Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Blockchains are linked using cryptography and are a system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network. Cryptocurrencies and blockchains have become a worldwide phenomenon due to their security and convenience; however, there are underlying risks that come with these types of virtual transactions, as cryptocurrencies and blockchains are not issued by any central authority, and many states have been unsettled with regard to how to regulate them. Therefore, it has become a trend for states to implement a task force to fully understand the benefits, disadvantages, security risks, and purpose of cryptocurrencies and blockchains.
Impact of Cryptocurrency and Blockchain
Cryptocurrencies and blockchain technology are expected to have a great impact across industries, including finance, supply chains, governments, healthcare, the music industry, and many others. Focusing specifically on the banking industry, whether blockchain will replace or revolutionize elements of the banking systems remains a question. There is potential that blockchain could reduce or eliminate key services that banks provide, including but not limited to:
- Clearance and settlement systems
- Loans and credit
- Trade finance
While the possibility of an end to central banks and their responsibilities as we know them has been brought up, it seems, at least as of today, that an end to the centralized financial system is a step too far. While the thought of removing the oversight responsibility of central banks and handing it over to the general public may not currently be a realistic step, it does not mean that certain aspects of blockchain technology cannot be implemented into the current banking system. In fact, central banks are exploring the possibilities of how blockchain technology can be incorporated into the financial system – and the possibilities are endless.
While New York State (NYS) proposed rules for virtual currency business activity on July 23, 2014, and has made enhancements to the final rules as of February 25, 2015 (known as BitLicense), the economy has changed since then, and cities and states are struggling to keep up with the high demand in cryptocurrency and blockchains. Focusing on NYS, one of the goals of the task force is to study the potential effects that cryptocurrency and blockchain technology will have on state industries, including local and state tax receipts. Currently, with the increase in cryptocurrency, cities and states are struggling to keep up with the evolving technology, both from a regulatory perspective and as a potential new way of doing business. The task force will help find a balance between having a comprehensive blockchain technology and cryptocurrency economy, while still maintaining security and consumer protection.
New York State’s Stance on Regulating Cryptocurrency and Blockchain
NYS is one of the first states to have taken action to create a digital currency task force. It has provided the Governor and the State Legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state. The bill was introduced to the State of New York on November 27, 2017 and was signed by the Governor on December 21, 2018. According to the bill, the digital currency task force will consist of nine members including three members appointed by the Governor, two members appointed by the Temporary President of the Senate, two members appointed by the Speaker of the Assembly, one member appointed by the Minority Leader of the Senate, and one member appointed by the Minority Leader of the Assembly. The digital currency task force will submit to the Governor, the Temporary President of the Senate, and the Speaker of the Assembly a report on or before December 15, 2020. The report will include a background on cryptocurrency, statistics on cryptocurrencies currently being traded in NYS, how this technology can be used in government functions, the impact that this technology has on tax receipts, and potential regulations that should be implemented on this marketplace.
Aside from NYS, other states have been working towards implementing blockchain working groups that will be tasked with researching the benefits, risks, and legal implications of blockchain. At this time, there have been no reports of other states putting together a digital currency task force, and New York State may be the first state to have one in place.
Time will tell how blockchain technology and cryptocurrency evolve, but it has been agreed by lawmakers across the country that in order to regulate the crypto space, they must first better understand it. New York’s cryptocurrency task force, made up of experts and stakeholders, is a good step forward to help increase the state government’s understanding of the technology and its possible uses.