ShapeShift.io blocks access from New York residents, placing the cryptocurrency exchange in rare company. Only North Korea prevents users from reaching the platform. ShapeShift made this move after Ne
ShapeShift.io blocks access from New York residents, placing the cryptocurrency exchange in rare company. Only North Korea prevents users from reaching the platform. ShapeShift made this move after New York finalized its BitLicense regulatory framework.
ShapeShift CEO Erik Voorhees discussed the decision with Paul Buitink, Jop Hartog, and Tuur Demeester on a deBitcoin weekly hangout. The finalized BitLicense left him no viable options. "Since [the BitLicense] is becoming law, we had two choices. We could either do something we felt was unethical and continue to serve New York, or we could block New York and leave that market. So, we — of course — had to do the latter."
The BitLicense mandates extensive data collection. All cryptocurrency companies operating in New York must gather large amounts of personal information from customers, and government regulators can access this data whenever they choose. Voorhees found this requirement incomprehensible because the personal information serves no function in processing transactions.
"First of all, that information is not needed for the transaction itself — so it's not like we're collecting that information for some useful purpose. Users don't need to provide that to us right now, and collecting it endangers the users because personal information should remain personal wherever it can. And because hacks are so common, because identity theft is so common; it's really dangerous to collect private information from people unless you need to."
Identity theft poses a serious concern underlying this debate. Voorhees explained the scope of the problem to the deBitcoin audience. "When I was actually researching this a little bit, I was quite amazed at how big of a problem identity theft is. At least in the US — as of a couple of years ago from the government's own statistics — identity theft was a $24 billion problem. $24 billion of known losses to identity theft in one year in just America. That amount was greater than the amount of losses for all other kinds of theft, including home burglary, car theft, and all forms of property theft combined."
Storing personal data when it serves no purpose creates unnecessary risk, Voorhees argued. The policy adds liability where none needs to exist, and the scope of identity theft makes the requirement even more troubling.
Ben Lawsky reveals an irony in this regulatory saga. Lawsky served as superintendent of New York's Department of Financial Services while helping craft these rules. He has now announced plans to launch a consulting firm that will help companies navigate the same regulations he shaped.
Voorhees did not restrain his response. "This is the very definition of crony capitalism. Someone in a privileged position in government making a bunch of rules, then leaving to profit off the rules they made by charging people the entrance fee to the museum of horror that they created for them."
The arrangement operates without concealment. "It's not even a secret. He just says this when he's on CNBC and stuff, and no one thinks for a second, 'Oh wait, isn't that kind of corrupt?' No one even challenges it. It's become so common in the US — so normal — that people don't even question it. So that's the state of capitalism in the land of the free."
Voorhees attributed the absence of public opposition to the normalization of these practices. Regulators transition regularly to private consulting to profit from their former positions, and most Americans treat this arrangement as normal business.
ShapeShift remains the only major cryptocurrency exchange to block New York. Competitors continue serving the market. Many have apparently decided that compliance costs are acceptable in exchange for access to New York customers.
