Eric Dixon on what's wrong w/ New York's DFS BitLicense
New York's Department of Financial Services is issuing the state BitLicense guidelines in May of 2015, and its ramifications are large and important.
What's up party people? Chris DeRose here, community director of the Counterparty Foundation and with me is Eric Dixon. Eric Dixon, is a fairly well known, if not notorious attorney here in New York City, who has a lot of very solid and pragmatic experience here dealing with a lot of the regulatory, Bitcoin regulatory, I want to use nonsense, but he might want to use a different word. So let's have him tell us about it. First off, introduce yourself. Who are you? What do you do? Eric Dixon, native New Yorker, regulatory lawyer for 20 years. I take some tough cases.
Is it nonsense? BitLicense is rough, it's tough. Here's the deal people, if you're here in New York or you want access to the New York market, if you want to make money, you've got to try to comply with the BitLicense. Otherwise you're out of business and you have to move out of the state and you can't do business with people in the state. So you have to really yourself, "Am I in this to make money? Do I want access?" There's 18 million people who live in New York, and the BitLicense also covers people who have a connection to New York, it's what they call a New York person. If you work in New York you're a customer that would trigger the BitLicense, not for the customer, but for the merchant who has..
. Basically, it's the Bitcoin community, you've got to think, you want these customers. It's at least 18 million but you can't give up that market. This is really ground zero for Bitcoin, so I've really got to encourage people as much as possible. Get someone who at least understands Bitcoin, understands the technology, and has the guts to try and get you through the application process, and I'd like to just explain that very briefly. Right now as we speak it's April 29th, we're having this discussion, and the indications are that BitLicences is going to be effective in about 30 days.
Maybe, we'll be off a few weeks. The fact is, if you're watching this in April and May, you have just a few weeks to prepare for the effectiveness of BitLicense, and what that means is that the day it goes effective, from that day you have 45 days to get in your application for BitLicense. You need $5,000, its nonrefundable. What that application does is, it means, even if they turn you down for the application and the license, you can stay in business and conduct your business in New York. It buys you some time, make an honest effort, pull your resources, get someone in, get an independent lawyer who is not representing your competition, meaning the big banks, down the road. You can't go to a big law firm because they're representing the banks, and if you bring them $10,000 and the bank brings them a million dollars, you're not going to get your phone calls returned, they'll forget who you are.
That's just a reality, I've been doing this 20 years. This big, maybe smaller. That's just a reality. They're not going to say this to you, but then again, the crooks never tell their victims what they're really up to. The wolf doesn't tell the pigs what he's up to, he just blows down the house, there's no warning. Real quick now, is it safe to say that the regulation favors the larger institutions and the incumbent financial providers over the small start up? No question about it.
As a matter of fact, New York State tells people, "If you want to form a regular bank," New York State actually tells you, "You better have 50 million dollar in net capital." Or basically, don't even bother applying. If you're a big bank, if you're already registered and regulated in New York, you don't have to go through BitLicense. The big companies, the big financial institutions are already in this space, and if you're a small guy and you want to compete you have...
that's why you need to comply with BitLicense, even if you don't like it, even if it's not fair, even if it costs a lot of money, because it's either that or you're out of business, at least in this market. Guess who's going to have the market? Who's going to control our market? The big guys. Let's talk about that. Who are the big guys you think are going to benefit from this, specifically? Is it going to be the traditional banking institutions? Or is it going to be the hedge funds, or all of the above? The easiest, first of the all hedge funds aren't going to be covered by this, it's very unlikely, depending on what they're doing, if they're doing anything more than just investing, if they're actually conducting exchange type transactions, if they're taking customer funds. What you have to think if you're in the Bitcoin community and you're running a business, if I'm just handling money, and I'm taking money, and possessing it, and holding it in trusts for people, is this something that involves customer protection? Could customer funds be at risk? Bitcoin is no different, and let's stop viewing the Bitcoin regulations as evil, because essentially, they're just trying to treat Bitcoin as regular cash, and they're really not treating Bitcoin companies and exchanges much differently from regular stock broker dealers, or other banks, or other insurance companies, they're heavily regulated, but absolutely. Going back to your first question, absolutely, this is favoring the big financial institutions, it's a huge advantage, because even though they don't have to comply, I mean, they're spending millions of dollars to comply with all sorts of regulations, but here's the crux of the matter, they're already spending that money.
They've got dozens if not hundreds of people doing the compliance, and you're out there at ground zero with nothing, you don't have one person handling this. So it's a big task, and it's already tough enough. There's not really a plan B. A lot of Bitcoiners associate Supernintendo Lawsky with the entire momentum behind this regulation, but I'm wondering, do you see a large lobbying interest that has forced this to become an issue? Who is really pushing for this, exactly? Who is the face of this regulation? Why is it that they want to be doing this in such a capacity? You've got to follow the money. The big financial institutions are going to go to regulators, they're going to go to people in congress, to the state, legislators, and they're going to say, "Bitcoin is a threat. It's a quasi criminal tool.
