In the name of consumer protection, one wonders if this is just another regulation that will lead to eventual domination of an emerging field by large multinationals (which as licensed banks are exempt from the regulations), who may eventually end up hiring the very same regulators in the symbiotic revolving door between big business and big government.
For sake of comparison, these are the requirements otherwise imposed on commercial banks. This isn't a problem for established banks, which as I mentioned before, will be exempt from the regulation. To put things in perspective, if you want to start a commercial bank in New York, the state actually advises that new banks doing business in Metropolitan New York City have at least $50 million in net capital.
As a lawyer who does regulatory interpretation, I have to candidly wonder whether the burden of these regulations makes it worth it for a bitcoin business to either stay in New York or accept business from "New York persons" which makes that business, no matter where it is located, subject to the New York regulation.
The New York tax regulations specify that all your income is subject to state tax if you live in the state more than half the year. Hmmmm. Where is that definition here? (Answer: It's not here.) What does that mean? I interpret it to mean -- and this deserves official clarification -- that residing at all in New York makes you a New York person. Any part-time residence (even if lived in far less than 183 days) may make you subject to the regulation as a customer (and businesses not licensed can't touch you, as I explain below). I do not interpret this as the New York tax resident standard, whereby part-time residents are taxed full-time if they are in the state more than 182 days out of the year. This is the regulation forcing wealthy people to count their days, diary their entire calendar for the year and even assiduously flee the state before the stroke of midnight or arrange for flights arriving after the stroke of midnight to save a few days. I interpret this as the "tag" rule: any quasi-permanent contact with New York makes you subject to the new rules and you could feel the impacts I outline below. Residing part-time in New York could make you subject to the rule as a customer, meaning businesses might not touch you (just as some stock brokerages will only handle customer accounts for people living in certain states where they are licensed). And of course, any trust, corporation or other entity with any connection to New York, even a satellite office, becomes subject to the regulation whether it is engaged in the exchange business or other specified "virtual currency business activity."
Another danger: As a "coin" or unit of virtual currency is really just a bit, that is, a unit of data, and a bit used as a coin and a bit used for storing information is really just the same thing with the nature of the item being really no different, then this leads to draw one of two possible conclusions: One, the regulation means (but fails so far) to regulate Bitcoin on the basis of how it is used and not what it is, or two, the regulation really does mean to regulate Bitcoin in its form as units of data. (Admittedly, there is a third possibility: the regulation was just poorly drafted. I don't think that is likely.)
If the regulation is truly intended to reach the latter interpretation, then Bitcoin cannot be used or exchanged in New York except for consumer-to-business merchant commerce. Any other uses of Bitcoin or other blockchain based technologies are subject to the act's requirements. This means that Bitcoin cannot be used as a database for any exchange or storage of information, because, well, information has value. Especially and particularly in our information society. That is because Section 200.2(m) of the regulation defines "virtual currency" as:
"...any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology."