US based cryptocurrency exchange Poloniex recently became the third Bitcoin start up to relocate away from New York. The decision took place in response to the restrictions imposed by BitLicense, which heavily limits Bitcoin business and stifles start ups within the state.
Poloniex is a relatively small cryptocurrency exchange, however BitLicense still requires the company to pay a $5,000 application fee in order to operate their exchange within New York. This fee is non-refundable, and for small start ups, this fee is difficult to meet.
In addition to the fee, Bitcoin startups must also adhere to a 44-page document of rules in order to receive and maintain licensing. With all these requirements, starting a successful Bitcoin-related business in New York is near impossible.
Tristan D’Agosta, founder of Poloniex, commented on the decision.
There are always pros and cons to regulations like BitLicense, but from a small business perspective, BitLicense is both limiting and frustrating. For a small business like ours, a $5,000 non-refundable application fee is a nonstarter.
He then went in to more detail, explaining the dilemmas associated with BitLicense.
In the case of BitLicense, once you pay the application fee, you’re then facing a long list of requirements that would disqualify most small businesses. As a result, we find ourselves in No Man’s Land, where we very much want to service our New York customers, but we are not big enough to qualify for a BitLicense.
The purpose of the requirements and rules imposed by BitLicense is to protect customers. However, Eric Voorhees, ShapeShift founder and early Bitcoin adopter, argued that the processes in place to achieve such a purpose actually leaves exchanges vulnerable to hackers and data breaches, which could put the customers at risk.
Since its creation, BitLicense has been under heavy criticism by the Bitcoin community. BitLicense makes it difficult for innovation to prosper, and if this aggressive stance is taken in other states through America, small businesses subject to the license could be demolished.