We have to protect the consumer." When you hear that type of language you have to think, "Who's paying for this? Who's behind it?" Bitcoin if anything is not a criminal tool, it's the exact opposite. The blockchain, is a public ledger which means it's open, you don't a warrant or subpoena, you can get all the stuff off the blockchain and look at who's been engaging in transactions. It's not anonymous in that sense, if anything, it's the perfect chain of evidence. I've tried to explain this to some prosecutors and regulators who have been inquiring about the industry. There's just a big misconception, and those of us in the industry, we have to talk about how, this is about transparency, this is about openness, this is about democracy.
There's a couple of fools out there who use it for criminal purposes, but the fact is, most criminals are stupid, they get caught, there are reasons they get caught. They use Bitcoin, because they think they're not going to get caught, and if anything, it's much easier to trace than regular cash. If I give you cash, and we're engaging in something illicit, there's no record of that. It's not as if your fingerprints end up on the paper. Blockchain, is totally different, block here, block there, we can track everything in one block, because it's got that historical ledger. And guess what? Not only that, but it's the decentralization, helps reaffirm prior history.
It's extremely hard to defeat, so this is fantastic evidence. The government hasn't caught up to the uses of that yet. There's just a lot of misconception. This is just fantastic stuff, and the technology is just fabulous. It sounds to me like a lot of the regulatory concerns are even a bit of a red herring and a lot of this is probably like Br'er rabbit being asked to be thrown in the briar patch or something, where the banks, I think, want to try to control the market. I'm wondering if that's not just rhetoric in general, and it's kind of a hard thing for me to even grasp myself.
Is that a fair assertation, or do you think the regulators really want to try to do what they think is the good thing? People, here's the reality. Regulators are looking for the next job. A prosecutor is looking for his next job. All of these people in government are trying to make themselves look good, so they're trying to figure out, well, we have an enemy here, enemy there, we have risk to the public. It's all about making other people think that they're doing something useful to justify their paycheck. That's just human nature, it's nothing evil or nefarious about this.
It's not as if these regulators have a big bone to pick with Bitcoin. Let's make no allusions about it, if you're a banker or an insurance company, you're under tremendous pressure. Do you know that right now the government goes to banks, and they're telling banks that "It's your responsibility", meaning the banks responsibility, to stop terrorism. It's not the roll of the government, it's not the roll of the people making you get groped at the airport. They're saying, "No, it's the job of the banks." Let's not have an allusion that the banks and the big, so called money interests are having an easy time.
They're getting ripped to shreds all over the place by the federal, the state government levels, all that. Bitcoin, in many respects, is just getting the same treatment. It's just more difficult for Bitcoin, because we're new, we're undercapitalized. It's just like the Yankees when they were good playing a high school JV team. There's a big disparity. It's not tremendously unfair, and you just have to sometimes view it from the human perspective, hey, that this guy asking questions, that's just his job, and he's worried in a bad economy about his next job.
That's all it is. Supernintendo Lawsky, let's talk about him, specifically. Was he trying to make his career on this legislation, and was he trying to, you think, just get hired the hell out, and get a higher paycheck, and this whole thing was a ruse on his part to sort of, I don't know, get a promotion? Are we not allowed to talk about that? Well we're allowed to talk about it, my original comments of the first BitLicense, I actually speculated on that exact point, that you have regulators who are trying to cash in and don't necessarily inspire the greatest confidence from the Bitcoin community, because they can be viewed as, trying to curry favor with the biggest institutions that can pay them the most money, and it's something that the regulators...this is part of their job, they have to answer for, "Are we doing the right thing?" People have some credible doubts as to what the motivations are of these regulators, whether they're really trying to help the public, or whether they're just trying to create this regulatory spider web that they can then go into the private sector and make a boat load of money, because they're the only people who know what this stuff is all about.
Yeah, you know I've stayed out of this. It's A, it's not my specialty. B, it's frankly a little vulgar and offensive. C, it just seems to not impact me at all. Then, here's my next question, why can't you just go to New Jersey, and then, hangout there, and commute every day? Is this the first state that will be amongst many, or is it that they already thought of this, and there's a whole reason that's not going to work? Those of us who are in New Jersey like the fact that we're in Jersey, because we get to see New York, whereas, if you're in New York, you get a view of New Jersey. Which one would you prefer? I'm going to stop with my New Jersey jokes now, because I don't want Chris Christie to cause a traffic jam outside my house.
