Major privacy group warns New York against Bitcoin law overreach

new york empire state

Geraint Rowland

Despite new assurances, Bitcoin users continue to warn that the state of New York’s proposed Bitcoin rules could threaten privacy rights and stifle innovation around the cryptocurrency.

And now a leading U.S. privacy advocacy group is speaking up.

The Electronic Frontier Foundation, the group best known for filing suit against the National Security Agency over its domestic surveillance program, recently launched a “Stop the BitLicense” initiative that has the support, among others, of Gavin Andresen, Bitcoin’s core developer.  Andresen declined to comment.

Rainey Reitman, director of the EFF’s activism team, said that in the runup to issuing its initial BitLicense proposal, the New York Department of Financial Services (DFS) appeared sympathetic to many of the concerns the Bitcoin community raised about hampering development of new products and encroaching on Bitcoin users’ anonymity. But the agency wound up publishing a document that didn’t seem to reflect their fears.

“I was appalled by how broad it was,” she said.

Among other things, the draft rules said any company whose core service is buying, selling, or processing Bitcoin would have to maintain records of their customers’ names and addresses, and check them against the Treasury Department’s list of bad actors.

Last week, DFS Superintendent Benjamin Lawsky gave a speech in which he promised “substantial changes” to the BitLicense proposal based on feedback the agency received over a comment period he agreed to extend by 45 days. But he said many of the core consumer protection features, as well as rules aimed at money transmitting firms, would likely remain in place.

Reitman said while she was somewhat encouraged by the comments, the proof will be in the next draft. She said the EFF is paying close attention to what kind of user information regulated firms would be required to collect and keep on file. Lawsky did not directly address the user information issue in his remarks.

Meanwhile, NYNeedsBitcoin, a group that has published op-eds from major Bitcoin institutions like advocacy group Bitcoin Foundation and wallet service Coinbase, is also warning the BitLicense “will kill innovation in New York and beyond.” They are urging cryptocurrency users to submit a letter challenging the regulations.

Jim Harper, global policy counsel for the Bitcoin Foundation, said many in the Bitcoin community have taken more kindly to the regulatory approaches seen in Kansas and Texas, which are working to integrate Bitcoin into existing statutes rather than coming up with brand new regulations.

“It’s better to iterate than try to come up with the right answer from the beginning,” he said.

Harper said he remains hopeful that Lawsky’s desire to have the Empire State take a leading role in encouraging Bitcoin innovation could prompt him to ease up on some of the items in the initial proposal.

“It’s pretty clear from Superintendent Lawsky’s part that he gets it, he understands how revolutionary this technology may be,” Harper said. “I think he genuinely wants to see it take root in New York and the U.S.”

The comment period on the draft BitLicense proposal ends tomorrow.