The requirement that cryptocurrency-related companies, mainly crypto wallet providers and exchanges, acquire a BitLicense before operating in New York is one that has remained controversial since it was first introduced in 2015 by the New York State Department for Financial Services (NYDFS).
While proponents of the requirement, believe that the accompanying regulatory standards could curb the inherent risks associated with third-parties storing crypto, others think that the process is too rigorous, expensive, and unfriendly for crypto startups.
Either way, the BitLicense has stood with startups having no other option than to comply with the NYDFS or continue to provide their service in other U.S states, excluding New York. A good example is the recently launched Binance US exchange, which is currently not available to NY residents.
The United States’ state of Wyoming has mostly been welcoming of the crypto revolution, enacting several new regulations that will encourage the adoption of the technology and the growth of startups operating within its jurisdiction.
On Monday, Wyoming went a step further by introducing regulations that potentially opens a way for crypto startups who do not want to subject themselves to the perceived rigorous process of obtaining a BitLicense.
First shared on Twitter by Caitlin Long, a member of the Wyoming Blockchain Task Force, the new regulations introduced by the state is optional for crypto startups who hold custody of cryptocurrencies entrusted to them by clients.
Such entities are classified as “special purpose depository institutions” (SPDIs) or popularly “blockchain banks” in Wyoming. As previewed by Chris Land, gen. counsel of the Wyoming Banking Division, they qualify as state-chartered banks.
Given that U.S federal laws put state-chartered banks in the same category as national banks, they can provide services to customers in 42 states, including New York. Also, the fact that New York exempts national banks from applying for the BitLicense could mean that theoretically, these “blockchain banks” are exempt from using a BitLicense.
In simpler terms, opening a ‘blockchain bank’ in Wyoming likely means that a crypto startup could begin to serve NY customers by merely opening a branch in New York, not by applying for a BitLicense.
However, that would require that they comply with the newly released crypto custody regulations in Wyoming. But Caitlin Long sought to assure that the new rules are friendly given that crypto industry participants, including attorneys, reviewed it.
Christopher Allen, an internet cryptography pioneer, also agreed, praising the regulatory framework “as one that outlines real requirements of what qualified custodianship of digital assets should be.”
Apparently, the only question that time will answer is whether crypto startups will take the bait and use the Wyoming SPDI opportunity as an alternative to the long-maligned New York BitLicense requirement.