It’s been barely a week since the BitLicense was released, and it has already driven a bitcoin startup out of New York.
ShapeShift.io, a bitcoin startup that allows people to quickly exchange digital currencies without an account or arduous signup process, has completely cut off service to New York in response to the state’s new regulatory policy for digital currency businesses. The BitLicense, which was finalized last week, sparked fear among the bitcoin community during its revision process over the past year, and now that it is out, has courted criticism for the various licenses and approvals it requires of companies that store and transmit money for customers. It is seen as too stringent and restrictive of innovation.
The BitLicense backlash began last week with official statements and responses from bitcoin startup executives as well as policy pundits. ShapeShift is the first business to promptly ‘get out of dodge’ in response to the policy. (Bitcoin wallet provider Xapo moved its headquarters to Switzerland last month, but stated that it was not out of fear of regulation.)
The company has suspended service to all users in New York State, and is redirecting its homepage for Internet visitors there to PleaseProtectConsumers.org, with a long note about the issue of identity theft and how bitcoin and the blockchain can prevent it.
A blunt passage toward the end of the text reads: “Bitcoin and blockchain technology have enabled a new standard of financial privacy and consumer protection… Unfortunately, in spite of the technological achievements that now protect consumers, some jurisdictions have legally mandated the continued extraction of sensitive private information.” Then it lists those jurisdictions; they are New York State and North Korea. That likely isn’t the company, in terms of privacy law, New York wants to keep. ShapeShift is inviting other digital currency companies to do the same: cut off service to New York and redirect its web site there to the PleaseProtectConsumers page.
It is quite a statement by a buzzy startup and a big name in the bitcoin community.
While Shapeshift has so far raised only a seed round of just under $1 million from Roger Ver (nicknamed “Bitcoin Jesus”) and Barry Silbert (founder of the Digital Currency Group), CEO Erik Voorhees is a widely followed voice in the digital currency world who founded Coinapult and worked at BitInstant. Vorhees founded ShapeShift and ran it using an alias at first until he came out as its CEO in March.
When the Bitlicense was announced last week, Voorhees tweeted that “California is winning.” ShapeShift investor Roger Ver, meanwhile, tweeted a longer screed:
“Since New York has mandated unethical and dangerous data collection of users, we have no choice but to suspend service to that territory,” Voorhees said in a strongly worded public statement on Thursday. “We hope other jurisdictions will be less reckless with the private information of their residents. Finally digital commerce can be safe—if only regulators would let it happen.”
The chief architect of the BitLicense, Benjamin Lawsky, superintendent of the NY Department of Financial Services, announced last month that he would step down from his post at the end of June. Before he went out the door, he found time to release his regulatory policy. Many in the bitcoin community are hoping his yet-to-be-named successor might later come up with a friendlier one.
As for ShapeShift’s big move, the NYDFS had this to say, in a statement sent to Fortune: “We always recognized that there is going to be some part of this community that is against even pretty standard financial regulatory oversight measures, such as anti-money laundering controls and other consumer protections. That said, one digital currency company has already received a license from NYDFS and a number of others have stated they intend to seek BitLicenses shortly. Ultimately, we believe that prudent regulation will be important to building greater consumer confidence in digital currency and sparking wider adoption.”