This is another in a series of posts focused on the first state regulation of cryptocurrency businesses.  Ostensibly, depending on one’s opinion, the New York BitLicense regulation of bitcoin (and digital currency businesses more generally) was enacted primarily to protect consumers.  Despite being placed nearly at the end of the BitLicense regulation text (§200.19), consumer protection measures are among the most significant and intensive provisions applicable to digital currency businesses.

Purely as a new administrative task for any of these businesses that are consumer-facing, first note that a Licensee must obtain each customer’s acknowledgment that all consumer protection disclosures required by the Regulations have been received.

Secondly, when establishing a customer relationship (and prior to transacting), at least these categories of universal written disclosures about Virtual Currency must be made to each consumer:   

All Material Risks

Virtual Currency is not legal tender backed by a government, and is not subject to FDIC insurance or Securities Investor Protection Corporation protections.

Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect use, transfer, exchange, and value.

Transactions may be irreversible and losses due to fraud may not be recoverable.

The time a transaction is recorded on the public ledger is not necessarily the time that the customer initiated the transaction.

Digital currency’s value may be derived from the continued willingness of market participants to use it, and total loss of value of a particular unit could occur should the market for that particular cryptocurrency disappear.

There is no assurance that vendors who accept a Virtual Currency as payment today will continue to do so in the future.

The volatility and unpredictability of the price of Virtual Currency relative to Fiat Currency may result in significant loss over a short period of time.

The nature of Virtual Currency may lead to an increased risk of fraud or cyber-attack, and any technological difficulties may prevent the access or use of a customer’s Virtual Currency.

any bond or trust account maintained for the benefit of customers may not be sufficient to cover all losses incurred.


All General Terms and Conditions

Customer liability for unauthorized Virtual Currency transactions; and rights and procedures to stop payment of a pre-authorized transfer;

Circumstances under which customer’s account information will be disclosed to third parties;

Customer right to receive:  periodic account statements and valuations; transaction receipt; and prior notice of changes to the Licensee’s rules or policies; and

“Other disclosures customarily given” in connection with the opening of customer accounts (which may be read to include non-Virtual Currency accounts).


Thirdly, prior to each transaction, these minimum written disclosures must occur:

Terms and Conditions of the Transaction

Type, nature, and amount of the transaction;

Any fees, expenses, and charges to the customer, including applicable exchange rates;

Warning that the transaction may not be rescinded after execution, if applicable; and

“Other disclosures customarily given” in a like transaction.


Then, after any transaction, the customer must be given a receipt (the general form of which must be available for NYDFS inspection) containing:

Licensee name and contact information, including a telephone number to answer questions and register complaints;

type, value, date, and precise time of transaction;

fee charged;

exchange rate, if applicable;

statement of Licensee liability for non-delivery or delayed delivery;

statement of Licensee refund policy; and

any additional information required by NYDFS.


These requirements may, on first blush, appear cumbersome to digital currency entrepreneurs and their customers, some of whom are not inclined toward procedural conformity and the kinds of compliance tasks that complicate ordinary, pre-cryptocurrency finance.  There is much to be said, however, for adherence to a set of guidelines that may very well help unsophisticated consumers understand the practicalities of transacting via these nascent technologies.

The last post in this series by Atlanta Bitcoin attorney Mark Richardson VI familiarized the reader with the regulatory vernacular of the New York BitLicense law now in effect.  Let’s now examine to whom exactly that license requirement applies.

The crux of the BitLicense regulations is that, “No Person shall, without a license obtained from [New York Department of Financial Services] as provided in [these Regulations], engage in any Virtual Currency Business Activity” (§200.3(a)).  Have a good look again at the definition of VCBA highlighted in the last post, as it is obviously key to the scope and reach of the first state digital currency regulation.  It would be difficult on first blush for these rules to be more sweeping!

There are exemptions to the license requirement, though, for: (a) those chartered under the New York Banking Law and approved by NYDFS to engage in Virtual Currency Business Activity; and (b) merchants and consumers that utilize Virtual Currency (including, of course, bitcoin) solely for the purchase or sale of goods or services, or for investment purposes. You must know first-off, however, that these exemptions are inapplicable to the commercial conduct of any other bitcoin transactions under New York’s jurisdiction.

There was an initial phase-in period prescribed by the BitLicense regulations whereby a business already engaged in Virtual Currency Business Activity could apply for the license within forty-five (45) days of the effective date of the Regulations (§200.21), but that safe harbor window is irreversibly closed now!

