LIVE Hearing: "The Future of Money: Digital Currency"



all right everyone what is going on a sunny day here and welcome to this live stream I hope that you guys can hear me would be nice to have a confirmation here look like is the quality okay guys your legend kills Taba crypto MC for Xbox Marty Qi what is going on everyone can you guys hear me sana decreed is life that is new dude man I was doing those life streams I remember pretty much on a daily basis back in the days and yeah it just feels weird right now YouTube is showing me that the stream quality is not 100% perfect but I'm not losing any frames alright I should be okay alright so what we're gonna do is we're gonna go over this live stream over here so basically this is a restream pretty much what's up suddenly looking HD to me alright that's nice that's cool I don't know sometimes YouTube shows a little bit of weird things and the thing is that also when I was doing live streams back in the days it was a little bit different than it is right now YouTube changed a few things around and the live streams I was doing lately were just on Twitch but um yeah quality is perfect alright what's up from Egypt yo ACB game yo stitching Stein de Haan welcome welcome Gabriel audios ten of ten that's awesome alright guys so I would say that we're gonna jump right into it oh we already have 87 viewers in here that's awesome guys wow that's that's so sorry if there are gonna be some technical issues I hope not everything should be alright put up the cam now we're gonna make this a chill stream okay like back in the days we're just gonna make it a chill stream I'm gonna give you guys some comments on this and yeah we want to go over this live stream over here I can already tell you guys well first of all what is all about it is the thing that I mentioned in today's video you're probably gonna see it a lot in the news is this hearing in here in the US Congress hearing entitled the future of money digital currency this is definitely something which is exciting here the official memorandum and yeah we're going to go over it can already tell you guys that the quality of their life stream is super garbage okay so this is not on my end alright this is definitely not on my end but we're gonna jump right into it and therefore all those who just joined welcome welcome okay I'm wondering why the resolution is four to three and why it is so bad I'm sorry guys once again this is not on my side and yeah it should actually start in here in a second I mean the audio quality is bad and also the video quality is bad but reasonable this morning okay let's also want to lift lift up Collin Peterson his family during these times bittersweet and your thoughts and prayers are with him as well help us to to do your will and to be the kind of people that that will honor you we ask these things in Jesus name Amen just a quick word caller Peterson's not eat a half year old father passed this week and so our can hear white noise in the background should be fine now right story I think it's on their right edge was clearly had his faculties right up to the very you gotta remember the crop prices from 1952 you know I mean you are we all right so well good morning we've got a terrific panel this morning I see a lot of new faces as in the audience today well the big questions up on a lot of folks Minds is what's the Agriculture Committee doing with cryptocurrency and and the distributive major technology but we're here to find that out this morning so for those of you that not joined us before welcome we're happy to have you as we discuss an emerging policy area that is of deep interest to our members to the emerging into crypto industry and we hope to all Americans of all stripes digital SS like Bitcoin and ether but also hundreds of other token-based projects that are being developed represent a new way for people to interact and exchange in commerce with one another 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 work signing quite frankly than that for the first time we have a tool that enables individuals to reliable exchange value and a digital realm without an intermediary we could have assets that exist can be created exchanged consumed in digital form the promise of being able to secure property rights in a digital in digital space may fundamentally change how people and people interact with one another this technology holds the potential to bring enormous benefits to each of us if we're willing to give us the space to grow provide providing a strong clear legal regulatory framework for digital ss is essential to that end there are several questions before us about how law should govern the issuance trade and utilization of these digital assets I'll just to make that clear in here guys real quick can you give a short conclusion I got to keep learning the question from Fred Forge dining here from the chat first of all welcome everyone guys this is super amazing we have like 400 people in here I did not expect that at all I'm just gonna tell you real quick so maybe you can talk to people in chat or I'm gonna do that later on when people are keep asking how we're gonna do this okay so the goal is actually to watch everything maybe it's gonna get super boring maybe some stuff I do not understand I'm not from the United States I want to give you guys some comments when I think it is important okay so maybe from time to time we're gonna stop this but more or less this is gonna be a you know like sit back and relax and just listen to this as a podcast pretty much okay so this is how we're gonna do it from time to time maybe I'm gonna halt it and give you guys my comments about it but this is more or less gonna be yeah just we re run off this live stream so enjoy guys and yeah maybe I'm gonna answer some questions in the chat as well because I have the time to type all right let's go perhaps no question is generally greater uncertainty than how to determine if a particular token is a security we generally know that it would what to do if a commonly traded asset is in fact deemed to security we simply apply the securities laws if it's not a security there's a good chance it's a commodity which will be subject to the requirements of the Commodity Exchange Act the problem seems to be in making that too termination the how we test which concerns the sale of orange groves and service contracts to the 1940s as often presented as a standard test to determine if the securities laws govern a token yet they have provided they proved to be challenging in the analysis under this as an analysis of this test a related question is whether or not current laws are appropriate for these new digital assets if a token is derm is determined to be a security or a commodity or something else a regulatory regime need not be static if it's necessary Congress or regulators may want to consider developing a new framework that takes into account the diverse characteristics and unique economic relationships embedded in many of the types of digital assets that can be represented by tokens providing clear guidance to enable developers to determine the nature of their token and then suitable rules will enable them to develop their project is essential to both project protecting the public and promoting innovation how we regulate these products and those who develop them won't determine if they're developed or used but it will determine where they are developed in use and we want them that innovation done in our country as we consider changes to the laws or new regulations the Committee on agriculture will be part of that conversation within the house we have a vested interest in the definition of a security because it directly impacts the definition of a commodity similar to our work in agriculture commodities as well as futures and swaps markets the committee has a strong interest in promoting safe efficient transparent markets for those who use these new token markets properly regulated markets promote innovation and foster economic growth and I don't believe that will be any different with respect to digital assets of course proper regulation does not mean intrusive regulation that means regulation appropriate to the nature of the activities and the participants and in some cases it might mean no regulation at all before I turn a rate remember I want to thank all of our witnesses for making time to prepare to testify we've got an incredibly qualified panel