New York’s proposed bitcoin regulations have been the subject of increasing criticism in recent weeks, with a wide variety of industry leaders coming forward to criticize the laws for their lack of clarity and for putting up unnecessary obstacles to the ecosysem’s future growth.

One element of the BitLicense proposal that has proved controversial is how it could be interpreted as applying to the developers of the more than 400 alternative digital currencies currently in circulation.

For example, the draft rules published by the NYDFS stipulate that the regulations apply to all individuals and companies who engage in ‘virtual currency business activity’, a definition that includes the act of ‘controlling, administering or issuing a virtual currency’.

While the proposal and its implications are still being evaluated in an extended comment period, the rapidly expanding altcoin ecosystem believes it could face future pressures should it be made to comply with the regulatory framework.

With this in mind, CoinDesk reached out to a number of leading altcoin developers and communities for comment on how they view the proposal and how they believe they would be affected by the laws.

Criticism widespread

While many developers had their own insights into the scope of the regulatory framework, nearly all agreed on two points – that the cost pressures that could arise from the BitLicense would be magnified for alt projects, and that it will be nearly impossible for New York to regulate an open-source process.

One developer, who wished to remain unnamed, explained to CoinDesk that developers by nature only have so much control of the coins they introduce, stating:

“We could change the code tomorrow, but people may decide not to update and keep using the older code and their coins. We can ask, but people ultimately decide, and you don’t have any way to make them update. With the parts that are open source it is quite clear that we don’t own them, but even with closed source parts, we’ve already put them out there for people to download, so we can’t control who accesses them and for what purposes.”

Notably, all the altcoin developers CoinDesk spoke with said that regulators would be unable to stop altcoin projects from operating within New York regardless of whether they applied for a BitLicense.

Anonymous transaction technologies and projects that utilize solutions like the Tor network, many argued, would make it difficult for regulators to stop such activity.

Application to alts unwise

Altcoin developers suggested that if the BitLicense is applied to altcoin projects, it would reflect what feathercoin developer ‘mnstrcck’ called “a misunderstanding of what the technology is at its roots, and what it means”.

This argument has been expressed by industry leaders and professionals who have weighed in on the BitLicense debate, and as mnstrcck explained, is indicative of the broader flaws in the NYDFS proposal.

Mnstrcck said:

“Coins are issued by the network, and ‘administrators’ are nothing more than contributors. No one has ownership of the underlying technology as it is open source, and licenses dictate that any alterations of the code must be released under similar licensing set-ups.”

Adam from the vertcoin development team remarked that the process of interpreting the BitLicense in the context of the altcoin industry could be complicated from a regulatory perspective. He said that developers aren’t running a business – and like mnstrcck, Adam argued that developers are more technological managers than business owners in the traditional sense.

Should this definition be applied to alts, he continued, the rules would impact both developers and the communities that establish themselves around a particular coin.

He said:

“If the interpretation were made such that developers would fall under the definition of a BitLicensee, complying with these regulations would place a cost burden on the development teams of every coin. The cost would ultimately need to be absorbed by the community.”

Bryce Weiner, altcoin developer and director of cryptoeconomy engineering for Blockchain Technology Group, said that on a broader level, the BitLicense framework ignores the potential application of block chain technology to use cases beyond finance.

As a result, he argued, altcoin developers who want to take the technology outside of finance could face significant challenges.

Weiner added:

“We do not simply make currencies or coin networks, we employ block chain technology in a variety of use cases and not just financial applications. Any legislation that ignores the uses of a block chain outside of finance is simply irresponsible.”

Addressing consumer risk

When asked if the altcoin market needs broader consumer protections – ostensibly the goal of any BitLicense or similar framework applied to that space, developers were split on the need for such rules.

Dogecoin founder Jackson Palmer told CoinDesk that in recent months, the rise of scams involving pump-and-dumps and initial coin offerings (ICO)s has created anxiety that could be addressed by regulation. On the other hand, he argued that investors and traders have an obligation to do their own research before putting any money into a project they may not fully understand.

Palmer said:

“It’s the Wild West and I think it’s important that consumers educate themselves before throwing their life savings into crypto vaporware, which is what a lot of people are doing right now. Educate yourself, you can’t expect the government to protect you from every scam artist out there.”

Vertcoin’s Adam suggested that regulators should focus regulation on the bad actors in the space rather than developers who are trying to create legitimate block chain networks and build out services. Like Palmer, he noted the rise of altcoin scams and the risk to market participants, and agreed that those who decide to invest in altcoins need to do their homework.

Viacoin developer BTCDrak disagreed with the idea that consumer protections for the altcoin world are needed.

Arguing that federal-level regulators have already largely weighed in on bitcoin, he questioned the need for the BitLicense at all, saying:

“FINCeN, the IRS and the FBI have all said there are already enough laws to cover bitcoin, they dont need any more. So, who is this (unelected) official to think the FBI, IRS and FINCeN are wrong?”

Pursuing self regulation

Many developers said that a more appropriate alternative to a centralized regulatory framework like the BitLicense would be for the community to come together to develop a series of standards by which project development could operate.

Weiner said that a self-regulating organization (SRO) for coin developers could play a role in creating a more positive environment for investors, project leads and everyday users.

He explained:

“I believe that such an organization should be responsible for maintaining the ethical responsibility a developer has to the individuals that utilize their networks for the transferring of funds, and likewise those individuals that rely upon the set economics within a block chain for trading and thereby the pricing of goods.

“Such an organization could then issue exams which certify competence in not only blockchain mechanics, but in the long-term economic implications such economics have upon any given network,” he added.

Grassroots initiatives to self-regulate the alt development community have sprouted up, including a project called Proof of Developer. This initiative, while not without controversy, assigns a 1-to-5 rating scale for coin developers based on the amount of personal information they make public about themselves.

Alt regulation still uncertain

It remains to be seen how the BitLicense could be, if at all, applied to altcoin projects. As many developers told CoinDesk, the diverse nature of the altcoin ecosystem makes it difficult to apply what is largely a financial services framework.

Palmer remarked that, in the end, many of the regulations put forth in the NYDFS proposal could be applied to more centralized currencies like those already deployed or soon to be launched by large e-commerce and payments platforms.

He suggested:

“My hunch is that these definitions are more focused on setting up the long-term ability to regulate folks who decide to start more centralized currencies. By that I mean the PayPals and Amazons of the world who are undoubtedly going to start their own currencies in the coming years to better facilitate online transactions.”

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