Wednesday, July 18, 2018
The U.S. Congressional Subcommittee on Monetary Policy and Trade held a Full Committee Hearing entitled: Cryptocurrencies: Oversight of New Assets in the Digital Age
The subcommittee addressed questions about Bitcoin and the blockchain technology behind it, as well as the creation of a Central Bank Digital Currency. Each witness's full testimony is linked below.
Chairman Michael Conaway, Texas U.S. Representative assembled six distinguished witnesses to provide expert testimony.
Mr. Gary Gensler, former Goldman Sachs partner and U.S. government regulator
Mr. Scott Kupor, managing partner Andreessen Horowitz
Mr. Daniel Gorfine, Commodity Futures Trading Commission
Mr. Joshua Fairfield, Law and technology professor, Washington & Lee University
Ms. Amber Baldet, CEO Clovyr
Mr. Lowell Ness, Managing partner of Perkins Coie, LLP
As the testimony began, I was unsure, even nervous about what the next few hours might bring. After all, our fledgling cryptocurrency market has made significant strides this week, as positive sentiment has come from many angles.
However, condemnation from US Government officials could allow bears to see their shadows, and give markets six more weeks of winter.
As Chairman Conaway began his opening statement, anxiety gave way to something resembling hope, even pride.
Chairman Conaway began…
“We are happy to have you as we discuss an emerging policy area that is of deep interest to our members, to the emerging cryptocurrency industry, and we hope, to Americans of all stripes.
While digital assets are often thought of as “payment systems” or “digital gold” I believe the promise that token networks hold is more universal – and more exciting than that.”
Chairman Conaway continued to set the tone for focused discussion on how laws should govern the issuance, trade and use of digital assets.
He also made perfectly clear that imposed regulations on users and developers...
"Won’t determine 'if' they are developed and used, but it will determine if they are developed and used in our country."
1. Protecting Investors (KYC/AML)
Following the testimony from witnesses, the committee members in attendance were each given 5 minutes to ask questions.
How to protect investors was asked, then reframed and asked again several times.
Indeed, while some may seek the immediate establishment of bright lines, the reality is that hasty regulatory pronouncements are likely to miss the mark, have unintended consequences, or fail to capture important nuance regarding the structure of new products or models.
- Daniel Gorfine, Director, LabCFTC (CFTC)
There is a widely held view amongst most policy officials globally that we must guard against such threats – whether by state actors or private sector actors - though how best to do so has been up for debate.
- Gary Gensler, MIT Media Lab
Lowell Ness of Perkins Coie, LLP brought forth details including definitions, descriptions and very specific suggestions for regulators consideration.
We support the regulatory mission of investor protection and full and fair disclosure.
We believe it is essential to both market participants and the regulatory community that bad actors are dealt with through targeted strikes and regulatory action.
We also believe it is equally essential to provide clear guidance beyond enforcement actions to allow continued development and innovation....
2. Flush out bad actors
With recent news of 12 Russian Agents indicted in the Mueller investigation and their reported use of Bitcoin, it became apparent that panelists held one fact as their 'ace in the hole' for this line of questioning.
As if watching a World Series of Poker final match, one opponent of cryptocurrency went all in using the Russian agent's use of bitcoin as proof it is only attractive to illicit actors.
The Gold Bracelet winning response...
Russian agent indictments were made Because they used Bitcoin!
Witnesses went on to explain that, the bitcoin blockchain, as a public, immutable ledger, can and has been used to flush out illicit actors.
Further statements were issued comparing cash to bitcoin, because while bitcoin is pseudonymous, cash is completely anonymous.
Chairman Conaway offered in his closing statements...
As long as the stupid criminals continue to use bitcoin, we'll be ok.
3. Rapid growth and movement of technology
The inability of government to keep pace with technology isn't exactly new. Daniel Gorfine, Director, LabCFTC sited the stance of past regulators considering the internet.
Noting the rapid pace of innovation and technological transformation, then senior policy adviser Ira Magaziner stated in 1997 that given “the breakneck speed of change in technology . . . government attempts to regulate are likely to be outmoded by the time they are finally enacted.”
When questioned on the matter, Amber Baldet Cofounder & CEO, Clovyr offers these thoughts on regulation, again using examples from the past...
Imagining a mature, interconnected global ecosystem of such markets feels like standing in the 90's, looking at a pre-World Wide Web electronic bulletin board system, and trying to imagine Netflix streaming on your phone.
So far, money seems to be the “killer app” for blockchain. Much as the early Internet’s killer app, email, continues to be a cornerstone of how we communicate online, peer to peer payments will likely grow into and persist as a ubiquitous part of our personal and professional daily processes.”
4. Develop blockchain technology in the US
The core takeway from this topic was urging committee members to consider that if development of blockchain technology is pushed out of the US by over-regulation, enticing developers to return, could be an arduous and expensive proposition.
The U.S. has long been a leader in technology, in large part due to a favorable regulatory and financial environment.... We believe that crypto-networks present a new and exciting opportunity for us to continue on that trajectory.
Chairman Conaway was eager for answers as to what actions might promote usage of bitcoin by current holders, business adoption of bitcoin as a payment method, and development of the technology in the US.
Capital Gains tax (CGT) was said to be the biggest impediment to cryptocurrency usage because of the complicated tracking process.
Others suggested changing the classification of bitcoin from property to currency would eliminate many boundaries for American investors, business owners and bitcoin holders alike.
Which brings us to number 5...
5. Characterization of digital assets: Commodities, Securities, Currency
Blockchain technology has enabled new communities and new business forms. It has also provided the technological basis for a badly needed expansion of personal property rights online.
In the current characterization debate, a token should be deemed a security when it operates like a security, a commodity...as a commodity, a currency...as a currency, and a simple property interest...as a simple property interest.
In closing, Mr. Ness offered...
I think Uber taught us, for better or for worse, if something is extremely popular, the laws will change to conform to that new technology.
Echoed throughout the hearings, the shared idea of government agencies working with technologists and the private sector, to carefully formulate regulations which promote the development of blockchain solutions within our borders is key in the future.