To still provide some cushion, a conditional BitLicense grant of up to two (2) years for a virtual currency business applicant not fulfilling the full licensing requirements may be granted (§200.4(c)). That is, of course, discretionary on the part of NYDFS, and is not very easy to get, either.

Regardless of the form of license granted or refused, the application fee is a stout and non-refundable Five Thousand Dollars ($5,000), and additional charges may apply if a given applicant has to submit additional application materials (§200.5).  The truly major costs to the applicant of obtaining the mandatory bitcoin business license, however, are in man-hours, and legal and accounting costs, as already verified by hard data (see, e.g., this Coindesk article).

Richardson Sixth Crypto-Counsel ℠ will next show you the consumer protection requirements in this bitcoin legislation causing commercial cryptocurrency concerns to allot what may be a surprisingly sizeable budget.

Here’s the first installment of a Crypto-Counsel ℠ series on the New York State Department of Financial Services (“NYDFS“) “BitLicense” regulations applicable to digital currency businesses (the “Regulations“).  The Regulations are located in the New York Code’s Rules and Regulations at Title 23, Chapter 1, Part 200, and are now in full effect.  All section citations here are from the Regulations.

A quick reminder as we get started:

Please note that while the author, attorney Mark Richardson VI, graduated from New York University School of Law, he is not licensed to practice law in the State of New York.  This Memorandum is not intended to be a comprehensive survey of New York or Georgia law applicable to a digital currency business.  Further, to reduce our discussion to a reasonable length, the citations to and interpretations of the Regulations are highly paraphrased here.  Only select provisions are treated here, and the actual text of the full Regulations should be read alongside this Georgia Internet Law series to ensure a complete understanding of their requirements.  Capitalized terms used but not defined here have the meanings ascribed to them in the Regulations.

The first task in understanding the BitLicense is to become familiar with its nomenclature.  You may be surprised at the content or breadth of several of these definitions for the activities of virtual currency businesses.  Have a look at the meanings lurking in §200.2:


Exchange Service” – the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency.


New York Resident” – any Person that resides, is located, has a place of business, or is conducting business in New York.


Transmission” – the transfer, by or through a third party, of Virtual Currency from a Person to a Person, including the transfer from the account or storage repository of a Person to the account or storage repository of a Person.


Virtual Currency” – means any type of digital unit that is used as a medium of exchange or a form of digitally stored value, whether or not it has a centralized repository or administrator, or may be created or obtained by computing or manufacturing effort.

 Note that the Virtual Currency definition expressly excludes three (3) items:

  •  digital units that are used solely within online gaming platforms, have no outside market or application, and cannot be converted into or redeemed for Fiat Currency or Virtual Currency (whether or not redeemable for real-world goods, services, discounts, or purchases);
  • digital units that can be redeemed for (a) goods, services, discounts, or purchases as part of a customer affinity or rewards program with the issuer or other designated merchants, or (b) digital units in another customer affinity or rewards program; but cannot be converted into, or redeemed for, Fiat Currency or Virtual Currency; and
  • digital units used as part of Prepaid Cards.

Virtual Currency Business Activity” – the conduct of any of the following types of activities involving New York or a New York Resident:

  1.  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;
  2. storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;
  3. buying and selling Virtual Currency as a customer business;
  4. performing Exchange Services as a customer business; or
  5. controlling, administering, or issuing a Virtual Currency.

Note: The Regulations exclude “development and dissemination of software in and of itself” from the definition of Virtual Currency Business Activity.


Richardson Sixth Crypto-Counsel ℠ will next look at how these definitions meld to form the parameters of the New York license requirement.  Have you seen these formulations before, and what do you think of them?


The first New York BitLicense (full text of regulations here) was issued last month following months and months of legislative efforts, followed by initial application processing by the New York Department of Financial Services.  This, of course, marks the first enactment and application of state regulation specifically directed at businesses that, in various ways, facilitate the use of bitcoin (a form of “digital currency,” “cryptocurrency,” or “virtual currency”).

In a series of posts to follow, Crypto-Counsel ℠ Mark Richardson VI will address the legal issues arising from the BitLicense regime, and the implications of state bitcoin regulation on digital currency transactions.

Other states are soon to follow with their own respective manner of cryptocurrency regulation.  It is important to understand the tone New York bitcoin law has set via its deep exploration of the intersection of digital currency expansion and consumer protection.

Time to acclimate and learn not only to function in this new business climate, but to thrive in it.


