Privacy advocates blast New York financial regulators over Bitcoin licensing scheme

By Josh Peterson | Watchdog.org

WASHINGTON, D.C. — Privacy advocates ripped into financial regulators Tuesday, saying potential regulations for digital currencies could harm free speech.

BITCOIN: New York financial regulators have a plan that would bring Bitcoin transactions under state surveillance.

In September, New York Department of Financial Services proposed companies wishing to do business with digital currencies like Bitcoin first obtain a license, or BitLicense, which would require applicants to submit personal information like fingerprints and head-shot photographs to the state.

Secret online marketplaces such as the Silk Road brought awareness of Bitcoin into the mainstream, but its popularity among users is due to several reasons: no person or organization controls it, its ease of use, users are anonymous and records of transactions are public.

The sale and purchase of illicit drugs are what Bitcoin is most famous for, but major companies like Dell, Overstock.com, 1-800-Flowers and CheapAir.com also accept bitcoins as payment.

The Electronic Frontier Foundation, Internet Archive and Reddit blasted the proposal in a filing that the BitLicense “regulatory framework raises profound civil liberties concerns and stifles innovation.”

“Digital currencies such as Bitcoin strengthen privacy and are resistant to censorship,” EFF Activism Director Rainey Reitman said in a statement. “We should consider this a feature, not a bug; it’s an innovative way of importing some of the civil liberties protections we already enjoy offline into the digital world.”

Members of a separate tech coalition, comprised of Coin Center, the Center for Democracy and Technology and TechFreedom, acknowledged NYDFS’ intentions to aid law enforcement to catch cyber criminals, but urged the agency to take a more enlightened approach in their own filing.

“Massive data breaches over the past year have highlighted the vulnerability of the traditional credit card payment system,” said Berin Szoka, president of TechFreedom, in a statement. “But instead of new regulation of technology, the best answer is often better technology.”

Coin Center Director of Research Peter Van Valkenburgh said that Benjamin Lawsky, superintendent of the NYDFS, had acknowledged “that Bitcoin is a promising innovation with the potential to enhance consumer financial privacy.”

“Our comment lays out specific changes to the BitLicense proposal that are necessary to preserve that potential,” said Van Valkenburgh

“If it takes the right approach, the department can foster innovation in an industry that as of late has been languishing under the weight of outdated tools, porous infrastructure and aggressive new cyber-threats,” said Van Valkenburgh.

Contact Josh Peterson at jpeterson@watchdog.org. Follow Josh on Twitter at @jdpeterson

Rob Port is the editor of SayAnythingBlog.com, a columnist for the Forum News Service, and host of the Plain Talk Podcast which you can subscribe to by clicking here.

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