices last Tuesday. Traders were relieved that the two primary U.S. regulators had adopted a more conciliatory tone towards the market, building hopes that the United States may eventually adopt a light touch regulatory regime favored by the industry.
Vanel’s bills represent an important step towards reforming the current cumbersome regulatory environment in New York. The industry is still in its infancy, and the Swiss model shows how a clear, effective regulatory regime can quickly draw business to a location. But the future of industry is clearly uncertain. Digital Assets could remain a volatile, niche product, but there is also the possibility that some of the more grandiose dreams in the space are realized. With the proper framework, New York can attract an outsized portion of this growing industry.