to present all sides of a fascinating and complex set of issues I welcome to please each one of you here today for this conversation and with that color I'll turn to you for any comments that you might want to have Thank You mr. chairman and thank all of you for joining us here today and I'm a happy that we have a chance to review this new technology our role is to oversee Dias you have to see regulation though all right here I'm gonna interrupt just real quick in here guys okay maybe was not the perfect point but I uploaded the video already I would say a couple weeks ago where I said that a lot of these regulatory problems are there are several authorities okay there is the fin rather is the SEC there's the CFTC and it's not really clear which authority is responsible for what regulation okay and that's also really tough for some businesses who want to start an ISO for example or who have anything to do with cryptocurrencies sometimes they you know they are working in in a frame or in a range where it would be okay for the SEC for example but not for the CFTC so it's a lot of you know like here in Switzerland we say bureaucracy it sometimes seems to be stupid but this is just necessary so yeah of it if that's appropriate as a CPA and someone who's found a career helping folks run numbers on their finances I still am having a hard time getting my hands around this and I have some real concerns one crate cryptocurrency that we need to pay special attention to is its volatility there are some of you that will tell us that the fluctuations in cryptocurrency are a good thing and part of its appeal but the increased speculation and the fact that regular investors stand to lose their shirts give me a great deal of concern there's one study found over 80% of the initial coin offerings are scams and while regular investors stand to lose a very small amount Santa Lou is a very small amount stand to gain for example 97% of Bitcoin is held by just for it's not the old one of the participants and cryptocurrency there's a lot of things here that don't make much sense to me and who knows maybe some type of this technology will come along and really make a difference after these starts and fits but as it stands right now I'm skeptical it's our jobs to be the adults in the room and to ensure that in these early days there's enough oversight of this new frontier to ensure that it can grow responsibly that I look forward to your testimony and I yield back Thank You mr. Peterson so chair requests other members submit their opening statements for the record so that our witnesses may begin their testimony and to assure there's Apple time for questions I'd now like to welcome our witnesses to our table first off we have Joshua Fairfield dr. mr. Joshua Fairfield the William Donald Bain family professor of law William Utley University the University School of Law in Staunton Virginia we have miss amber bald a co-founder and CEO of clover in New York New York we have Scott Cooper managing partner of andreessen horowitz Menlo Park California we have mr. Daniel Gore fine director lab CFTC and chief innovation officer at the CFTC here in Washington DC we've got welcoming back for another round of conversations of the Honorable Gary Gensler who currently is a senior lecturer MIT Sloan School of Management and then we've got mr. Lowell Ness managing partner Perkins Kui Palo Alto California so we've got a terrific panel and with that we'll go to mr. fair for at least what everybody have five minutes to pitch your wares and we've also got your opening state are your full statements for the record so with that mr. Fairfield you're a fair figure you recognize that's that sound quality's not on my side come on Thank You mr. chairman Conway ranking member Peterson and members of the committee for the opportunity to address you today my remarks are going to try to set some context and they're organized around two questions we've heard a lot about Securities and commodities but how are people actually using cryptocurrency tokens and given that how should regulators proceed on the first question blockchain which is the technology underlying the current rash of cryptocurrency and tokens is a new decentralized database technology many communities have formed just to see what the technology can do and they're trying different experiments the potential value in these experiments is considerable collaborative communities of artists new forms of corporations fast and low-cost checks out and digitization of securities open and low-cost electronic mortgage and secured transactions filing systems secure international remittances voting systems and many more are possible applications of the technology my testimony today will focus on potential for blockchain technology to expand personal property rights online this is my primary area of research and my conclusions are and I'll continue them below that first citizens need and want an expansion of personal property rights online the cryptocurrency tokens are helping them do that by solving important problems in building markets for digital property and that we need to be cautious when regulating overlapping spaces and use cases such as systems in which most people hold a token to use it or consume it and a few hold it to speculate on the price on the second question how do we go about conducting oversight common-sense construction of how groups are using the technology a so-called duct test will help regulators begin to sort out whether and where to engage rough agency consensus can handle these conflicts and hearing such as this one are critically important for regulators to start working out the overlaps because many many more applications of this technology are coming so in the body of my remarks I'd like to discuss how this technology represents a badly needed expansion for personal property rights online we should really care about good property rules for intangible electronic digital assets good property rules preserve citizen independence property institutions build individual wealth and social welfare by reducing transaction costs and property permits us to express ourselves by changing and arranging our environment to reflect what we want here you might think of your own home or your wedding ring for example but personal property rights like this have had serious trouble coming online we just don't own that much personal property online consider that people used to have record collections now they have a subscription to Spotify people used to have bookshelves now they have Kindle accounts this is because early in the history of the internet intellectual property holders were worried about illegal copying it took several decades to develop a technology blockchain the database technology underneath cryptocurrency tokens that can be traded held bought and sold but not duplicated so far until now property institutions haven't really gotten the benefit of internet technologies because it's too costly to record all the transactions we can't have a database of ownership for every Barbie doll in the entire country right it's too costly however token systems can and will reshape all of these ways of owning if they push price points low enough the way the internet did for basic internet communication in some blockchain technology is not just used as a security it's not just used as a commodity it's used as a way to unstick personal property law for all of us online but it's only going to do it if we let it so what's the path to successful oversight responsible regulation has to rest on a frank and common-sense determination of how people are using this technology working out the jurisdictional questions is going to be time-consuming but it's not particularly harder than for Network communications technology generally we've just had to hand these things out and figure it out tokens do present some challenge specifically they may be used in different ways by different members of a community they may be used at different times in different ways but most importantly the nature of the use by a community can shift a community can be trying to do something entirely legitimate and have speculators come in and begin to disrupt the purpose of the original community the current hot characterization debate is whether token sales ought to be deemed regulable under the Howey test I believe instead the Howey test represents the outer bound of where we should look