It was done: his piece de resistance, his crowning achievement. The policy that, for better or for worse, would come to define the new regulatory department that he had the honor of heading.
Probably “for better” honestly. After all, the consensus among the general public seemed to be that Bitcoin and crypto were a “Wild West” that needed to be understood and regulated. Who better to lead the charge than regulators in New York, the financial capital of the world?
Benjamin had a lot riding on the policy. He had told a lot of people that other states would soon follow suit and adopt their own similar legislation. His career would be made if that came true.
The above account is a fictionalized dramatization that is loosely based on the reported events surrounding New York’s BitLicense and its architect, Benjamin Lawsky. As such, it should not be taken as factual.
Dear Readers,
Government regulation is a mixed bag in my opinion. It may be that some regulations end up having a positive impact and even actually achieve their stated goals on rare occasions. But history is full of instances where regulations did more harm than good.
Still, society at large has become quite comfortable with the idea that faceless bureaucrats in far-off places should dictate how economies and businesses should work and grow. So much so that when Bitcoin burst on the scene, it wasn’t long before some people were clamoring to share their two cents about how the new space should be allowed to operate.
A Bit About The BitLicense
The BitLicense out of New York in the United States was one of the first such attempts at corralling Bitcoin. The creator of the BitLicense, Benjamin Lawsky, believed strongly that Bitcoin and related technologies needed the firm hand of regulation in order to succeed, being quoted as follows:
If we get [the regulation] right, I think the outlook for virtual currencies in one form or another is quite bright in New York.
With the benefit of hindsight, I’d say that there’s pretty solid evidence that Lawsky and the New York Department of Financial Services (NYDFS) didn’t get it right.
For example, New York residents and businesses are restricted from interacting with any Bitcoin company that hasn’t successfully jumped through the State’s hoops to acquire a BitLicense. That might not sound like a big deal, but the reality is that the process requires piles of money and thousands of hours, and applicants aren’t guaranteed to pass. In fact, applying is so difficult that Lawsky actually started assisting companies in acquiring the BitLicense after leaving NYDFS.
Need further proof? Out of the hundreds of Bitcoin and Crypto companies, only a little over twenty have successfully applied for the BitLicense in the seven years since its inauguration. Every other company is more or less restricted from doing any business in the state, which means that there is significantly less competition and innovation within Bitcoin companies in New York.
Thank goodness that other states haven’t followed in New York’s footsteps.
An Argument Against Bitcoin Regulation
On its face, regulation sounds like a good thing right? Regulators are just trying to protect us aren’t they?
Regulation starts to become much less appealing though when you remember that regulations are put in place by whoever happens to be in power at any given time. What are the chances that you don’t agree with everything that the people in charge say and do? Pretty high I’d say.
Frankly, regulation of Bitcoin itself is unnecessary. At any given moment, there are hundreds of developers and tens of thousands of users actively using the Bitcoin network and deciding what it should be in order to provide the most value to everyone on the network, not just a handful of powerful people at the top. A small group of bureaucrats, who probably know less about Bitcoin’s inner workings than the newest entrant to the space, have zero chance of concocting a better blockchain than the one actively being developed across the entire community.
But perhaps the most important point of all is this: it’s impossible for any one group, government, or person to actually control Bitcoin anyway. Bitcoin doesn’t have a leader and there are powerful examples over its history of groups that have failed to force Bitcoin and its users to conform. They’d be better off just building up the network rather than trying to recreate it in their image.
Read the next article in this series:
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Letter #128: Bitcoin and the Story of Antifragility #8 - All Hail The (Failed) BitLicense