Jaron Lukasiewicz is the former CEO and co-founder of Coinsetter, a New York-based bitcoin exchange service that was among the technology’s earliest and more active businesses.
In this opinion piece, Lukasiewicz reflects on the beginnings of US regulatory oversight, arguing choices made in the technology’s infancy have had a lasting negative impact on industry startups.
Reflecting on this piece, I feel like part of an older generation of bitcoin – even though when I entered the space in 2012, my impression was that I was late to the game.
Many crypto enthusiasts had already been active in it for years, mining away, and I still had much to learn about the blockchain. It’s interesting to look back now, since in 2012, I was entering an industry that was completely unregulated and still in its “Wild West” infancy.
Most bitcoin exchanges were sketchy, and I set out to build a reliable US-based exchange called Coinsetter (since acquired by Kraken, which I highly recommend). In that process, I witnessed the emergence of a new regulation that would impact the entire industry…
18th March, 2013, was the day that the US federal government came out with regulatory guidance that marked most bitcoin companies as money service businesses.
Being the optimist that I am, I viewed this announcement as a positive development – an opportunity to legitimize our company and the broader bitcoin industry.
In hindsight, the policy would become the slow “nail in the coffin” that would prevent bitcoin from disrupting consumer payments at mass. With 50+ new regulators to report to, compliance became a concern for most companies. Know-your-customer (KYC) rules were just the beginning of compliance, and frankly, the easy part.
Regulation became much more challenging in the areas of licensing (impossible to obtain), transaction monitoring (impossible to comply with the status quo requirements), banking relationships (impossible to maintain), reporting and capital requirements.
In March 2013, most of the industry’s leaders had little understanding of these topics.
After bitcoin companies hired lawyers, consultants, dedicated countless hours to completing paperwork and spent tons of money, most regulators did the following:
- Pushed off taking action, leaving companies in a legal gray area.
- Closed bank accounts, thereby cutting companies off from the global banking system.