we should look inside that outer bound to figure out what the beneficial and damaging uses of the technology are if a community is using cryptocurrency tokens like securities then they should be regulated as securities but if they're not they shouldn't and that's the most important edition conclusion 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 and for purposes of regular regulatory jurisdiction a rough common source common sense sorting into buckets will do more good in the near term than precise definitions of what a cryptocurrency token is that is a lost cause a cryptocurrency token wears as many hats as humans give it it is an entry in a database it is a technological entry and nothing more in the current characterization debate what this means is that a token should be deemed a security when it operates lights of collective security a commodity when it operates like a commodity a currency when it operates as a currency and as a simple property interest when it operates as a simple property interest thank you so much thank you for spare feel ms bell day five minutes chairman Conway ranking member Peterson and members of the committee thank you for the opportunity to be here this morning I'm amber Baldy co-founder and CEO of clover a company building tools that make it easier to build decentralized applications on top of both publicly accessible blockchain networks and access control distributed Ledger's previously I led the blockchain program at JPMorgan though I'd like to note that my comments today do not represent my former employer I also currently sit on the board of the real foundation a nonprofit organization seeking to advance the state of the art for privacy technology as applied to Internet infrastructure and privacy preserving crypto currencies these are a variety of disparate hats all of which lead me to the same message my commentary today concerns the importance of a cautious and thoughtful regulatory approach to innovative technologies even and especially those that might disrupt business as usual or add to the complexity of regulating the Internet as both critical infrastructure and a shared public good we must determine how to balance the enormous potential value of this technology with the need for consumer protections and national security and how to achieve this while respecting human and constitutionally protected rights 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 for how we communicate online peer-to-peer payments will likely grow into and persist as a ubiquitous part of our I'm sorry guys here I have to interrupt a little bit real quick this is something that I have been saying for many many times I don't want to make this too long but just my thoughts in here real quick you guys know I'm not a full Bitcoin maximalist but I'm getting closer to one okay I have like ten coins or something in my portfolio also some tokens but that's exactly what it is money is the killer app for box chain I mean all these other things tracking your foods supply chain management medical records stuff like that in my personal opinion you do not need a blockchain for that okay I mean of course it is possible but for example supply chain management well it will all it with a blockchain will just be as good as people who are maintaining the blockchain okay when they're entering into the blockchain or when they are interpreting out of the blockchain well it doesn't make that much sense so this is something I 100% agree on money is the killer app for blockchain and that is one of the main reasons why I personally am close to being a Bitcoin maximalist our personal and professional daily lives in fact the ability to spend trade rent or license other sorts of unique digital bearer assets could be applicable to many things we own mortgages securities collectibles intellectual property rights personal data etc imagining this mature interconnected global ecosystem of such markets feels like standing in the 90s and imagining Netflix streaming on your phone and yet my concern is not the speed with which we reach that end state it's the choices that we make along the way which stands to be as hotly content did and impactful as net neutrality the DMCA FASTA cesta or the on-again off-again discussion of state mandate mandated week cryptography continues to be while we struggle to overlay existing regulatory frameworks onto new technology that is useful precisely for its fluidity other areas of the world are embracing that ambiguity and learning by doing in Afghanistan for example code to inspire helps train young women for technical careers and pays them in Bitcoin which they can use in local shops as well as global marketplaces in a place where women's banking and even physical agency is limited financial autonomy and Digital Inclusion is a powerful force for equality and democracy in some African countries and places with less legacy financial infrastructure companies are using crypto assets to enable farmers to properly track and register their commodities and increase their bargaining power in downstream market pricing not only can end consumers tip their farmer in support of fair and sustainable working conditions but every other factory or wholesale retailer along the way can make more informed decisions about the provenance of inputs to their products in the United States square whose business strategy is already based on disrupting traditional payments processors has added the ability to buy sell and transfer Bitcoin into its mobile app and there are many products targeting cryptocurrency investors and early adopters there's also several more experimental projects that are interesting for example using economic incentives to battle fake news cryptocurrency micro payments as an alternative business model to data hungry online advertising and fluid marketplaces for unused disk space on your home computer as a disruptive force to centralized cloud storage these projects all launched as initial coin offerings icos either on a new single purpose blockchain network or as a token on top of an existing network like aetherium are often compared to the internet startup boom of the 90s yeah the ability to quote unquote code oneself out of business is a novel property of these decentralized blockchain applications but most experiments today invoke a variety of human controlled workflow checkpoints and escape hatches to allow intervention if necessary along with understanding who can trolls access to the network and who can modify the rules of the system identifying who controls these escape hatches might be helpful in sorting tokens into various asset classes once the sensible taxonomy has been established as a counterpoint blockchain is not the answer to every problem for example I recommend extreme caution with exploration of blockchain based a voting ensuring one person one vote while keeping ballot selections private is an incredibly complex computer science and human coordination problem that we are not ready to tackle yet internationally it's no surprise that some of the central bank's most aggressively investigating cryptocurrency as an alternative or enhancement to their existing currencies are in Venezuela Russia and China going forward as there is inevitably more discussion of the potential for a digital dollar I encourage strongly encrypted privacy preserving design choices coupled with opt in selective disclosure as opposed to options like mandatory cryptographic backdoors or golden keys which could make the US financial system a very attractive target for nation's state-sponsored cyberattacks and hackers as that conversation matures you must clarify how FinCEN oh fak and other relevant rules can be applied modified or interpreted to balance many competing interests so in conclusion and hopefully even and hopefully if this committee's guidance is simply a strong commitment to non-interventionism safe harbors for innovators and work towards resolution of the patchwork fabric of state laws the time it takes to come to such a commitment may have the unfortunate effect of eroding America's early mover advantage in technical innovation and entrepreneurialism thank you thank you visible to mr. Cooper okay um I think I said my part already and I think personally those people they know what they're talking about okay maybe you're not gonna agree with all of it but I would say that those first speeches those two speeches they were quite nice