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BitLicense

A BitLicense is the common term used for a business license for virtual currency activities, issued by the New York State Department of Financial Services (NYSDFS) under regulations designed for companies. The regulations are limited to activities involving the state of New York or a New York resident. People residing in, located in, having a place of business in, or conducting business in the State of New York count as New York Residents under these regulations. The license was introduced and designed by Benjamin Lawsky, New York's first Superintendent of Financial Services, in July 2014. Chartered entities do not require an explicit BitLicense, but may instead proceed with virtual currency activities via limited purpose trust charters approved by the NYDFS.

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Overview

The regulations define virtual currency business activity as any one of the following types of activities:

  • receiving virtual currency for Transmission or Transmitting virtual Currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of virtual currency;
  • storing, holding, or maintaining custody or control of virtual currency on behalf of others;
  • buying and selling virtual currency as a customer business;
  • performing Exchange Services as a customer business, or;
  • controlling, administering, or issuing a virtual currency.

The two following activities are excluded from the definition of virtual currency business activity:

  • development and dissemination of software in and of itself;
  • merchants and consumers that utilize virtual currency solely for the purchase or sale of goods or services or for investment purposes.7

History

On July 17, 2014, the department released details on a proposed "BitLicense", which places regulations on any company or person that uses cryptocurrencies residing in New York.8 The proposed regulations were officially published in the New York State Register on July 23, beginning a 45-day comment period.91011 On February 25, 2015, a revised proposal notice was published, beginning another 30-day comment period.12

It came into effect on August 8, 2015. At least ten13 bitcoin companies announced they were stopping all business in New York State because of the new regulations.1415 The New York Business Journal called this the "Great Bitcoin Exodus".16

In September 2015, Boston-based Circle was granted the first BitLicense, although in December 2016 the company had pivoted away from its bitcoin exchange to focus more on payments.17181920

Two virtual currency limited purpose trust company charters were approved by the NYDFS in 2015, the first in May 2015 to itBit, now Paxos Trust Company, and the second charter in October 2015 to Gemini.21

In October 2015, an article 78 was filed in the Supreme Court of the State of New York challenging the authority of the New York State Department of Financial Services to define virtual currency.22 Justice St George heard the case on October 10, 2017,23 and dismissed the case on December 27, 2017. The case is currently on appeal.

On June 13, 2016, XRP II, LLC, an affiliate of Ripple Labs, was approved for a BitLicense.24

On 22 March 2017, Coinbase was awarded the second BitLicense.25

In November 2017, Tokyo-based bitFlyer was awarded the fourth BitLicense26 and Genesis Global Trading was awarded the fifth BitLicense in May 2018.27

In June 2018, Hong Kong–based Xapo was awarded the sixth BitLicense28 and Square, Inc. was awarded the seventh BitLicense.29

BitPay was awarded the eighth BitLicense in July 2018.30

In November 2018, Texas-based Coinsource, an operator of Bitcoin Teller Machines, was awarded the twelfth virtual currency license or charter.31

In November 2018, New York–based institutional Bitcoin provider NYDIG was awarded a BitLicense.32

In January 2019, Robinhood Crypto LLC, a subsidiary of Robinhood Markets Inc., and Moon Inc., dba LibertyX were awarded a BitLicense.33

On April 9, 2019 Bitstamp USA, Inc., a subsidiary of Bitstamp Ltd. was awarded a BitLicense.34

One day later, the NYDFS rejected Bittrex's application, citing concerns over capital requirements and lax anti-money laundering controls.35

On December 3, 2019, SoFi Digital Assets, LLC, a subsidiary of Social Finance, Inc. was awarded a BitLicense as well as a money transmitter license.36

On December 11, 2019, the NYDFS proposed a revision to BitLicense whereby a licensee can offer any coin from a public list on the NYDFS website. The revision is still pending.37

In May 2020, Eris Clearing, LLC, a subsidiary of ErisX, secured a Virtual Currency License.38

On June 24, 2020, DFS proposed a new conditional licensing framework that makes it easier for start-ups to enter the New York market. Under the proposed conditional licensing framework, entities may apply for a conditional license when partnering with an existing entity authorized by DFS to engage in virtual currency business activity.39

On October, 21, 2020, PayPal was the first entity approved for a conditional license in partnership with Paxos Trust Company.40

