REUTERS/Lucas Jackson The New York Department of Financial Services has released a draft for what the state's BitLicenses will look like, and they're going to change the face of digital currency commerce in the U.S..

The greatest change is that anyone using a New York-sanctioned Bitcoin or cryptocurrency service will no longer be anonymous. This was something Bitcoin's earliest users said was a key ingredient to the digital currency's appeal, but which DFS, as well as other lawmakers, expressed strong distaste for at hearings earlier this year.

Now, any business whose essential service is buying, selling, or processing Bitcoin will have to maintain records of their customers' names and addresses, and check them against the Treasury's list of bad actors.

The businesses will also have to maintain reserve Bitcoin assets equal to 100% of however much they are holding on behalf of customers, and get bonded-up "in such form and amount as is acceptable to DFS for the protection of the licensee's customers." And they'll have to submit and publish a detailed consumer complaint policy that must include a provision allowing customers to pursue their complaint with DFS.

Finally, DFS will be conducting security audits on any firms with a BitLicense to prevent another MtGox-type hack from occurring. The former exchange, once the world's largest, lost hundreds of millions of dollars, over security issues.

This is likely to raise the cost of complaince considerably, and could eliminate some of the cost efficiencies that were also touted as key to Bitcoin's advantage over traditional forms of transaction.

The draft proposal makes New York the first government entity to propose comprehensive Bitcoin regulations, and are likely to serve as a model for other states and even federal guidelines, given New York's role as the vanguard financial authority outside Washington — DFS Superintendent Ben Lawsky, for instance, was a critical player in the recent penalties delivered against BNP Paribas for violating sanctions.

Gil Luria of WedBush, which has been on the front lines among Wall Street firms in studying Bitcoin, says this ultimately good news.

"It will make it possible for Bitcoin companies to function in a regulated way which most of them have been seeking out," he told BI in an email. "It should help create the infrastructure to support the growth of the technology as new robust, liquid, US-based exchanges emerge."

Cameron and Tyler Winklevoss, who are seeking to launch a Bitcoin ETF, told BI in a statement:

We are pleased that Superintendent Lawsky and the Department of Financial Services have embraced Bitcoin and digital assets and created a regulatory framework that protects consumers. We look forward to New York State becoming the hub of this exciting new technology.

You won't need a license if you're a retailer accepting Bitcoin or other cryptocurrencies as a form of payment.

Below is the full text. There will now be a 45 day comment period.

NY DFS RELEASES PROPOSED BITLICENSE REGULATORY FRAMEWORK FOR VIRTUAL CURRENCY FIRMS

Framework Includes Consumer Protection, Anti-Money Laundering, and Cyber Security Rules for Virtual Currency Businesses

Proposed Regulations Submitted for a 45-Day Notice and Comment Period to Solicit Public Feedback

Benjamin M. Lawsky, Superintendent of Financial Services, today announced that the New York State Department of Financial Services (DFS) has issued for public comment a proposed "BitLicense" regulatory framework for New York virtual currency businesses. The proposed regulatory framework - which is the product of a nearly year-long DFS inquiry, including public hearings that the Department held in January 2014 - contains consumer protection, anti-money laundering compliance, and cyber security rules tailored for virtual currency firms. Superintendent Lawsky said: "We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity - without stifling beneficial innovation. 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."

In accordance with the New York State Administrative Procedures Act (SAPA), the proposed DFS rules for virtual currency firms will be published in the New York State Register's July 23, 2014 edition, which begins a 45-day public comment period. After that public comment period, the rules are subject to additional review and revision based on that public feedback before DFS finalizes them. Additionally, DFS is today immediately publishing a copy of the regulations on the website Reddit. Earlier this year, Superintendent Lawsky hosted an "Ask Me Anything" forum on Reddit about DFS' work on virtual currency regulation, which generated more than 1,200 public comments. Links to the proposed rules are also being tweeted out from the DFS Twitter handle (@NYDFS) and Superintendent Lawsky's Twitter handle (@BenLawsky). Superintendent Lawsky said: "We recognize that - as the first state to put forward specially tailored rules for virtual currency firms - continued public feedback will be an important part of finalizing this regulatory framework. We look forward to carefully and thoughtfully reviewing public comments on our proposal."

The new DFS BitLicenses will be required for firms engaged in the following virtual currency businesses:

Receiving or transmitting virtual currency on behalf of consumers;

Securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers;

Performing retail conversion services, including the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency;

Buying and selling Virtual Currency as a customer business (as distinct from personal use); or

Controlling, administering, or issuing a Virtual Currency. (Note: This does not refer to virtual currency miners.)