actually good summary of what's going on and um yeah so far I'm totally fine with this Thank You chairman Conway ranking member Peterson for the opportunity to be here today to talk about this very important new technology my name is Scott Cooper I'm the managing partner for a firm called age capital management which manages about seven billion dollars worth of venture capital assets that maybe very recently also for a group called CN k Capital Management he's not a 300 million dollar registered investment advisor fund focused exclusively on investing in crypto related assets I'd like to spend my time today to focus on why we believe as investors that crypto technologies make a very compelling investment opportunity particularly for members of the venture capital community and I want to start with a definition that's different from the definition I think that we often hear about so if you focus on a lot of the public narrative today around crypto technologies there are two kind of dominating narratives one is certainly around Bitcoin and price fluctuations and volatilities which we heard certainly from the ranking member today as well as well as what are called initial coin offerings icos for capital fundraising as investors though we're interested in the broader ecosystem and we use the term crypto networks to describe what we think about as that ecosystem very specifically crypto networks for us means a new way to build digital services and by digital services we mean any internet application that obviously may exist today so ride-sharing applications social media applications and probably a whole host of things of course that we haven't even thought about but where those digital services are owned and operated by a community of networked participants rather than by a centralized corporation now I realize at first blush that when you think about community ownership and management of an asset that may seem odd but in fact if you look at the technology industry there's actually a significant precedent for the existence and the success of community based networks in the development of a significant portion of technology first is what is known as the open source software movement this started back in 1983 actually at MIT by a professor named Richard Stallman and at the time it was a very very radical notion the idea was that a community of developers would publish and then freely offer their software to others who could modify that software who can incorporate it into various other projects it was really in many respects a very liberal movement around opening up and reducing kind of copyright initiatives and software if you fast forward to today the open source is the predominant method of software development and software utilization today in the world for any data center you go to which is obviously where major corporations run their internet applications Linux which is a major operating system is by far the dominant operating system in play and for all of you who like myself who walk around with your cell phones all day long the vast majority of components in your cell phones are what are called Android and essentially open-source software so the history of open-source software I think is relevant for how we think about the potential for what bit coin and crypto networks can be the second important historical analogy is around what we call open protocols which really form the foundation of the modern Internet that we all use today an example of this is something called SMTP which is the protocol that we all use for email transmission it's an open protocol it was governed in many cases by open communities by networks by academics and in many cases with government funding and many people built applications on top of these open networks precisely because they knew that the nature of that protocol would not change they could rely on the steadiness and the consistency of that protocol on which to build applications so if we look at technology open protocols that are well developed and well maintained can become the just little break in here press one in chat if you have no idea what he's talking about and if you don't understand anything press 1 in chat building blocks on which massive customer utility and economic growth could be built it's also the case however if you look at the startup world that many startup companies have failed by relying on what we called platform risk which is building on other platforms that are governed by centralized corporations and then finding that the rules of the road change over time and that really does significantly handicap their efforts as a result of this what we now see in our business is many developers are hesitant to take on this platform risk and are instead looking at things like crypto networks as a new and innovative way for developers to create new digital services without the Intendant risk that comes from depending upon centralized platforms in many ways crypto networks borrowed from the nearly 50 years of history in the technology industry which shows that communities of developers can share their work openly and properly governor network without centralized authority but crypto networks also introduce a very powerful economic incentive that didn't exist in these prior generations the presence of what we call a token which creates a direct financial incentives for members of the communities to in fact develop and govern the networks appropriately the token really in a sense is the glue that fines the various players in the ecosystem and provides the appropriate economic incentives for all market participants understandably so this creates a whole new set of challenges for regulators consistent with recent statements that we've heard from the director of corporate finance at the SEC we believe that the regulatory nature of crypto networks varies with the stage of development of a particular project briefly what a centralized sponsor is seeking to raise capital from investors prior to the functional just real quick for what he just said vos is a good example development of the network this is probably and what is known as an investment contract and therefore properly regulated as a security however the nature of the tokens that are delivered on that contract can ultimately be regulated as commodities once the fulfilment of that investment contract has occurred as stated by the CFTC some tokens are not securities once the network is functional and in particular in cases where the network is decentralized from an ownership perspective we believe the nature of the tokens looks more like commodities and securities and therefore probably rightly should be governed by the CFTC this is precisely because there's no centralized sponsor on which the efforts of the value of the token are largely dependent instead the tokens have value based upon the utility of the service to participants this actually looks much more like the way commodities trade in conclusion the US has long enjoyed the fruits of an age innovation in the form of economic growth job growth and consumer utilities stemming from many of the great technology companies of our time and we believe that crypto networks present a new and exciting opportunity for us to continue on that trajectory doing so however will require that we develop a regulatory framework that encourages risk-taking and capital formation provides clarity and certainty to market participants and of course protects individual investors and the integrity of the markets thank you for the opportunity to be here today thank you ok so even though that guy was speaking a little bit too fast for me as a foreigner I mean English is not my mother tongue obviously I understood some things but what I can say about all these three speeches right now is and we all agree on that this is definitely way better than the last hearing I remember a couple months ago we were watching one of those hearings here and people who were talking they had or it felt like they had no idea what they're talking about so definitely we could already see that the research on the topic cryptocurrencies blockchain or the title word the topic word distributed ledger technology has matured and this is awesome I mean we're getting to a point where when your friends are telling you big coin cryptocurrencies it's all dead it's all just a fad I would say we can all agree on that right now no it's not this is definitely something