41 42 43 44 45 46 47 48 49 50

References

  1. Michael J. Casey (3 June 2015). "NY Financial Regulator Lawsky Releases Final BitLicense Rules for Bitcoin Firms". WSJ. https://www.wsj.com/articles/ny-financial-regulator-lawsky-releases-final-bitlicense-rules-for-bitcoin-firms-1433345396 ↩

  2. "New York lays out requirements for a 'BitLicense'". Fast FT. https://www.ft.com/intl/fastft/333531/ny-regulator-issues-digital-currency-framework ↩

  3. Kaja Whitehouse, USAToday (3 June 2015). "'Bitlicense' rules regulating bitcoin released". USA TODAY. https://www.usatoday.com/story/tech/2015/06/03/bitcoin-bitlicense-lawsky-rules-final/28405317/ ↩

  4. "Regulations of the Superintendent of Financial Services, part 200: virtual currencies" (PDF). Department of Financial Services. Archived from the original (PDF) on March 28, 2017. Retrieved April 13, 2017. https://web.archive.org/web/20170328214158/http://www.dfs.ny.gov/legal/regulations/adoptions/dfsp200t.pdf ↩

  5. Jose Pagliery, CNN (18 July 2014). "New York unveils Bitcoin license rules". CNN. {{cite web}}: |author= has generic name (help) https://money.cnn.com/2014/07/18/technology/bitcoin-license ↩

  6. "BitLicense Frequently Asked Questions". www.dfs.ny.gov. Archived from the original on 2018-09-26. Retrieved 2018-11-06. https://web.archive.org/web/20180926045935/https://www.dfs.ny.gov/legal/regulations/bitlicense_reg_framework_faq.htm ↩

  7. "Regulations of the Superintendent of Financial Services, part 200: virtual currencies" (PDF). Department of Financial Services. Archived from the original (PDF) on March 28, 2017. Retrieved April 13, 2017. https://web.archive.org/web/20170328214158/http://www.dfs.ny.gov/legal/regulations/adoptions/dfsp200t.pdf ↩

  8. New York State Department of Financial Services (July 17, 2014). "NYDFS Releases Proposed BitLicense Regulatory Framework for Virtual Currency Firms" (Press release). Archived from the original on 2014-09-23. Retrieved July 19, 2014. https://web.archive.org/web/20140923054843/http://www.dfs.ny.gov/about/press2014/pr1407171.html ↩

  9. New York State Register, Vol. XXXVI, Issue 23 (July 23, 2014) Archived September 5, 2017, at the Wayback Machine, pp. 14-16. Rulemaking I.D. No. DFS-29-14-00015-P. /wiki/New_York_State_Register ↩

  10. New York State Department of Financial Services (July 17, 2014). "NYDFS Releases Proposed BitLicense Regulatory Framework for Virtual Currency Firms" (Press release). Archived from the original on 2014-09-23. Retrieved July 19, 2014. https://web.archive.org/web/20140923054843/http://www.dfs.ny.gov/about/press2014/pr1407171.html ↩

  11. Cameron Fuller (31 January 2014). "Bit Licenses: How Will New York Regulate Bitcoins?". International Business Times. http://www.ibtimes.com/bit-licenses-how-will-new-york-regulate-bitcoins-1552078 ↩

  12. New York State Register, Vol. XXXVII, Issue 8 (February 25, 2015), pp. 17-18. Rulemaking I.D. No. DFS-29-14-00015-RP. /wiki/New_York_State_Register ↩

  13. Roberts, Daniel. "Behind the "exodus" of bitcoin startups from New York". Fortune. Retrieved 10 October 2016. http://fortune.com/2015/08/14/bitcoin-startups-leave-new-york-bitlicense/ ↩

  14. Michael del Castillo (August 12, 2015). "The 'Great Bitcoin Exodus' has totally changed New York's bitcoin ecosystem". New York Business Journal. http://www.bizjournals.com/newyork/news/2015/08/12/the-great-bitcoin-exodus-has-totally-changed-new.html ↩

  15. "Bitcoin company ditches New York, blaming new regulations". Fortune. June 11, 2015. http://fortune.com/2015/06/11/bitcoin-shapeshift-new-york-bitlicense/ ↩

  16. Michael del Castillo (August 12, 2015). "The 'Great Bitcoin Exodus' has totally changed New York's bitcoin ecosystem". New York Business Journal. http://www.bizjournals.com/newyork/news/2015/08/12/the-great-bitcoin-exodus-has-totally-changed-new.html ↩

