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New York State Department of Financial Services Proposed Regulatory Framework for Virtual Currency Businesses

On July 23, 2014, the New York State Department of Financial Services (the "NYDFS") proposed a regulatory framework for persons that engage in virtual currency activities involving New York (the "BitLicense Proposal"). In doing so, New York has become the first state to propose tailored rules for virtual currency businesses. Comments on the BitLicense Proposal must be submitted to the NYDFS by or on September 6, 2014.

The industry applauds the NYDFS for taking this crucial step in creating a stable environment where legitimate virtual currency businesses can flourish. Without a doubt, regulation is necessary to provide legal certainty to industry participants, for the safeguarding of customer assets and to combat illegal activities. On the other hand, the BitLicense Proposal is viewed by some to be so heavy-handed that it may stifle innovation and force virtual currency businesses to avoid any involvement with the State of New York.

This Client Alert summarizes key elements of the BitLicense Proposal, identifies its notable features and discusses its ambiguities. In addition, the Appendix to this Client Alert describes which common business models in the virtual currency eco-system today would appear to be subject to the licensure requirement under the BitLicense Proposal.

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