Why Bitcoin advocates might like New Yorks new proposed rules for virtual currency

One of New York's top financial regulators is laying out a new policy on Bitcoin and other virtual currenciesafter a flood of public feedback encouraged the agency to scale back its proposed rules.

New revisions to the proposal would trim some requirements on Bitcoin-related businesses, and clarify others. Among the key changes? Companies covered by the regulationswill no longer be required to store the addresses of every person involved in a Bitcoin transaction an idea privacy hawks have said would deter people from adopting virtual currencies.Now, companies regulated by New York's so-called BitLicense will only be required to gather transaction information from their own customers, said Ben Lawsky, New York's superintendent of financial services, at a Washington conference Thursday.

In addition, covered companies will only have to store that information for seven years, down from the 10 years Lawsky's agency, the department of financial services,was previously considering.

"Virtual currencies really sit at that crossroads of the much more lightly regulated tech sector and themore heavily regulated financial sector," said Lawsky, who added that allfinancial companiesought to be supervised to"ensure thatconsumers' money doesn't just disappearinto a black hole."

That said, the new rules will be clarified to cover only those companies that actually engage in sending money from one place to another, said Lawsky. They won't apply tosoftware companies thatoffer consumers Bitcoin "wallets" where they can store their digitalcash.Nor will the rules apply to retailers that simply take bitcoins as payment for goods and services. Private individuals who "mine"or invest inbitcoins won't be required to apply for a license from the state government, either.

All this is great news for Bitcoin proponents, many of whom feared that too many rules on virtual currencies would strangle an innovative new payment method in the crib. Some advocates would probably prefer to see even weaker regulations. But many in the industry acknowledge that some rules are necessary to enhance Bitcoin's legitimacy, to prevent fraud and to ward off catastrophic implosions similar to the one that befell the popular bitcoin exchange Mt. Gox earlier this spring.

Oncethey'reofficially published, the new proposed rules willbe subject to a new 30-day comment period where members of the public can weigh in on the idea. Lawsky said the last round of feedback drew more than 3,700 comments.

"I'm sure that the new draft is better than the old draft," said Jim Harper, a senior fellow at the Cato Institute who's studied virtual currency issues. "The remainingquestion is going to be whether it's good or not. The thing to look at is, 'Will it create consumer confidence more than it undercuts innovation?'"

Brian Fung covers technology for The Washington Post, focusing on telecom, broadband and digital politics. Before joining the Post, he was the technology correspondent for National Journal and an associate editor at the Atlantic.

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Why Bitcoin advocates might like New Yorks new proposed rules for virtual currency