which is here to stay in a certain way okay we do that know if it's gonna be well I personally think it's gonna be Bitcoin which is gonna stay I mean it's here since nine years and it will be here for next nine years but that's just my personal opinion okay we're not gonna make this an all coin Bitcoin talk right now but what we can say is that those people those are smart people and they have power and they figured okay this is here to stay we have to do something about it and that's what they're doing and this is positive for me that's for sure have a stripper mr. gore fine five minutes Thank You chairman Conaway ranking member Peterson and members of the committee for the opportunity to testify before you today I'm chief innovation officer and director of lab CFTC at the US Commodity Futures Trading Commission the testimony presented here reflects my own views and does not necessarily reflect the opinions or the views of the Chairman or the Commission in May of last year chairman giancarlo announced with bipartisan Commission support the launch of lab CFTC the agency's effort to help create a model for regulatory engagement and modernization in light of the ongoing digitization of our markets its mission is to facilitate market enhancing innovation inform policy and ensure that we have the technological and regulatory tools and understanding to keep pace with inevitable change the building blocks of our effort our engagement testing and experimentation and education shifting to the primary topic of today's hearing we are interested both in private or permission distributed ledger technologies that can improve market infrastructure and in public blockchains that require the use of a virtual currency developments across this spectrum have society rethinking the nature of money how people transact and how we can more efficiently in in regulatory economic and market activity with respect to public blockchains proponents note that they unlock digital scarcity enable efficient transfer of ownership and power the execution of applications and all of this can be done without the need for a trusted central intermediary that was traditionally needed to verify that each party has and does what it promises many however appropriately worry that virtual currencies and tokens may be used for illegal activities and are prone to fraud manias and bubbles driven by potential misunderstandings and myths regarding their scalability utility and intrinsic value with recent hype around this space there has also been a proliferation of icos which may be intended to raise capital for a venture and may bear the hallmarks of a securities offering our colleagues at the SEC have been thoughtfully addressing related challenges and providing additional clarity to the marketplace and from the CFTC's perspective given the potential to tokenize a broad range of economic assets it is important to remind the public that digital assets can also be commodities or derivatives depending on their terms and how they are structured given the potential and the challenges of this space chairman Giancarlo has made clear that the proper response by regulators is not to dismiss the entire movement as misguided or foolish but rather to take the time to learn facilitate the promise and guard against risks and bad actors as part of this effort lab CFTC published its first FinTech primer on the topic of virtual currencies in October 2017 the primer explains that the agency determined in 2015 that certain virtual currencies such as Bitcoin are commodities and therefore implicate our jurisdiction the CFTC has regulatory oversight authority over futures and swaps markets based on commodities and that has anti fraud and manipulation enforcement authority over these and the underlying commodity markets it is important to note however that we do not have oversight authority over these underlying markets additional details regarding CFTC oversight of crypto related markets and enforcement and education efforts since the self-certification of Bitcoin futures in December 2017 in my written testimony moving forward one thing is certain none of us are able to predict exactly where this innovation is heading it is accordingly incumbent upon us as a 21st century regulator to continue studying learning and keeping pace with change we look forward to ongoing close collaboration with our regulatory peers including through the F sock digital asset working group we all have the shared goal to educate market participants target bad actors and ensure an efficient and effective regulatory framework we are also focused on bringing clarity and certainty to the market but need to be sure that we are thoughtful in our approach and do not steer or impede the development of this area of innovation 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 in the late 1990s during the early days of the internet senior government advisor policy advisor IRA Magaziner made the following observation that given quote the breakneck speed of change in technology government attempts to regulate are likely to be outmoded by the time they are finally enacted end quote given this dynamic the government largely avoided a prescriptive approach in favor of principles focused on educating and empowering law enforcement and allowed the this area of innovation time and space to develop all while maintaining the ability and careful vigilance to act to ensure market integrity this approach generally seems like the right one when dealing with new technologies which are largely agnostic as to how they are used the role of the regulator is to facilitate use of new technologies that can benefit markets and the public more broadly while deterring and pursuing those who seek to use technology to do harm thank you and I'm happy to answer any questions you may have thank you my score fine mr. Gibbs our five minutes all right thank you good morning chairman Conaway ranking member Peterson my condolences on your dad's passing it's good to be with you all here today I think I've testified in front of you a dozen or two dozen times and some previous capacities but since I was last with you I took on a new role at MIT where I am engaged yes in researching teaching lecturing and advising on digital currency and blocked tank technology now I say that but for those who don't know because some are new I also chaired the Commodity Futures Trading Commission for four or five years and before that long ago I was 18 years ago Minh Sachs so I bring from my years in finance my years in public policy and now I guess as an academic some perspective of what I've learned and with the chairs permission one thing I've learned as an academic is to ask the audience a little bit about their engagement in Bitcoin so again with the chairs permission if I could just see us how many members of this committee Oh guys Oh guys this is gonna be exciting Wow okay I'm ready for this one okay type one in chat if you're ready for this one type one in chat if you're ready did in crypto currencies and I'm gonna ask the audience to so we've got the show line in the audience all right Bob Cheryl the audience yeah we've got about half the audience that's an interesting split there we go oh I would say the other thing that splits the community in my discussions usually as if this is not a community that's splits normally like right and left Republican Democrat this is a community that splits more about Bitcoin maximalist and Bitcoin pessimist or you know skeptics or one and and by the way some of those skeptics and pessimists or Republican and some are Democrats some are Nobel laureates some some are in finance whether it's Jamie Dimon or Warren Buffett and then some of the maximalist can be a venture capitalist like an andreessen horowitz and elsewhere so it's interesting this the split in the community I'm probably a little bit center maximalist if I can say that you know I am an optimist on the underlying technology you also hear some people say well not that Bitcoin but the blockchain technology is good and they kind of split their their views that way so again what have I learned blockchain technology I believe has a real potential to transform the world of finance because it is about money it's about moving value on the Internet this new technology could lower costs and risk in the financial sector second to reach its potential I feel strongly that and for public confidence to reach its