Midsummer is a time for young love, lightning storms and states sticking their nose into cryptocurrency regulation.

Last July, as the price of bitcoin hovered around $70, California subpoenaed the Bitcoin Foundation, a nonprofit that exists to update the protocol and promote Bitcoin’s importance, to prove that it did not require a money transmitter license (despite the fact that it never transmitted money; it accepts dues, like any other professional trade organization).

We will write a custom essay sample on

NY BitLicense Regulation Downsides specifically for you

for only $13.90/page

Order Now

That controversy kept the price of bitcoin low all summer, but was forgotten as California never even responded to the Foundation’s well-crafted response.

This summer, the price of bitcoin has also been dropping (albeit still in the high $500s, way up from this time last year) and the state making threats this time around is New York, which recently released its extensive (many would say over-reaching) proposed regulation for buying or selling bitcoin in the state of New York (or to a New York resident anywhere in the world).

The response from the bitcoin community was quick, yet bifurcated, with large players like the Winklevoss twins and Barry Silbert hailing it as a good start and many rank-and-file bitcoiners reacting with anger, horror, even near-panic.

I’ve seen this day coming for quite some time, but now it would appear to have arrived: the Great Bitcoin Divide. If there has been, as several writers have suggested, a Civil War brewing between the libertarian/crypto-anarchist early adapters and architects of Bitcoin and the Johnny-come-bit-lately crowd that rode into town in the past 18 months with cash and a desire for clarity and compliance in hand, then the proposed New York State regulations which are now in a 45-day comment period may well be bitcoin’s Fort Sumter.

I’m calling this the Great Divide rather than a civil war because the sides aren’t so much fighting each other but arming themselves with vastly different tools to combat a common foe: the old guard banking and government titans who stand in their way of varying visions of changing the world.

The new guard (for simplicity’s sake, let’s call the group the Pacifiers) are simply trying to figure out, as Rodney King once put it, why we can’t all get along. They testify in Congress, raise millions of dollars from large VCs (and soon from Wall Street), hire lobbyists and look for a middle ground that reads something like “of course, we need to be highly regulated; just put us on a level playing field with the banks and we’ll be able to IPO on NASDAQ, create jobs and everyone will be happy.”

On the other side of the Divide are the people who actually built bitcoin and feel they’ve gotten along just fine without regulation for the first four years of the cryptocurrency’s existence (during which time, they might note, they oversaw what is on track to be one of the greatest creations of wealth in human history that was open to anyone with access to the Internet), so they adamantly resist regulation and hearken back to the early days of the Internet when it was said that “the Internet sees censorship as a form of damage and simply routes around it.” We’ll call them the Anarchists (indeed, many of them cherish the badge of “crypto-anarchy” as a superior way of governing).

This concept of a “divide” is actually quite literal, as November 28, 2012 is when mining rewards were cut in half, leaving 10 million low-cost coins (more than half were mined or sold at less than a dollar, often much less) in the hands of the earliest adopters. We can probably call this date the cut-off to be officially be considered a Bitcoin old-timer.

Of course, not all old-timers resist regulation and seek only math-based answers. CoinBase (started in June, 2012) and BitPay (May, 2011) both now have large, prominent VCs on their boards and sizeable cash hoards and market capitalizations to go with their large, growing revenues.

On the other side of the spectrum (for the moment), Blockchain.info is completely funded in and operates completely through bitcoin. As CEO Nic Carey likes to point out, they don’t even have a bank account.

Both sides should also take advantage of the 45-day period to comment – or protest. Shortly after the BitLicense news broke, I spoke on two panels at the North American Bitcoin Conference (which seems to be on the calendar of the regulators, given that this pronouncement came out less than 48 hours before the start of its gathering – and the arrest of early bitcoin pioneer and Bitcoin Foundation co-founder Charlie Shrem on alleged regulation violations came as he stepped off the plane from the first NABC in Miami this past January).

Nearly every panel and keynote touched upon the New York situation, with opinions ranging from the regulatory panels advising on the constitutionality of certain aspects of the regulation to early adopter Bruce Fenton angrily telling the crowd that they should simply not engage with regulators.

Three days later, I spoke on two panels at Coin Congress in San Francisco, moderating one on Bitcoin 2.0 and speaking on a panel moderated by author/futurist George Gilder on Bitcoin’s perception issues.

Both sides do agree on a few things: that bitcoin is a once-in-a-generation leap forward along the same lines as the Internet, telephone and automobile; that everyone has the right to create and own their own digital assets and currency, even if there are disagreements about financial privacy; and that sustainable innovation is the key driver of a thriving economy, with digital currency and blockchain technologies having the potential to create more than a trillion dollars of wealth in the coming decade or two (as has the Internet and personal computer before it).

The stakes for bitcoin are incredibly high around the New York BitLicense regulations, which, if enacted exactly as proposed, shatters the foundation of bitcoin for anyone globally doing business in New York or with a resident of New York anywhere in the world, with incredible provisions like 10 years of record-keeping and a prohibition on bitcoin businesses keeping any of their profits in bitcoin – which given that bitcoin is legal to own is almost certainly unconstitutional.

At Coin Congress, I noted spoke about two aspects of this divide that have been little discussed:

(1) there is a fundamental difference between bitcoin, the currency, and the blockchain (much of which has been diverted to alternative blockchains that have very little use as a currency and were created to improve upon bitcoin’s functionality in making smart contracts, escrow, etc.), therefore, they need to be regulated quite differently, with the currency regulated like a form of currency or commodity – and software perhaps not needing much regulation at all; and

(2) just as the wild, hairy Internet of 1991 bears little resemblance to the corporate-controlled “stacks” that most users place between them and the technology (do you really use the Internet? Or do you use Google, Facebook, Amazon and Netflix, which in turn serve up their flavor of the Internet to you?), we are already seeing the beginning of corporate “stacks” of centralized companies coming between the user and the native blockchain. BitPay and GoCoin turn bitcoins into dollars for merchants; CoinBase and Expresscoin let Americans buy bitcoins without opening a foreign account; Blockchain.info and Mycelium let users store their coins themselves, then access them from a cloud-like wallet.

Who wins the Great Divide? Both sides certainly survive, and it should be the job of everyone who cares about bitcoin to make the divide as narrow as possible, so that stacked and stackless experiences are still possible and that innovation in the blockchain is not driven to other nations (as it’s been thus far, with the current financial center of bitcoin activity technically in Slovenia, home of the leading Bitcoin exchange for the western world, BitStamp).

Just like the Internet and social media before it (remember state attorneys general coming after MySpace to make sure that child predators were blocked from coming online in order to be legal in their state?), the general rule of thumb in history is that mass adoption trumps regulation, as it becomes clear that the vast majority of users are not breaking any laws.