New York’s Department of Financial Services has presented draft regulations for bitcoin trade that are an absolute heap of bullshit, and that’s even before going into what the proposal actually says. The propsed regulations require a so-called “BitLicense” in order to trade in bitcoin with residents of New York and with everybody else in the world. The problem is, that’s an absolute joke from a legal standpoint, completely ignoring the very concept of a jurisdiction.
At last, the proposed regulations for bitcoin trade were published for comments. The bitcoin community has been absolutely furious, but nobody’s going into the fundamentals of the proposal: that it asserts authority over the entire world on the basis of being located in New York.
That’s no more possible – or enforcable – than if the President of Iran asserted authority over the entire world on the basis of being located in Teheran.
Here’s the (proposed) deal: the proposed regulations say that any company, no matter where in the world, doing bitcoin business with a resident of New York must have a so-called BitLicense. The first problem with this is that this BitLicense doesn’t limit itself to regulating the trade between the company and the resident of New York; it asserts authority over any person, no matter where in the world, doing business with that company, which is also located no matter where in the world.
So regulators of New York are asserting authority over trades taking place between a business in Slovenia and a client in Malaysia, based on the idea that the business in Slovenia may also have clients in New York. In technical terms, this is absolute, total bullshit.
To pull a parallel: imagine if Iran determined that any web site offered to Iranians must implement Shari’a laws, not just when offered to Iranians, but when offered to anybody on the flimsy basis that it is also offered to Iranians. This is how batshit insane the asserted authority of the BitLicense proposal is.
I see it as a way to try to deliberately fragment the bitcoin trade into unworkability. If every single patch of land publishes their own requirements for bitcoin trade, and asserts that their requirements apply everywhere, we’ll have an impossible patchwork of 246 legal frameworks that all bitcoin companies must follow, full of multiple contradictions everywhere. It’s nothing short of a deliberate sabotage.
(246 is the number of countries in the world, with the US counted as its 50 states plus DC.)
So while it’s not exactly illegal to assert authority outside of your own jurisdiction like this, it’s completely unenforceable, for the simple reason that when a person in Malaysia trades with Bitstamp in Slovenia, the NYPD has no right to interfere neither in Singapore nor Slovenia. It’s out of their jurisdiction, which literally means that New York doesn’t get to set any rules whatsoever.
But it goes beyond that. The New York regulators don’t have authority to regulate the Slovenian business Bitstamp, or any other non-US business, even for its clients in New York, either. When I choose to do business with a Californian company from my home base in Stockholm, Sweden, I understand and accept the ridiculously fundamental fact that a business in California operates under Californian law, and that Swedish police and justice has absolutely no say whatsoever in how it chooses to operate. Nor does the Swedish judiciary have any say in how I choose to do business with foreign entities, as long as I don’t bring home contraband.
This means that New York regulators are limited to regulating businesses physically operating in New York, and only businesses physically operating in New York. That’s what “jurisdiction” means. That’s what “enforcement” means. New York Police simply doesn’t get to say how a Slovenian business operates, regardless of whether citizens of New York choose to do business with it, on the simple basis that the NYPD doesn’t get to bloody invade Ljubljana.
The entire proposal is bullshit from its assertion of authority onwards.
If you want to go into the insanity of the proposal itself, looking beyond its (complete lack of) authority to regulate, Erik Voorhees has done a nice write-up. Among other things, he observes that “this is not consumer protection. This is explicit surveillance of private citizens who are not accused – nor even under suspicion – of committing a crime.”
This regulation proposal is a deliberate sabotage attempt against the bitcoin ecosystem, and I pledge to treat companies that take part in this attempted sabotage accordingly:
I pledge to never do business with any bitcoin company that submits themselves to this governmental abuse of their own customers, getting this ridiculous New York “BitLicense” and submitting themselves and their customers to a foreign hostile jurisdiction.
Only companies which are physically based in New York – physically based in New York – need care about what New York regulators say. The rest of the world, can, should, and must just plain ignore their silly attempts at bullying.