Bitcoin Exchange Receives First License in New York State | Hacker News Reader

Bitcoin Exchange Receives First License in New York State

nytimes.com

94 pointsverkter26 comments

Read their terms. They're explicitly front-running. Price data on the public site is delayed (they don't say by how much), but "market makers" can buy faster access.

Their FDIC insurance as a trust company covers only US dollars, not Bitcoins. Bitcoins are uninsured.

If you have a disagreement with the exchange part of the company, you have to go to binding arbitration in Singapore.

Thanks for the info.

Coinbase delays by like... a week though. So a minor delay on price data is still better than the status-quo. We need more BTC exchanges to open up and compete against each other.

That's not really true for Coinbase Exchange, which is real-time. You don't need to wait for a week, just buy/sell at the spot price. No pricing delays, no "market maker prices", which was rightly pointed out by the OP to be front-running and no other gimmicks. Also, no Singapore arbitration.

How does one ensure Bitcoins?

At the rate agreed upon by the purchaser and insurance provider. The considerations are different than those of insuring gold or dollars, but to an actuary, they're all just probabilities.

I think the question was more, with whom does one ensure Bitcoins? Has any insurance provider stepped up and said that they have a solid-enough picture of Bitcoin's risks to know what premium to charge?

Many of the big web-wallet providers, exchanges, and other custodians insure their customers' Bitcoin holdings against theft. Their insurers include Aon (who insure Coinbase), Lloyd's (Elliptic), Marsh (Circle), and XL Catlin (BitGo).

No, really my question was how can an insurer underwrite bitcoin holdings reasonably without being supremely unprofitable?

What standards of bitcoin security will the underwriter be evaluating against?

This is huge for the itBit team; they've been cranking away on this quietly for a couple of years at least; it's been expensive and time consuming. Congrats.

There's an error in the first paragraph of this article. A New York license allows one to operate legally in New York only, not the entire country.

Does it matter where the person using the exchange is? or only that the exchange be physically located in NY?

It depends on the state statute. Generally I've been told that it matters where the customer is.

It looks like this is a banking charter and not a money transmitter license (?)

I thought that was possible but it's inconsistent with everything else I know. I think it's the reporter's misunderstanding of what a money transmission license is, though I'm happy to be corrected if anyone can find proof that a BitLicense suddenly shifted from being a modified MTL to a bank charter after the comment period... It seems like the FDIC would have a lot to say about that; also it would be totally insane to start handing out state bank charters to virtual currency operators when typical money transmitters don't qualify due to their [much lower] risk profile.

See here: http://www.dfs.ny.gov/about/press2015/pr1505071.htm

This definitely raises more questions than it answers. Can a typical money transmitter just pretend to handle Bitcoin as well and magically exempt itself from the state money transmission framework? Do other states consider this kind of trust company to be a bank or a money transmitter? What does FinCEN think?

>>Can a typical money transmitter just pretend to handle Bitcoin as well and magically exempt itself from the state money transmission framework?

It has restrictions and depending on how the Trust was constructed, it may not be applicable in other states for certain transmission activities.

>>Do other states consider this kind of trust company to be a bank or a money transmitter?

They evaluate what the Trust was built for,and what the company wants to do in their state, and evaluate whether there is a delta or overlap.

>>What does FinCEN think?

no diff, still have BSA/AML obligations and commitments.

The problem is that a Trust Company does have properties that require it not to have MTL's, but it also is restricted in few areas, such as custody to custody movement. Getting a Trust charter is not easy, there is no worry of it being handed out like free candy. I think you will find companies getting Trust charters, only to realise that there are certain things it can not functionally do.

It's a limited-purpose trust company - it can only accept assets as trustee and cannot hold cash as a customer deposit. Because depositors' funds aren't at risk, these entities don't have to join the FDIC and are exempt from some other regulations.

I guess because itBit acts as a custodian for Bitcoins and not just a transmitter, the DFS thought it was a closer fit than a money transmitter license.

It is neither, it is a Trust Company charter.

...which is odd because according to FinCEN (the federal government) Bitcoin exchanges are money transmitters. But a money transmitter could be any company so maybe it's not so odd.

These laws are an absolute mess is the lesson here.

someone has to develop at the federal level a "kernel" for financial institutions.

i can dream, can't i?

It kind of sucks that Bitcoin being the poster-boy for free, anonymous currency free of government is still being pestered by governments.

I guess Uncle Sam wants his cut!

Bitcoin is not anonymous; every transaction is recorded and public.

>Bitcoin is not anonymous by default; every transaction is recorded and public.

Bitcoin is more pseudonymous than anonymous: you can trace the transactions of an identity, but there's nothing inherent about that identity that links it back to IRL unless theres additional information

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