potential we need to bring it inside the world that we know the long-held public policy frameworks now what are those frameworks Congress has a role to play to tinker about these frameworks but I'm just saying what are our historical frameworks about technology and finance we guard against illicit activity like tax evasion or money laundering we insure for financial stability and we protect investors and consumers those are the three big ones we protect against illicit activity we ensure for financial stability and we protect investors everything else is debatable and you we need to adjust the details underneath that third the SEC and CFTC do have a role to play both of them have roles to play they've released numerous notices and enforcement actions and so forth however there's a lot of non-compliance I mean there are thousands of entrepreneurs out there they're probably right now are not complying with SEC guidance and they're fewer that are not complying with CFTC guidance but that's just because the CFTC doesn't have oversight of this thing called the initial coin offering market and and that's where there's a lot going on and this thing's going large and big it's about two hundred and fifty billion dollar market quarter of a trillion is getting some size I mean the overall capital markets in the world are about 250 trillion or 300 trillion so it's not threatening that but thousands of icos have been raised 20 billion dollars of capital formation I'm here to say nearly all of them I don't know if it's 98% or 97% but nearly all of them are probably securities under our securities laws because they're being offered in a pre functional time this IC o—- markets rife with scams and frauds forth bad actors have figured out how to use this new currency sometimes it's state actors we learned last Friday it was the the alleged I should say but the alleged 12 Russians spy's Venezuela tries to raise it offer their oil and outrun US sanctions policy 5th while federal agencies are engaged current laws apply to this activity there are gaps so if I convention a few of the gaps first I think that there's gaps around the crypto exchanges themselves either where you can buy and sell why because they're being right now regulated through state money transmission laws this approach regulating them like Western Union or money grams just not satisfactory because crypto activity is more complex and it's harder to trace and it doesn't build on top of the traditional banking system it's built on something that we can't see that's out there in other countries like in China and Russia so second the crypto exchanges lack brokered access they don't have brokers so there's no brokers by the way sending 1099 bees and my detailed testimony says you know maybe the IRS should do something about that so you can just have reporting of the gains third the issuers of securities the crypto space are only slowly coming into the SEC Rimet I think this is going to take two three four years before the SEC really cleans up the space and so there's gonna be a lot of code I can they go faster can we do it right but it's gonna take take some time forthe crypto derivatives are being handled by the CFTC I think they're doing it well but there's two things that worry me about the technology and one is that the under regulated underlying crypto cash market is a mess so the corn and wheat markets that you ever see the gold and the oil markets we have some we have a lot of history we have some confidence of that about that and then the CFTC can do their job layering over those underlying commodities the CFTC is regulating derivatives but they're referencing an underlying market where it's just at best the Wild West and at worst it's a it's pretty bad so about that underlying market the CFTC has general anti-fraud and any manipulation authorities with regard to it but I think the Congress will be debating it probably not in this Congress but I suspect in the next session the next Congress you all will be debating should you give the CFTC additional Authority or maybe some other agency you know maybe it'll be the SEC somebody else but I think the CFTC to have additional authorities about that underlying what I would call cash crypto market it's 70% of the market the SEC has securities the CFTC had derivatives I think you want a debate whether to do something about the underlying market and lastly I think you'll need to give them resources along with your friends over at the Appropriations Committee because I think these agencies will need that thank you thanks mr. mr. nice five minutes thank you all for inviting me to testify this morning I certainly agree with everybody that's gone before me that just a quick question in here guys for those people who are from the United States of America first of all I have to clarify this I'm not that interested in politics and by now I probably know more about politics in the United States than in Switzerland but actually I really do not care but how does this work are those people getting invited or do they have to apply for this hearing I mean who decides what people are gonna speak in here I mean I'm right now I have to say that I'm actually okay with what's happening here but why for example is not a Bitcoin core developer sitting here well that would not really make sense but why for example is not a Antonopoulos sitting here they're getting invited okay all right and do they have to be US citizens or do they just have to or could it be anyone for the most part I decide well I do not really believe that the people who would be in that room or not okay okay okay invited for being top in their field okay thanks guys this technology does have the potential to be transformative one of the questions I get asked a lot is why don't we just call these things securities we have securities regulations we could create a scenario where these things get registered and then become quote/unquote freely tradable so why not just call them securities deal with existing laws and I think the the problem with that is they exhibit some characteristics of securities during certain phases and not in others and especially when we get to full functionality when it's a truly completed product that is being sold the intention of that product is to be used in a network and that really can't happen at least not at the speed of software which is really the the fundamental principle here behind these decentralized protocols is to allow for value transfers truly at the speed of software you can't do that if everybody's got to be a broker dealer and all the intermediaries have to interact in a way that that would be appropriate for securities so we need to come up with a fairly novel and and you know pragmatic approach to dealing with the fact that there needs to be some investor protections particularly in the early stages while the thing is a PowerPoint deck and an idea in somebody's mind but find ways to create some clarity around how and when it goes from being sold as a security to being sold as a commodity and that is a very important imperative right now because we are seeing so much activity frankly and the the threat of sort of people going offshore for lack of clarity is a very real one I say in my 25 years in Silicon Valley I have not seen circumstances where you go to a meet-up in places like you know Palo Alto or even San Jose and you see regulators from zhuge Switzerland and Singapore and Hong Kong and Bermuda and and and and and so to avoid any kind of race to the bottom I do think there's a serious imperative about getting something done before we have a situation where we're trying to entice people back into the country because then this I hear I want to interrupt real quick again just as an example I mean isn't it kind of weird that by Nantz is getting a connection or got a connection to Malta to launch a crypto currency Fiat Exchange or they're on ramp for a fee or cryptocurrency to launch it over there I mean this is what's happening right now okay when regulators are not fast enough well the countries who say well we're open for cryptocurrencies you can do your business over here those countries are gonna benefit probably the most and you kind of don't want to be left behind right so this is definitely an interesting topic the standards would really have to be lowered to do that so I think we have an opportunity now if we get ahead of the truth flight but that's an