Distinguished Blockchain Leaders Testify at US House Subcommittees

Today, the US House of Representatives held two committee sessions focusing on the Regulation of digital currency and assets. The sessions spanned over three hours,  but you can read below for the important and interesting pieces from the day.

Session 1: Public Hearing RE: Cryptocurrencies: Oversight of New Assets in the Digital Age

This session, held by the House Agricultural Committee featured:

• Dr. Joshua Fairfield – Professor of Law at Washington and Lee
• Amber Baldet, Clovyr, a company building tools that make it easier to build decentralized applications on top of both publicly accessible blockchain networks and access control distributed Ledgers (formerly JP Morgan)
• Scott Kupor – Managing Partner Andreessen Horowitz
• Daniel Gorfine – Director, LabCFTC and Chief Innovation Officer at U.S. Commodity Futures Trading Commission
• The Honorable Gary Gensler – Senior Lecturer, MIT School of Management
• Lowell Ness – Partner, Perkins Cole LLP

Highlights included:

• Committee Members, like Representatives Lucas and Soto, showed their interest in doing research beforehand and were able to ask informed and intelligent questions about ICOs, functional networks, and Satoshi Nakamoto. Even those who were still trying to figure it out, were willing to admit as such. Member Adams commented that she “tries to say she is woke,” but that her children probably have a better grasp on the subject at this point.
• Ms. Baldet opinion that regulators need to understand “who controls access to the network and who can modify the rules of the system.” She proposed that assets classes could be organized by “who controls the escape hatches.”
• Mr. Gensler asked how many of the committee members and how many in the audience were digital currency investors. It was two of the approximately thirty members and about half of the audience.
• Mr. Kupor made it clear that a16z is excited about investing in this space because “Crypto networks are a new way to build digital services.” He also noted that developers are wary of building on current ones because of platform risk (i.e. Facebook or Google changing their algorithms without warning).
• The Committee Chairman agreed with Mr. Ness that lack of regulation in the US was causing an international “race to the bottom” and that it will be easier than having to “entice people back in to the country because the standard would really have to be lowered to do that.”
• Representative Lucas gave an interesting history lesson that gold wasn’t always completely safe itself. When President Roosevelt took the US off the gold standard in 1933, all safe deposit boxes were sealed until a government official could look inside to see if there was gold being hoarded.
• Ms. Baldet commented with the popular “Satoshi is Female” when asked if anyone could verify who Satoshi is:

Dawning on me that I’m going to have to explain to my mom why I yelled memes at a Congressman https://t.co/ynkwNXTJox

— Amber Baldet (@AmberBaldet) July 18, 2018

• When asked about the legal precedent for earning tokens in a network, Mr Ness noted that there is case law that says if you work or perform a service to earn a security, it is the equivalent to paying for it.
• Finally, they were each asked what can be done about bad actors. The two simplest answers were Mr. Fairfield saying, “Let FINCEN do their job” and Mr. Ness, “The alleged Russian hackers were caught because they used Bitcoin.”

The entire session can be watched here:

https://www.youtube.com/watch?v=_O9s4fuzvbQ&amp=&amp=&amp=&feature=youtu.be

Session 2: The Future of Money: Digital Currency

This session, held by the House Financial Services subcommittee, focused on whether the government should consider digital currencies as money and their potential domestic and global uses. It featured:

• Rod Garratt – Maxwell C. and Mary Pellish Chair in Economics at the University of California Santa Barbara
• Norbert Michel – Director, Heritage’s Center for Data Analysis
• Eswar Prasad – Tolani Senior Professor of Trade Policy at Cornell University & Senior Fellow at the Brookings Institution
• Alex Pollock – Senior fellow with the R Street Institute

Highlights included:

• Dr. Garratt notes that Nothing wrong with current banking system, but as cash starts to disappear, it causes problems in a society (Sweden is seeing it now).
• Dr. Michel feels that people should be able to use any medium of exchange they want to use. Those that like the current central bank, that’s wonderful, but if someone comes up with something better, it should allowed to be used
• Dr. Prasad dispels thee notion that banks can do everything now. He says that there are inefficiencies in banking system: slow, expensive, etc. Blockchain products could make transactions easier to verify, faster follow through & finality, and will bring down cost. This could affect traditional monetary policy.
• Dr. Michel believes that capital gains taxes are the major impediment to digital currency being uses as an means of exchange. Nobody wants to figure out cash basis and tax liability for day to day purchases.
• Dr. Garratt believes that a state offered digital currency should include some measure of privacy, similar to cash, but perhaps up to a certain limit.
• Representative Davidson made a point that the US dollar is strong partly because the world oil market is settled in US dollars. He seems wary of giving up that system, especially to one that he believes does not lend itself to price discovery of goods.
  • Dr. Garratt commented that the fixed supply of Bitcoin gives many the confidence that it will hold value, which is unlike the US dollar, which loses value due to inflation.
  • Mr. Pollack mentioned that it was social in nature, as well as financial.
• Unlike the previous panel, Mr. Pollack was not able to provide a strong answer for how bad actors can using digital currency can be easier tracked and stopped. The question was asked by Representative Sherman, whose opening statement was very negative against the entire space.
  • Representative Sherman made his point that guns should not be made with fingerprint removal technology because that feature is only helpful to criminals. He believed this was analogous to private coins.
  • This is a question that everyone in the space should be able to answer in a sufficient manner because it is top of mind to digital currency dissenters.

The session was cut short due to a vote on the House floor. The entire session can be watched here: