Is crowdsourced regulation for bitcoin startups the future of the industry? When you are in the business of dealing with a new (relatively speaking) digital currency that the world knows little about, and even those of the general public that have heard of bitcoin, usually add the words ‘money laundering’, creativity is a necessary ingredient. This is especially true when adapting bitcoin financial services such as merchant solutions and currency exchanges with existing banking and money transfer laws.

While early bitcoin startups paid more attention to ‘spreading the word’ and security than to financial regulations, that point of view is quickly changing. Thanks to an increase in value during the first part of 2013, the market cap of bitcoins peaked at over $2 billion. Even after a subsequent drop, bitcoin prices have held steady above $100 recently, trading at a current $121. This has led to greater media attention and government scrutiny. Specifically, established firms have come under fire for failure to pay attention to anti-money laundering laws. As a result, companies that had managed to stay in business even after suffering from security breaches, suddenly found themselves shutting down after their bank accounts were frozen. Even MtGox, the largest of bitcoin exchanges, who reportedly has a strong relationship with its local banking partners, is facing difficulties following the closure of its US subsidiary’s account as well as Australian funding arrangements.

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Seeing the landscape change, today’s bitcoin startups are beginning to take regulations and banking relationships more seriously, and viewing them as a necessary annoyance. However, while firms are taking more precaution, it comes at a cost. Explaining the difficulties, Steven Morrel, Co-Founder and CPO at BTC Global expressed to Forex Magnates that to really make sure you are covering yourself in terms of regulation, firms needs be registered in each country or state they do business in. As such, Morrel added that this means “employing lawyers and paying for fees in each state or country. It’s a huge difficulty for startups.”

Providing a solution, BTC Global has announced today what they call “Massive Parallel Licensing”. Last month we wrote about BTC Global and their ambitious plans for the future (Living in the Future Today). Centered around their Uruguay based exchange, BTC.UY, BTC Global is seeking to create a multi-service bitcoin company that includes merchant solutions, secure storage facilities, digital currency conversions, and consulting services. With its team situated around the world, BTC Global considers itself a ‘true’ distributed startup. Utilizing the same methodology of leveraging its team’s knowledge and resources from around the globe that it is using to operate BTC Global, the company wants to do the same thing for bitcoin regulation.

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Massive Parallel Licensing (MPL) is a partnership program that is part franchising and part crowdsourcing, and which BTC Global believes will provide a solution to “regulatory issues in the United States and worldwide facing bitcoin”. In their prepared statement, BTC Global explained that “the highest hurdle for entrepreneurs interested in launching a Bitcoin exchange business is the significant international and local regulatory requirements.” They added that “it is estimated that an investment of over $10 million would be required to reach total legal compliance in all the U.S. 50 states alone.” To solve this problem, MPL will allow bitcoin operators to partner with BTC Global, and leverage each other’s regulatory infrastructure and resources.

Currently, BTC Global is in discussions with regulators in nine countries as well as partnering with US banks in five US states. Widening this range of coverage, BTC Global is offering MPL which provides firms the ability to partner with them. In essence, MPL is a franchise program for partners to join BTC Global, where they will be provided with products and marketing tools, with the franchisee servicing and supporting clients in their local state or country. For prospective partners, the MPL program provides a solution where they will only need to cover regulatory expenses associated with their region, while utilizing BTC Global’s legal and existing compliance framework to become registered. As an example, a Wisconsin based firm that wants to join can register as a Money Service Business (MSB) in their home state. However, rather than independently creating a legal framework for money laundering, legal, and compliance rules, they can utilize pre-existing structures from BTC Global. This is expected to mitigate the need for hiring lawyers or compliance personal.

Explaining the rationale about MPL and the direction BTC Global sees bitcoin going, Mauro Betschart, CEO and Co-Founder of the company told Forex Magnates “if we want bitcoin to go mainstream and become a household name we have to make sure it’s legal. You can not expect the average bitcoin user to take part in illegal activity. So the only way for bitcoin is to grow up and enter the legal framework of the banking world. That’s a very high barrier for a single start-up on top of overcoming all technical challenges. The only way we see this happening is by working together and using network effects to back each other up. Compliance through alliance is our approach.”

The legal structure for MPL is being led by Commercial Attorney and bitcoiner, Marco A. Santori, as well as Andrew T. Miltenberg of New York’s Nesenoff & Miltenberg. Commenting on the licensing program, Santori explained “we believe that bitcoin represents a quantum leap in sophistication for digital currency, and we are excited to be a part of the team that assists BTC Global in revolutionizing borderless commerce.”

The program is currently open to prospective businesses desiring to launch bitcoin services at BTC Global partners. In the future, BTC Global is planning to expand the MPL program to allow other bitcoin financial startups to partner with them and use their regulatory umbrella, while offering separate products and services. (For Full Press Release)