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:
- 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.
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?