Brito, Santori Tell NJ Assembly to Offer Regulatory Clarity for Bitcoin

By Kyle Torpey Feb 9, 2015 6:06 AM EST

bitcoin regulation

NEW YORK (InsideBitcoins) — While Thursday’s hearing on bitcoin and digital currency regulation in New Jersey was mostly about educating the lawmakers on the ins and outs of how bitcoin works and what consumers should be worried about, there were also a few recommendations from guest speakers who want to bring more bitcoin companies to the Garden State. Although the legislature is still attempting to grasp bitcoin as a concept, they also wanted to know what specifics the bitcoin community would like to see in any form of regulation that could eventually come to fruition. For nearly every participant in the hearing, it was clear that regulatory clarity was the focus.

Jerry Brito on regulatory clarity and innovation

Jerry Brito

Jerry Brito

It seemed that Coin Center executive director Jerry Brito’s main role during the hearing was to give a somewhat brief overview of bitcoin as a technology and currency, but he was also able to provide some of his own recommendations to the legislature during his allotted time. Brito was quick to point out that regulatory uncertainty is a serious issue in the bitcoin industry right now. He explained, “Bitcoin faces some challenges, and chief among those is regulatory uncertainty — especially at the state level.” He then pointed out that the real innovation built on top of the Internet was not able to take off until the government revealed that they would take a “light-touch” approach to regulation.

After explaining some of the regulatory guidance announced by FinCEN, the IRS, and other agencies at the federal level, Brito went on to offer some recommendations from the perspective of Coin Center:

“If Coin Center could offer you two guiding principles to use when you’re considering policy related to bitcoin, they would be clarity and innovation. Clarity in terms of how existing regulations would apply to this new technology. Setting out ‘rules of the road’ for bitcoin companies seeking to operate in New Jersey. Making sure that these companies understand that if they want to do business here, [this is how] the existing laws apply. And second, to always measure new policies against the impact that they might have on continued innovation. This technology — again, we don’t know where it’s going — but there are many positive uses, and we want to make sure that those can meet their potential.”

Marco Santori offers a solution for New Jersey

MarcoSantori

Marco Santori

Although there was not enough time for Blockchain.info global policy counsel Marco Santori to answer questions, he was able to describe his own vision for bitcoin regulation at the state level. After outlining the three different ways that states have generally acted when it comes to bitcoin regulatory guidance, Santori offered his own solution that could incentivize bitcoin companies to create jobs in the state of New Jersey:

“I’ll close by suggesting an alternative approach. And that’s one that contributes to an atmosphere of regulatory certainty and balances the potential for economic progress against the need for consumer protections. It means considering new legislation that incentivizes digital currency businesses to home in the state of New Jersey, while insuring that those businesses are appropriately monitored as they manage citizens’ money. [This] doesn’t mean building a new licensing machine. It doesn’t mean demanding compliance with a regulatory regime that was never intended to fit digital currencies. Instead, it means a well-thought-out combination of carrots and sticks that demand accountability while incentivizing new economic growth.”

Santori went on to explain that it makes sense to regulate “custodians” of funds rather than software companies. He also noted that registration makes more sense than licensure. In other words, a bitcoin company would have to simply register their business rather than qualifying for an expensive, competition-destroying license.

Creating an attractive business environment

At the end of the day, states need to create an attractive business environment for bitcoin companies if they want those jobs to be available to their citizens. These are highly-mobile companies, which means they generally won’t be constricted by geography. When a business can choose to operate anywhere in the world, the most successful ones will tend to set up shop in the least-restrictive regulatory environment. The legislators in the state of New Jersey also understand that this is not a theoretical issue, as ItBit CEO Charles Cascarilla explained to them why his exchange is based in Singapore and not the United States.

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  • David Custer

    Marco Santori said in the article “[This] doesn’t mean building a new licensing machine. It doesn’t mean demanding compliance with a regulatory regime that was never intended to fit digital currencies.” A licence is nothing more than state sanctioned permission to participate in something that would otherwise be considered illegal. It is a control mechanism.

    Most of us in the cryptographic currency/ Blockchain protocol community would agree with Mr. Santori’s proposal. This certainly appears to be a balanced recommendation. The real trouble is, governments don’t like to be overseers. Governments want more power, more control, and more regulations.

    Ironically, we are asking state and federal regulators to treat the Bitcoin ecosystem with a regulatory philosophy they have never applied to the central banking fiat system. Unfortunately, that regulation has helped facilitate the fascist economy that we have in America today.

    Will Bitcoin industry leaders have the resolve to hold their ground, when substantive negotiations with regulators and bureaucrats begin? The “carrots and sticks” need to be held out to these regulatory policy makers. Cryptocurrency leaders need to maintain the foundational attitude that they will, educate, inform, and advise the regulators, but never succumb to the control that will stifle “incentivizing new economic growth”.

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