Startups may have admirable agility and free gourmet coffee, but sometimes it’s nice to be a bigger player.
Yesterday, the Wall Street Journal reported that Braintree is developing its payment processing stack to accept virtual currencies such as bitcoin. Braintree’s embrace of the cryptocurrency will enable clients like Uber and AirBnb to accept bitcoin.
This situation shows how bigger companies like Braintree, which is owned by PayPal, can deal with the current virtual currency climate. As Braintree gets ready to accept bitcoin, startups are starting to avoid it — thanks to New York’s potentially crippling BitLicense resolution.
In a blogpost published on August 13, Jeremy Allaire, CEO of bitcoin startup Circle, criticized the proposed New York State regulation, writing that “as currently written, it would be technically impossible to comply with the BitLicense proposal. Without some material changes, Circle will have no choice but to block New York customers from accessing our services.” It’s a bold statement from Allaire, who leads one of the buzziest bitcoin startups, one that indicates that even high-profile bitcoin startups will have trouble abiding by the rules set by the New York Department of Financial Services.
Allaire didn’t pull any punches when penning the blogpost. He wrote that Circle has a few issues with BitLicenses, namely the “targeting [of] software companies, open-source projects and open intellectual property, breadth of discretion over key business choices,” and overzealous AML requirements. Allaire added that BitLicenses, without changes, would be “devastating for the industry” because of the BitLicense’s potential to serve as a regulatory guideline for lawmakers on bitcoin. In most offical company blogposts, such harsh language is rare, let alone from a CEO.
The disparity between these two companies shows the conflicting world of bitcoin. On the one hand, bitcoin’s acceptance by Braintree shows the virtual currency going mainstream. But Circle’s newfound apprehension is evidence of the biggest criticism regarding BitLicenses — that the regulation is so broad that it could halt innovation in the industry.
The argument is that, with such high compliance costs and strict bookkeeping needed to adhere by the NYDFS’s rules, startups like Circle will be hard-pressed, if not entirely unable, to operate in New York State. It’s led to some thinking that only big companies — like PayPal, Square, Braintree, and financial institutions who already deal with heavy regulation — will be the only companies that will have the capacity to work with bitcoin. To be fair, the NYDFS has said that it does not want to stifle innovation in the industry multiple times, including to Bank Innovation.
Charlie Shrem, founder of BitInstant and former VP of the Bitcoin Foundation, agreed, saying in a conversation with Bank Innovation that he thought that “only one or two” companies will be equipped to deal with the BitLicense regulation. Shrem also said that he anticipated some changes, but minor ones.
Every day, a new merchant starts accepting bitcoin. All of that is good and well, but we need to look at the big picture — the only way cryptocurrency can grow is if companies are allowed to innovate around it. By raising the barriers to entry, New York State seems to be ensuring that only the biggest players will be able to work with bitcoin.