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The Legality of Cryptocurrency in New York State: Understanding Bitcoin, Blockchain and Bitlicenses

January 11, 2018

In recent years, cryptocurrency has raised important legal questions as its public popularity has increased. Cryptocurrency is a virtual currency that is created and controlled through the use of sophisticated encryption methods known as cryptography.  The most well-known is Bitcoin, a digital currency created in 2009, which many believe is the economy of the future. 

Digital currency is decentralized, meaning that no central organization has control over the funds, essentially immunizing virtual currency from government regulation. Given the anonymous nature of cryptocurrency, lawmakers are challenged with the task of regulating these virtual transactions.

The Good and The Bad

Many believe that a great advantage to purchasing cryptocurrency is its invulnerability to fraud. Because they are digital, cryptocurrencies cannot be counterfeited. Further, cryptocurrency protects against theft, unlike credit card transactions. Cryptocurrency allows the digital currency owner to send only the information he/she would like the recipient to know. Conversely, credit cards provide merchants access to an individual’s entire credit line. While these protections seem advantageous, critics believe the lack of oversight of this new technology facilitates illegal activities. Also, cryptocurrency data structures are susceptible to hacking, which can cause exchange rates to fluctuate because prices are based on supply and demand.

Cryptocurrency removes banking bureaucracy because it is owned entirely by the purchaser: no third party has access, or control, over the buyer’s funds. An attraction of cryptocurrency is its elimination of third parties, low transaction fees, and global accessibility.However, increased exposure to the global commerce system has catalyzed a discussion on bringing regulation to cryptocurrency.

New York State’s Role in Cryptocurrency

The New York State Department of Financial Services has underscored a continued need for oversight on the cryptocurrency industry. This is due to the increased speed of transactions enabled by blockchain technologies, a network of computers used to mutually manage the database that records virtual transactions. Worldwide payment systems like Bitcoin are managed by blockchain networks, on a user-to-user basis, and not by a central agency. According to Melanie Swan, author of BlockChain: Blueprint for a New Economy, decentralized networks are the next big thing in technology. 

With this pivotal development in web infrastructure, the DFS has implemented several policies in response.  As a way to exercise oversight of blockchain technologies, the finance department conducts examinations of virtual currency companies at least once every two years. DFS examinations include inspections of books, records, and other company items.

Further, any individual engaging in storing, buying, selling, transmission, performing an exchange of services and/or controlling virtual currency is required to obtain a BitLicense, a business license of virtual currency activities. Out-of-state businesses that engage in virtual currency business activity involving New York State, or with persons within the state, must obtain a BitLicense to continue their business. To date, the NYDFS has licensed five digital currency companies. Some of those companies have obtained BitLicenses, while others have been granted banking charters as an alternative opportunity for oversight.

While cryptocurrency is in its early stages of development and is not likely to replace traditional tools of global commerce, its rising popularity has catalyzed a narrative on cryptocurrency laws and regulations.

Learn more about cryptocurrency laws and regulations and how New York State is playing a role in examining businesses and licenses. If you have additional legal questions feel free to contact HoganWillig at 716-636-7600 or by email through