important idea around why we need some of the bright lines to that end I did in in so my written testimony include some materials and a proposed regulatory framework that both talk about what the existing laws say and how the existing laws treat you these so-called utility tokens and you know there's sort of a 50 page memo on how the existing laws work to avoid having to go through that 50 page memo type analysis with each and every one of I think the bright lines are really what's necessary so there's a regulatory framework that we've been thinking a lot about too that would create that that set of bright lines that would enable the regulators and the regular you know the the companies going out there to really know how to sort the good ones from the bad ones and and I do think that starts with kind of this test around how we and the investment contract analysis for you know regulating securities as securities in the in the primary offering in you know if they're being sold sort of pre functionality before they're before they're fully functional but coming up with ways to say that once they are fully functional how do we let them now trade as commodities effectively and the trading is important because as I said this is the movement of value to have value it needs a price and the markets really are a necessary part of this so the fact that there are secondary markets is is a key part of this they need to be able to trade in those markets to establish price they also need to be able to you to be used in their networks as non securities and so we need to come up with ways to say when they're being sold to investors as investments let's treat them like securities when they're being used in the network or they're being traded in the secondary markets let's call them commodities thank you well thank you wish this the chair remembers that they'll be recognized for questioning in the order of seniority for members who were here at the start of the hearing after that members will be recognized in order arrival I appreciate my colleagues understanding and I'll recognize myself for five minutes yes I agree with you that if we don't get this right and we flush the innovators offshore into other countries that getting it back is a lot more difficult so hopefully we at least this start of the the process with this hearing that we can get to an answer that doesn't do that it's up all day mr. Cooper you each noted that tokens and crypto networks at the potential to create next-generation open Internet protocols can you flush that out a little bit for the layman and myself that understand the words but if you could that tell us what those actually mean it'd be a little helpful sure thank you so when we say open open means a couple things in this case we mostly mean open access when we say public blockchains which means that anyone can join the network it has to do with the degree of gatekeeping which is not necessarily an all-or-nothing kind of a decision but we can if we start thinking of public blockchains as being more like a public Commons it's a lot more like the internet where and you have a lot of choice as how you how you access that sort of network we also usually mean open source as mr. Cooper mentioned so that we're allowing auditing of that code which increases trust of the code and most of the the core technology that powers the backbone of the internet is open source I agree with all that I would just just to give you maybe a very specific example imagine in the future you know a social network today right you have as users of social networks of course you have an intermediary in many cases a company like a Facebook who obviously is taking and utilizing the consumer data and then obviously developing relationships with advertisers and others as a way to monetize that data that's their business model in the future utilizing a crypto network you can imagine a world where you as the user own your data that data is cryptographically secured and you choose which data you want to expose to various advertisers or other other promoters and the flow of economic value in that case as opposed to going through an intermediary might be going directly from an advertiser or a promoter of products to you as an individual as you've kind of governed the use of that data so that would be kind of in very broad terms the way to think about kind of expansive view of what this could look like all right mr. Palfrey you talked about the Howey test which seems to be the gold standard among securities lawyers who could spell that last night can you you talk about that beam may be the outer edges just where one of our question we're trying to answer is are the securities or the commodities and where does that transition occur and is it you know where could you talk to better about this how he test why do you think that's the and just how should it apply to to distinguishing between commodities and securities certainly there are two questions the first is lawyers are inventive they can rework the formal form of a transaction to make it into anything how he describes the outer limit of the kinds of legal forms that can be turned into investment contracts that can be turned into this sort of exchange I give you money now and I wait and I reap the benefit of your labor on the other end but the difficulty with that is that while courts must be able to look to the economic realities of the transaction look underneath the form because if we just look at the form if we just look at what it's called then anyone can just title it entitle the asset whatever they want at the top of the piece of paper and it's gave whatever regulation they want so courts have to look past the formal titling of the asset to the economic realities of it however they also have to understand that the very flexibility of these tools both the flexibility of legal forms and the flexibility of this database technology means that it is very possible for people to be using a product for one entirely legitimate purpose and have other people begin to use it for different purposes an example of this from outside of the cryptocurrency area entirely would be the discussion we had several decades ago on VCRs right the question was some people use them to make illegal copies many people don't how far are we willing to go in rooting out bad uses that are beginning to cut away healthy tissue and that's why I believe Howey is the outer circle it's it's necessary that it be there so that SCC in this particular case can reach cases in which people are labeling something one formal legal form but are actually engaging in an investment contract that's what it's there for but it doesn't really tell us anything about what the regulatory landscape should actually look like at the end of the day in fact the regulatory landscape in my estimation should and will look like something substantial different it will look like a bit of a handoff like a relay race in which for certain functions and under certain conditions one one overseer may have authority under that is not on my side guys so I lost your mic Thank You mr. Fairfield ranking okay five minutes okay okay just real quick in here you guys something something you have to explain to me right now okay or at least try we are watching we are I just I just checked the clock right now my mobile phone and we are currently in the year 2018 it's the 18th of July 2018 why in god's name do we have to watch a 480p four to three stream rerun with bad audio quality I don't get it and the hearing is about crypto currencies the hearing is called crypto currencies no wait actually yeah public hearing cryptocurrencies or sight and it was announced as crypto currencies or something wait a minute I know how it was announced here the future of money digital currency and their livestream looks like this I mean I'm just saying okay I'm just saying I'm just saying I don't know where to start you know I'm somebody that believes we should still be on the gold standard and that I think we should honor the Fed because I don't really trust them you know so what worries me about this is that you know you say there's 250 billion dollars of capitalization here or whatever how much money is actually here I mean I just this is just seems like a Ponzi scheme to me oh okay okay this guy's not gonna have an easy time today all right you know I mean I think the stock market is a casino you know so that's where I'm coming