Google Fiber will deliver “Gigabit” Internet and TV connectivity to multiple metro-Atlanta cities as early as 2016, laying out fiber-optic infrastructure across Atlanta, Avondale Estates, Brookhaven, College Park, Decatur, East Point, Hapeville, Sandy Springs, and Smyrna. The new Fiber-to-the-Home (FTTH) network will deliver service 100 times faster than basic broadband.

To warrant the prerequisite capital and infrastructure investment, build-out will be demand-based. Fiber connections will enter through multiple aggregators, with cables then branching out to neighborhoods and individual residences (much of it strung on new and existing utility poles, but some of it buried). Google’s efforts in California have already been thwarted, as the California Public Utilities Commission denied Google’s petition to utilize existing poles as a mere “Video Service Provider,” partly because such Providers are not subject to the same mandatory safety standards as cable providers. The CPUC may, however, modify that result after the Federal Communications Commission (FCC) reclassified broadband service as a federal Title II common carrier service, one which Google will be providing.

As most can attest, pay-TV and Internet service provider competition has largely been illusory. Consumer power in terms of both service offering level and price may increase, however, as both Comcast and AT&T make a concerted effort to build high-speed networks in areas where Google Fiber exists or will expand. In Kansas City and other locales, AT&T is offering “GigaPower” service to match the speed of Google Fiber and compete on the basis of cost.

Comcast has offered ultra-high-speed Internet to business customers since 2010, but is readying 2 Gbps “Gigabit Pro,” its first public and residential offering in the category. Pricing may vary, and expect to pay for the extra speed. The Comcast service is expected to cost more than Google’s, but less than its own current 505 Mbps service. In contrast to Google Fiber, all of metro-Atlanta (and not just certain targeted neighborhoods) can subscribe.

Comcast claims its service will be “symmetrical,” with equal download and upload speeds twice those anticipated from Google Fiber (in the experience of Richardson Sixth attorney, Mark Richardson, uploads with prior Comcast service often occurred at less than one-half the speed of downloads). Richardson received a mailing from Comcast at the end of May referring to the service as “Multi-Gig.”

The revenue model for Google Fiber TV, as with other Google endeavors, will emphasize targeted advertising selected and sent in real time to engender connection with the viewer on the basis of geographic location, type of show being watched, viewing history, etc. As with customized Internet search engine ads, the advertiser need only pay for the ads actually shown, and can limit the number of times an ad is served to a given viewer.

Google Gigabit Internet will cost $70 per month, with Gigabit Internet plus TV $120 per month. A $300 construction fee for either package is waived with a one-year service commitment. Google will focus on residential customers, but hopes to offer a small business product, as well. Business customers will receive 1 Gbps upstream and downstream speeds, with dedicated phone, e-mail, and chat support for $100 per month.

For those who can somehow get by with 1 Gbps service, Comcast will also provide a lower-tier offering comparable to Google Fiber and AT&T GigaPower.

Bitcoin, a software-based online-payment system, as well as the synonymous payment unit, was introduced in 2009 by the perhaps pseudonymous Satoshi Nakamoto.  Bitcoin is virtual money exchanged online via any of various apps.  Traded on online exchanges as an investment commodity, it is subject to few fees and, for the time being, no government regulation.  Bitcoin, sometimes referred to as “cryptocurrency,” is one of more than 500 virtual currencies, most of which are similar to and derived from it.  Bitcoin is the first fully implemented and decentralized cryptocurrency, and the largest in terms of market value.  It is a desirable payment mechanism for international transactions because it does not rely on international borders, and has an appeal in countries where the domestic currency is not trusted.

Consumers purchase Bitcoin with traditional currency, store the virtual money in an online wallet, and transfer it directly to a vendor’s virtual wallet to pay for products or services, thereby cutting out intermediary banks and credit card processors.  No one owns, per se, the rails on which Bitcoin operates, and certain market-makers have made Bitcoin easier to use by building platforms on top of that existing infrastructure.  Individual established businesses already accepting Bitcoin payment include Dell, Dish Network, Expedia,, TigerDirect, and Virgin Galactic.  In late 2014, PayPal offered North American merchants the ability to receive payment for digital goods in Bitcoin.

Every Bitcoin transaction appears in a permanent public ledger called the “block chain,” a novel solution to prevent fraudulent double-spending of the same Bitcoin.  Bitcoin is difficult to hack or subterfuge because manipulative actions of any consequence require consensus of the subject network’s participating devices.

