Startup exodus from New York highlights BitLicense’s threat to innovation

The BitLicense was intended to foster innovation while protecting consumers. It may have had the opposite effect. 

This week the New York BitLicense took effect as the application deadline passed. Not surprisingly, a number of Bitcoin businesses announced that they would cease operations in the state rather than apply for a license. Their stated reasons are varied, but they nevertheless highlight the consequences of an ambiguous and discriminatory rule.

According to its architects, the BitLicense was intended to foster innovation while protecting consumers. That’s a laudable goal, but these exits show that the new rules may be producing the opposite effect.

The fact of the matter is that the best-capitalized startups, which tend to have business models similar to traditional financial services, will be able to comply, even if it’s an onerous endeavor. Who we should really be concerned about are the tiny startups–and even potential startups–taking shape in garages and dorm rooms with little to no funding, and with radical new ideas that could creatively disrupt existing markets. This is where true innovation comes from, and my worry is that they’ll take one look at what it takes to comply with the BitLicense and they won’t even try. The result is that you end up with less competition and less innovation–not what I think New York intended.