  17. Paul Vigna (Sep 22, 2015). "Circle Gets First 'BitLicense,' Releases CirclePay, New Service". WSJ. https://blogs.wsj.com/moneybeat/2015/09/22/circle-gets-first-bitlicense-releases-circlepay-new-service/ ↩

  18. Karen Freifeld (September 22, 2015). "NY regulator issues first license for bitcoin company". Reuters. Archived from the original on September 23, 2015. Retrieved June 30, 2017. https://www.reuters.com/article/us-bitcoin-regulations-idUSKCN0RM1TP20150922 ↩

  19. Curt Woodward (September 22, 2015). "Circle gets first bitcoin license from New York regulators". betaboston.com. Archived from the original on September 23, 2015. Retrieved September 23, 2015. https://web.archive.org/web/20150923173720/http://www.betaboston.com/news/2015/09/22/circle-gets-first-bitcoin-license-from-new-york-regulators/ ↩

  20. NYDFS (September 22, 2015). "Press Release - NYDFS Announces Approval of first BitLicense application from a virtual currency firm". ny.gov. Archived from the original on January 31, 2018. Retrieved September 23, 2015. https://web.archive.org/web/20180131023602/http://www.dfs.ny.gov/about/press/pr1509221.htm ↩

  21. "DFS CONTINUES TO FOSTER RESPONSIBLE GROWTH IN NEW YORK'S FINTECH INDUSTRY WITH NEW VIRTUAL CURRENCY PRODUCT APPROVALS". www.dfs.ny.gov. Archived from the original on 2018-09-11. Retrieved 2018-11-06. https://web.archive.org/web/20180911044842/https://www.dfs.ny.gov/about/press/pr1809101.htm ↩

  22. "Article 78 against NYDFS". Archived from the original on 2016-11-07. Retrieved 2016-11-06. https://web.archive.org/web/20161107014434/http://www.article78againstnydfs.com/index.html ↩

  23. "New York State Supreme Court Hearing Transcript" (PDF). Archived from the original (PDF) on 2017-10-31. https://web.archive.org/web/20171031154334/http://www.article78againstnydfs.com/docs/Index-101880-15/18-Hearing/01-Transcript-version.pdf ↩

  24. "Press Release - June 13, 2016: DFS Grants Virtual Currency License To XRP II, LLC, an Affiliate of Ripple". Department of Financial Services. Retrieved 2020-05-06. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1606131 ↩

  25. "DFS AUTHORIZES COINBASE, INC. TO PROVIDE ADDITIONAL VIRTUAL CURRENCY PRODUCTS AND SERVICES: Coinbase is the Second Company to Receive DFS Approval to Offer Trading of Emerging Digital Currency Ethereum and the First to Offer Litecoin in New York". New York Department of Financial Services. 22 March 2017. Archived from the original on 18 May 2018. Retrieved 2019-10-28. https://web.archive.org/web/20180518172931/https://www.dfs.ny.gov/about/press/pr1703221.htm ↩

  26. "DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITFLYER USA, INC". www.dfs.ny.gov. Retrieved 2018-11-06. https://www.dfs.ny.gov/about/press/pr1711281.htm ↩

  27. "DFS Continues Actions to Support Responsible Innovation in New York's Fintech Industry". www.dfs.ny.gov. Archived from the original on 18 May 2018. Retrieved 2018-11-06. https://web.archive.org/web/20180518002006/https://www.dfs.ny.gov/about/press/pr1805171.htm ↩

  28. "June 14, 2018: DFS Continues to Advance Responsible Growth in New York'S Fintech Industry with New Virtual Currency Approvals". www.dfs.ny.gov. Archived from the original on 2018-06-18. Retrieved 2018-06-18. https://web.archive.org/web/20180618205329/https://www.dfs.ny.gov/about/press/pr1806141.htm ↩

  29. "June 18, 2018: DFS Grants Virtual Currency License to Square, Inc". www.dfs.ny.gov. Archived from the original on 2018-06-18. Retrieved 2018-06-18. https://web.archive.org/web/20180618162136/https://www.dfs.ny.gov/about/press/pr1806181.htm ↩

  30. "July 16, 2018: DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITPAY, INC". www.dfs.ny.gov. Archived from the original on 2018-08-27. Retrieved 2018-11-06. https://web.archive.org/web/20180827133600/https://www.dfs.ny.gov/about/press/pr1807161.htm ↩

  31. "November 1, 2018: DFS GRANTS VIRTUAL CURRENCY LICENSE TO COINSOURCE, INC". www.dfs.ny.gov. Archived from the original on November 6, 2018. Retrieved 2018-11-06. https://web.archive.org/web/20181106194634/https://www.dfs.ny.gov/about/press/pr1811011.htm ↩

  32. "Press Release - November 14, 2018: DFS Grants Virtual Currency and Money Transmitter License to NYDIG Execution, LLC". Department of Financial Services. Retrieved 2021-01-17. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1811141 ↩

  33. "January 24, 2019: DFS CONTINUES TO ADVANCE RESPONSIBLE INNOVATION IN NEW YORK'S FINTECH INDUSTRY". www.dfs.ny.gov. Archived from the original on January 25, 2019. Retrieved 2019-01-24. https://web.archive.org/web/20190125020631/https://www.dfs.ny.gov/about/press/pr1901241.htm ↩

  34. "April 9, 2019: DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITSTAMP USA, INC". www.dfs.ny.gov. Retrieved 2019-04-09. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1904092 ↩

  35. Chavez-Dreyfuss, Gertrude (10 April 2019). "Bittrex virtual currency license rejected by New York financial regulator". Reuters.com. Reuters. Retrieved 30 September 2021. https://www.reuters.com/article/us-crypto-currencies-bittrex/bittrex-virtual-currency-license-rejected-by-new-york-financial-regulator-idUSKCN1RM24Q ↩

  36. "Press Release - December 3, 2019: DFS Grants Virtual Currency and Money Transmitter Licenses to SoFi Digital Assets, LLC". Department of Financial Services. Retrieved 2020-01-24. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1912031 ↩

  37. "Press Release - December 11, 2019: Financial Services Superintendent Linda A. Lacewell Announces New Proposed Regime for Listing of Virtual Currencies". Department of Financial Services. Retrieved 2020-06-13. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1912101 ↩

  38. "Press Release - May 06, 2020: DFS Grants Virtual Currency and Money Transmitter Licenses to Eris Clearing, LLC". Department of Financial Services. Retrieved 2020-05-06. https://www.dfs.ny.gov/press_releases/pr202005061 ↩

  39. "Press Release - June 24, 2020: DFS Superintendent Lacewell Launches Series of Virtual Currency Initiatives". Department of Financial Services. Retrieved 2021-08-28. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202006241 ↩

  40. "Press Release - October 21, 2020: Superintendent Linda A. Lacewell Announces PayPal To Be the First Approved Entity for DFS Conditional BitLicense". Department of Financial Services. Retrieved 2021-08-28. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202010211 ↩

  41. "Benjamin Lawsky unveils New York's historic BitLicense framework - New York Business Journal". New York Business Journal. 3 June 2015. http://www.bizjournals.com/newyork/news/2015/06/03/benjamin-lawsky-unveils-new-yorks-historic.html ↩

  42. "Fmr New York bitcoin watchdog can't help bitcoin startups get license - Fortune". Fortune. June 11, 2015. http://fortune.com/2015/08/03/benjamin-lawsky-bitcoin/ ↩

  43. Ian McKendry (3 June 2015). "After N.Y. Makes 'BitLicense' Official, Focus Moves to Who's Next". American Banker. http://www.americanbanker.com/news/law-regulation/after-ny-makes-bitlicense-official-focus-moves-to-whos-next-1074677-1.html ↩

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  45. "What BitLicense Regulations Mean for Bitcoin". NASDAQ.com. 10 June 2015. http://www.nasdaq.com/article/what-bitlicense-regulations-mean-for-bitcoin-cm485273 ↩

  46. "New York Outs Final BitLicense For Bitcoin And Other Digital Currency Companies". Tech Times. 2015-06-06. http://www.techtimes.com/articles/58166/20150606/new-york-outs-final-bitlicense-for-bitcoin-and-other-digital-currency-companies.htm ↩

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  50. "Companies burdened by BitLicenses real cost - EconoTimes". EconoTimes. 2015-08-14. http://www.econotimes.com/Companies-burdened-by-BitLicenses-real-cost-75950 ↩