Regulation News

New York Crypto Task Force: Industry, Government to Review Regulations

In late July of 2019, the New York State Assembly appointed six members to its Digital Currency Task Force, claiming to be the first state-drafted crew across the United States to deal with cryptocurrencies and blockchain. While it is unclear if the influx from Facebook’s Libra has hastened the NY legislators to assemble the team, the first reports from the Digital Currency Task Force are expected to arrive not sooner than the very end of 2020.

The Digital Currency Task Force’s initial lineup, goals and deadlines

Despite the recent appointments, the crypto task force isn’t fully formed yet. It will consist of 13 members, six of whom have been appointed by the Assembly, while the remaining seven will be selected by Gov. Andrew Cuomo. Previously, it was announced that the Assembly would appoint just three instead of six members, while the rest would be drafted by the Senate and the governor.

The six members chosen by the Assembly include Ethereum and ConsenSys co-founder Joseph Lubin; the CEO of the Global Blockchain Business Council, Sandra Ro; Yaya Fanusie, an adjunct fellow at the Foundation for Defense of Democracies; co-founder of the blockchain department at Microsoft Yorke Rhodes; Ryan Zagonne, the director of regulatory relations at Ripple; and Aaron Wright, who is a law professor at the Cardozo School of Law. The lineup was announced on July 22 by Assembly member Clyde Vanel via Facebook. Vanel, who is the chair of the Subcommittee on Internet and New Technologies, said:

“We are excited that we’re going to have some of the premier people in blockchain technology and in cryptocurrency help guide New York state and the country, and maybe the world, on finding the right level of regulations in this space.”  

Fanusie of the Foundation for Defense of Democracies, who is a panel appointee, told Cointelegraph:

“I believe as someone who has been researching national security and illicit finance risks relating to cryptocurrencies and blockchain for the past few years, I can offer an important AML [Anti Money Laundering] perspective that often gets overlooked by many crypto enthusiasts. The state needs to be sober-minded in its approach to digital currency technology, cognizant of the profound potential benefits as well the accompanying, real-world risks.”

The task force was formally registered in December last year, when Gov. Cuomo signed Assembly Bill A8783B. Per the document, the group was formed “to provide the governor and the legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state.” 

Further, the document stipulates that the task force submit its report on or before Dec. 15, 2020. Th crypto task force’s presentation is expected to cover the impact of regulations on the development of digital currencies and the blockchain industry within the state, the use of cryptocurrencies’ effect on local tax receipts, the energy consumption necessary for coin mining and the transparency of the local digital currency marketplace, among other things. Once that information — along with legislative and regulatory recommendations on how to increase transparency and security as well as enhance consumer protections — is presented by December 2020, the act will expire and the task force will be disbanded. 

Potential complications: long deadline and politicking

The deadline is arguably long, given that Libra — a digital currency that has mobilized regulators across the world and provoked lengthy discussions in the U.S. Congress — is scheduled to launch some time in 2020, while the requested information might be researched and sourced in shorter time.

Related: Crypto Community Reaction to Facebook Libra US Congressional Hearings

Another potential problem is the lineup itself. Preston Byrne, a blockchain lawyer with a large following on Twitter, has stressed that three out of six Assembly’s picks are interconnected via ConsenSys: Lubin is the firm’s CEO, Wright is a co-founder of OpenLaw, a ConsenSys subsidiary, while Microsoft is also affiliated with Consensys, being its long-time partner. Byrne tweeted:

“The fact that @clydevanel [Clyde Vanel] clearly wasn’t aware of the close connections among the CSys crowd suggests that independent advisors might be a smarter route than corporate advisors,” 

Rhodes, Microsoft’s representative on the Digital Currency Task Force, responded with a sharp remark, saying, “Whose bag are you holding that you wanted on the panel?” As Byrne further noted, even if the remaining seven candidates appointed by the governor turn out to be completely independent, Consensys and its collaborators will still represent 25% of the panel. Fanusie told Cointelegraph of the lineup-induced dispute, saying that it is “impossible to satisfy all the onlookers when it comes to selecting task force members.”

Similar precedents in other U.S. states and overall state of crypto in New York

Notably, Vanel has been presenting the task force as “the first” in all of the U.S. in terms of crypto. While there are no “digital currency” working groups in other states, per se, Connecticut Gov. Dannel Malloy signed SB 443 — the bill establishing a blockchain task force in his state — back in June 2018, while California’s governor approved an analogous bill in September that year. 

As Cointelegraph previously reported, New York has been championing a rather rigorous regulatory approach. Its core component, BitLicense, is a business license for using cryptocurrencies with a lengthy list of terms and conditions. The New York State Department of Financial Services (NYDFS) has so far granted just 18 BitLicenses since it started regulating the domestic crypto market back in 2015.

Indeed, a number of major crypto players have criticized BitLicense, arguing that it is out of reach for smaller actors. However, even some top exchanges have kept distance: When BitLicense had just come into force, Kraken bid farewell to New York, calling the permit “a creature so foul, so cruel that not even Kraken possesses the courage or strength to face its nasty, big, pointy teeth” — while earlier this year, the NYDFS turned down a BitLicense application from Bittrex, another veteran U.S. crypto exchange.

Interestingly, the BitLicense initiative was initially pushed by Benjamin Lawsky, who was a superintendent at the NYDFS at the time. He left the agency shortly after the license was implemented and declared that he is not allowed to work on anything related to the BitLicense for the rest of his life. Lawsky then joined Ripple’s board of directors in 2017. Prior to that, in June 2016, Ripple became the second company to ever receive a BitLicense. 

The New York Digital Currency Task Force, in turn, could attempt to make the local regulatory landscape more inclusive to crypto actors, although it won’t have any authority, per se. Nevertheless, the group hasn’t even been fully announced yet, and the deadline is far off in the future — for the industry that has been growing by leaps, 17 months is practically a lifetime, especially against the backdrop of international regulators which are urgently gathering to discuss the possible implications of cryptocurrencies in light of Libra. On the other hand, the industry might not be able to advance without proper regulations in place, which is where the task force could prove useful.

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