The New York Department of Financial Services (NYDFS) has issued proposed regulations for Bitcoin and other related cryptocurrency businesses that operate in the Empire State. The most significant change is that anyone doing business with a firm operating under these rules won’t be pseudonymous, much less anonymous—in direct contradiction to one of the defining characteristics of Bitcoin.

The new so-called BitLicense framework was published (PDF) for the first time on Thursday, and it includes numerous provisions for consumer protection, anti-money laundering, and other new rules to prevent fraud, abuse, and loss. The rules require that company founders and employees submit to fingerprint and background checks and that the companies retain 10 years of transaction records.

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation,” Benjamin M. Lawsky, superintendent of financial services, said in a statement.

The NYDFS did not respond to further requests for comment.

Setting the tone

In an unusual step, Lawsky also posted the regulations to reddit for discussion, where redditors largely slammed the new rules.

“We recognize that not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework,” he wrote. “Ultimately, though, we believe that setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets. (We think the situation at Mt. Gox, for example, made that very clear.) Moreover, given that states have specific regulatory responsibilities in this area, we also have a legal obligation to move forward on this framework.”

The rules would only apply to businesses doing business in New York, regardless of where their customers actually live.

“As it happens, because New York has the largest concentration of financial firms and is the most active in regulating them and enforcing action, it is possible other states will adopt a similar framework,” Gil Luria, an analyst with Wedbush Securities, told Ars by e-mail. “It is also possible other regulators such as the Securities and Exchange Commission and the Federal Reserve would decide to adopt this framework or accept the NYDFS standard. If that happens, these companies would be able to conduct business outside of New York as well.”

The NYDFS’ 45-day comment period is scheduled to begin on July 23, 2014, after which “the rules are subject to additional review and revision based on that public feedback before DFS finalizes them.”