I mean, really, it's... Do you have a whole list of these? There are differences between the states of New Jersey, it's just got this small town mentality. Seriously, here's the issue. New York is going to be viewed as the model for the world, because again, it goes to human nature.
You've got these people in government, one of the most dangerous things in government is the man or the woman who thinks that he or she has got to be the smartest person in the room and has to show off how smart they are, "So let's figure out a problem, and I'll be the only person who can solve it." It's all about psychology here people, it's not about protecting you or hurting you. It's about their self-esteem, and it's dangerous, but you have to have this human angle and really pursue what the motivations are. That being said, well, if New York is the model, then what happens when the New Jersey people who are stuck in New Jersey and who have this third grade complex, because they're stuck between New York and Philadelphia, well, they're going to want to show off how smart they are. New Jersey is going to copy New York, and then the domino's keep on falling, and Delaware starts doing their act, and Pennsylvania. Another big place like Texas, which has basically said, "Do whatever you want", well, I'm paraphrasing in many prospects.
There are a lot of states where they're going to say, "Well, New York is doing this. We need to protect our people as well." Really what it is, they're just trying to create some reason to justify and keep their own jobs. It's not nefarious, these are just people, these regulators are just worried about making their ends meet. That's kind of the banality of evil. Everybody involved wanted to do their job, and then before you knew it, it kind of turns south sometimes.
I get that they're just people, but that excuse only goes so far with me. I think, the last thing, I really am trying to struggle with right now, in terms of a regulatory sort of understanding, is Bitcoin money or is Bitcoin a commodity? Here in south Florida, we have a young boy Mitchell Espinoza, who was selling local Bitcoins, he was arrested, there was absolutely no clarity whatsoever other than at the federal level at the time of his arrest, which was that Bitcoin was a commodity. Are we going to have this limbo definition do you think, for a very long time, or will the environment close and which of the two definitions do you think it will settle on? It's a fascinating question, and the fact that we can have this debate means we can be on either size of the argument and be right. Bitcoin, obviously, can be used as money, these are digital units. But at the crux of it, do you define something by what it is, or do you define it by how it's used? If you're defining Bitcoin by how it's used, you have to acknowledge that a digital unit has multiple uses, only a few of which are currency. The technology behind Bitcoin is actually the core of the value, has nothing to do with currency and the technological aspects of this, the ability to have basically, original state preservation data.
This is almost like the perfect evidence, the perfect information security. Again, we're not even talking about currency. We're talking about a great database where there's no way to overwrite yesterdays document. This stuff is wild, and this is what's being ignored by the government and really by 99% of investors out there. This is some of the stuff that the Blockchain Technologies Corporation in New York is working on. This is just wild stuff, just the concept is mind blowing.
It's a new paradigm, people. Okay, the word today is paradigm. Blockchain and Bitcoin is not just a currency, and really, with that discussion in mind, it's more fair to say that Bitcoin, I'm starting to lean towards, it's a commodity, because remember, a commodity could be used as currency, as a form of exchange, but it's also got a value that's totally independent from its use in an exchange or a barter transaction. So I would lean towards, if I had to pick one of the two, I would say that Bitcoin is a commodity, but we can go back and forth. That's a fascinating question. Let's not close the book on that.
We should be having that discussion for many years going forward. I like that. I seem to think that commodity is better all around for everybody. Gold's a commodity. I don't see any problem with it. I don't think that it's a derogatory label, and I don't think it's a inconvenient one for anybody involved, that's what it seems like to me.
It sounds like you're inclined to agree. That's great. Where can the audience find out more about you? What website can they go to and check you out? Website, well aside from the Blockchain Technologies Corporation, the Bitcoin Center, both of which are in New York. I have a person website, NYBusinessCouncil.com and also a blog EricDixonLaw.com.
Basically, the one thing I tell people is, there are two types of people in the world, those who love having government power, and those who are afraid of government power. That's the dividing line. It's not democrat verses republican, conservative verses communist. It's all about how you view power. You either enjoy having it or you're afraid of it. That's the dividing line, it's psychological not political.
Thank you so much for being on the show, and I think that wraps up this interview. You guys don't see it but the conference is tearing down on both sides of us here. I think security even popped us over here and probably wanted us to end the interview, but I really enjoyed the time. If you liked this interview, you want to see some more interviews from here at The Inside Bitcoin's Conference 2015, check out the channel. I interviewed all kinds of vendors, speakers, etc, etc, and I'd love for you to check out more of the content and experience the conference with me. If you like what you see, subscribe to the channel.
If you have any questions for me, tweet me @DeRosetec. Later, party people. Word of the day was paradigm. Paradigm, Paradigm. Later, guys.