Nonetheless, an arguable risk involved in transacting in Bitcoin is that it lacks federal monetary protections.  As with any other currency, Bitcoin may, and is perhaps more likely to (a) be used to purchase illegal goods and services, and (b) lose its value or liquidity.

Among lingering legal issues concerning cryptocurrency is tax treatment.  The IRS announced its position on the income tax treatment of Bitcoin in 2014, decreeing that Bitcoin is essentially property rather than currency and is subject to capital gains.  One may thus expect that general tax principles applicable to property transactions will be increasingly applied to virtual currency transactions.  New York is the first state to formulate proposed virtual currency regulations.

New York University offers the first graduate-level course focused on Bitcoin (Launching the Law and Business of Bitcoin and Other Cryptocurrencies), with Duke University to follow.  Georgia Tech is the first U.S. university to accept Bitcoin for payment transactions such as tuition, stadium concessions, and student dining.

Geoffrey Miller, Professor at NYU Law, foresees the long-range future of Bitcoin as residing in its technology, as opposed to its payment mechanism functionality.  The comparatively enhanced security it provides will be utilized in fields totally detached from payment instrument infrastructure.

The Richardson Sixth firm made a visit to the Atlanta Tech Village yesterday.  The gathering was sponsored by the Buckhead Club, which shares valuable real estate with the Village as part of the “Buckhead Super-block.”

ATV is a very significant development in the Atlanta and national start-up ecosystem; its organizers have the express goal of “fueling Atlanta’s rise to a top-five tech start-up center in the U.S.”

The Village is a 103,000 square-foot commercial center designed for technology and technology-related companies.  Eighty percent (80%) of the companies with a presence in the Village are tech companies, with the remaining twenty percent (20%) service providers.  Generally speaking, the companies’ number of employees is between one and 30.

Participating companies pay membership dues and fees, and Richardson likes the fact that the Village does not take equity positions in its members.

Best wishes to all involved in the movement!

ReDigi, started in late 2011, holds itself out as a legal means for consumers to sell their digital music files online, giving them the same ability to re-sell as they possess with their CDs or vinyl. ReDigi proponents argue that the historical lack of a re-sale market has encouraged consumers to (a) view MP3 files as devoid of economic value, and (b) participate in pirate peer-to-peer services. The ReDigi user may upload iTunes songs and sell them to for, generally, $0.49 to $0.79.

ReDigi technology differs from file-sharing services, which allow the same track to be downloaded by innumerable users, each of whom creates a new copy. ReDigi’s platform never increases the total number of existing copies, instead deleting the sold file from the seller’s hard drive. It also requires the subscriber to use ReDigi sale proceeds to purchase files uploaded to ReDigi by other users.

There is some concern, however, about ReDigi’s ability to provide assurance that its users lawfully possess the media they are offering for sale. Further, some elements in the music industry oppose enabling the re-sale of digital files, arguing that technology permitting consumers to sell “used” digital files would enable the same media to be endlessly transferred, killing the initial-sale market for it.

On the other hand, some say ReDigi is creating a windfall to the music industry derived solely from changing technology. In the past, re-sale of an original record or CD earned the copyright holder no profit. They ask why the copyright holder should now reap a profit from essentially the same secondary market transfer (as long as the seller does not keep a copy of the file after selling it) just because its subject is a digital file?

Obviously disagreeing, Capitol Records filed a 2012 copyright infringement suit against ReDigi in federal court in the Southern District of New York. The case is winding its way through the judicial system. In April, the court ruled for the plaintiff on the theory that ReDigi infringed Capitol’s copyrights, regardless of whether sold files were deleted from uploaders’ computers.

The primary copyright law premise at issue is the first-sale doctrine, established by the U.S. Supreme Court in 1908, which provides that copyright owners cannot prevent consumers who purchased copyrighted material from reselling it (e.g., selling used CDs at a flea market). Record labels contend that ReDigi creates unauthorized copies that cannot be sold, even if first-sale doctrine applied to the article initially sold.

Capitol successfully argued it is impossible to transfer digital files without copying them, saying the first-sale doctrine allows only the owner of a particular copyrighted item to sell that exact item. That would make it legal to resell vinyl albums, CDs or even hard drives containing legitimately downloaded music, but not copies of files that are uploaded to the Internet. Under traditional copyright theory, the reproduction right held by the copyright holder is infringed when a copy is made unless a license to create the copy has been granted.

The rationale behind the prohibition on copying is to enable the copyright owner to control the total number of copies of a creative work in existence. Some argue, however, that the whole notion of copies and their condition is anachronistic as to digital media. Additionally, some observers’ rationale with regard to these issues is based on the notion of media materials being licensed, as opposed to actually sold.

Following initial bouts in the Capitol Records suit, ReDigi has apparently recently disabled prior functionality that permitted its users to transfer music from their computer to ReDigi’s cloud marketplace. It has not, however, disabled its 2.0 service, which, in effect, directs all new digital purchases to the cloud before any personal use copies can be made to the user’s computer, mobile devices, etc.

In economic terms, the person buying a used CD for $1 is not likely to purchase a new one for $15-$30, but the distributor is unlikely to sell original material for less than perhaps $9.99. Thus, we may be discussing distinct markets with little to no overlap. Even if ReDigi’s concept may require community improvement, it’s better for copyright owners than file-sharing services, which don’t generate any revenue for the music industry because people can both distribute and download files for free without also deleting their copies.

Access may be supplanting ownership as the primary model for monetizing media. Paid subscription to services that stream media may be headed to the forefront. In these systems, it is much easier for rightsholders to track what is being consumed by whom, and proceeds are much more easily distributed to the deserved recipients.

In the meantime, Amazon and Apple are busy securing patents for marketplace transfer of “used” digital goods.

The U.S. District Court for the Northern District of California has ruled that website owners have the right to selectively block user access, and any intentional circumvention of those access restrictions may violate the Computer Fraud and Abuse Act (the “CFAA”).

Craigslist made a 2012 demand that 3Taps (an ad aggregator whose business is republishing online ads posted by other parties) cease accessing Craigslist. Taking matters into its own hands, Craigslist simultaneously configured its site to block access from any 3Taps-associated IP address.

3Taps, however, responded by using IP-rotation technology and proxy servers to bypass the blocks, continuing to harvest and repost Craigslist content. Craigslist thus initiated a legal proceeding against 3Taps for copyright infringement and “unauthorized access” to its website under the CFAA, alleging that 3Taps had not only violated Craigslist’s Terms of Service but also deliberately circumvented its IP-blocking measures.

While acknowledging that it intentionally evaded the blocking mechanism, 3Taps asserted that Craigslist had authorized access to and use of its content by publicly providing it. 3Taps also made a public-policy argument that site owners’ blocking of publicly accessible websites is dangerous to the preferable existence of a free-and-open World Wide Web.
The District Court gave little credence to these arguments and instead said, “Store owners [on private property] open their doors to the public, but occasionally find it necessary to ban disruptive individuals from the premises. That trespass law has enforced those bans with criminal penalties has not, in the brick and mortar context, resulted in the doomsday scenarios predicted by 3Taps in the Internet context.”

The court determined there is nothing in the CFAA prohibiting a site owner from blocking other parties from its site on an individualized basis. 3Taps was, however, “without authorization” under the Act when it continued its business practices despite Craigslist’s cessation demand.

Ultimately, that demand was not as significant to the ruling as the fact that Craigslist had purposefully employed specific IP-blocking technology to exclude 3Taps.

Final note:

Some commentators believe the CFAA is being applied to prosecute people for crimes beyond the intended scope of the Act. Enacted in 1986, it makes it illegal to knowingly access a computer without authorization or to exceed authorized use of a computer system. In practical terms, the Act is the virtual equivalent of an anti-trespassing law targeting criminal hackers.

Technology Association of Georgia President and CEO, Tino Mantella, gave a recent State of the Technology Industry report to the Buckhead Business Association.  Tech jobs in Georgia earn an average of $81,000, with the sector increasing by 16,000 employees to 260,000 in the past decade.  In that period, $2 billion was invested in such positions. Seven percent (7%) of Georgia’s gross domestic product is technology-related, with an aggregate annual economic impact of $113.1 billion.

With companies like AirWatch (a major provider of mobile device management, mobile application management and mobile content management solutions) bringing large numbers of jobs to the Atlanta area, Georgia has become one of the top five (5) technology employers in the U.S.  The healthcare IT and financial services technology sectors are particularly strong in Georgia (an impressive fact as to the latter is that fully seventy percent (70%) of payment processing transactions flow through the state).

An area for improvement in the state is the attraction and retention of venture capital resulting in technology jobs, where California continues to hold a dominant fifty-one percent (51%) of that funnel.  Organizations like Venture Atlanta are making strides in shoring that up, and there are many solid investment opportunities here.

Overall, a great place to be!