from so I mean so if I you know I'm gonna send $100,000 to somebody through one of these deals who's gonna stand behind it you know where's that you know so I give the money I guess to one of you guys that is the point you turn around create these things and send it to somebody else well what in the meantime what if you went broke I mean I was involved when we found out about credit default swaps and figured out that everybody was trading these things and there was nothing there and and if we were gonna stop them the whole economy would have collapsed you know and I don't know if we got a similar situation going on here with this but oh I just boy behind this I mean what if there's no money at the end of the day who's gonna make up for this can anybody explain that to me Wow could I should I take a shot I think that I'd split it into two buckets in this field where venture capitalist entrepreneurs are developing an idea and asking people for money they publish a white paper they build a following reddit post and these are different communities social network posts medium and so forth and they build a following and then they sell it and raise money and sometimes it's small just like a crowdfunding on Kickstarter but most of them aren't there's been 3,800 of them today over 50% of them fail within four months and and there's different estimates how many are scams and frauds there are good-faith actors in the middle of it too a lot of good faith actors but there's a lot of fraud and scams if if right now if they fail you only way you could do is try under the securities laws to say they were an unregistered non compliant security and try to under the private rights of action under securities law try to get something back nothing in the second category it's digital gold the digital gold which is Bitcoin and while there's nothing behind it I would say mr. ranking member there's really nothing behind gold either you might all of us we have what's behind it is a cultural norm that for thousands of years we like gold the value of gold the worldwide value of gold is seven trillion dollars by the way just to give you a little sense but only about 10% of the annual production of gold is used in manufacturing the rest of it is because we think it's kind of nice to have gold necklaces and jewelry or we do it as a store of value so Bitcoin is a is a modern form of digital gold and it's a social conscience I'm not so sure out of the month guys I just want to give it a try in here real quick I mean comparing Bitcoin to gold okay it does work and I agree that I agree with what he said I mean only 10 percent of gold's can use but still I mean you could say that gold is something you can have in your hand physically so it is something it exists right it's not just one and zeros somewhere in the internet right but that's not really the point I mean the point is or what this other guy this mr. Gensler or whatever his name was I forgot that's exactly the point about Bitcoin that you have no third party which is guaranteeing you anything but that also makes it sent or Bitcoin censorship resistant right I mean when you have a third party which is guaranteeing you okay you have fifty thousand dollars on your bank account you only have fifty thousand dollars on that bank account as long as that company exists and as long as that company is willing to say that you have 50 thousand dollars I mean if you just think about it today right if you check your email if you check your if you check your bank in okay you just watch at a number which says for example $50,000 or $100,000 or in our cases because we're invested in cryptocurrencies it probably says $50 right but it only says that number as long as that centralized Authority or as that centralized company bank institution whatever says that you have $50 and if they want to get if they if they want to set that count to zero then they're doing that of course they cannot just do that because blah blah blah and so on but that is exactly the point okay we are embracing it that the community gives the coin the Bitcoin its value and no one else and that is something that he does not really get I would say I mean of course the comparison with gold works and everything but I don't know some people and this is something to be honest guys sorry for this longer interruption but this is something that I'm a little bit scared off what if people out there are just not getting the benefits of decentralized money what if they're not getting it what if they think that is it is a bad thing to have money decentralized then maybe we're never gonna get mainstream adoption okay this is this is for talking in here okay I'm gonna stop it guys but you get the idea right honey they are they're just creating this money out of nowhere I mean the the in the in the first category the the the investor type that would be understated but in the second category you're right which was under this committee I mean you're you're gonna be grappling with this for a while I think I mean in the first category I mean though I assume most of people are sophisticated enough to realize they're gonna get fleeced potentially you know I mean it are they or I mean I think those people get into that area that don't realize what they're getting into they think some are no they're gonna get rich and they're gonna you know get into this deal ahead of everything else and it's gonna go up and they're gonna make ten thousand percent on their money and whatever else and some guy is selling them you know on on this I mean I don't know where the protection is here for there there's some are very sophisticated like andreessen horowitz and they manage seven billion dollars there there's there many like that but there are others that aren't but you're right I think this Securities and Exchange Commission has a lot of work ahead of them to sort of bring this market in to come first part of the market that 70% of the market is commodities but the first part this ico marketplace is the sec they're working at it but they've got a lot of work ahead if I could if I could just add mr. ranking member you know you raise this concept of kind of almost trust right which is who do I trust what's the trusted intermediary the the beauty at least certainly from the perspective of an investor and as a consumer the beauty of these crypto networks is what you're trusting is you're trusting kind of cryptography you're trusting math you're trusting software as opposed to a centralized intermediary and you have a community that's governing the interests there so in other words if the community tries to do something that is inappropriate all of this software is open-source all this software can be basically what's called forked and literally taken over and you know recreated in a new community so there is a norm of community governance that exists in these areas that really substitutes trust from a centralized intermediary to trust to a community that's responsible for government thank you but I'm still skeptical mr. Lucas five days Thank You mr. chairman and along with the gentleman from Georgia mr. Scott I have the privilege of setting both on this committee and financial services so I work on this discussion by the panel when it comes to the next regulatory frontier as it impacts the two committees first mr. Cooper how should regulators think about the function of the token when choosing to apply regulatory requirements should regulators look to the functioning of the token at all or only the issuing activity and for example say there's a crypto currency we'll call it for the sake of discussion Bitcoin 2.0 and say it functions identically to Bitcoin in every way except that a small portion of the total tokens were pre mined and distributed in token sale is it possible to issue Bitcoin 2.0 through ICO and not have it be a security or is the functioning of the token irrelevant because of the manner in which its issued so I'm asking what my folks back home would define is geek questions but this is where we are yes sir let's say you so yes a couple a couple things so the issuance of those tokens and the sale of those tokens in exchange for money before a network exists I do believe is a what's called an investment contract and should be regulated as such so if I offer if I develop whitepaper and i tell you i'm gonna build this thing and you give me money for it before it exists if I fleece you absolutely the SEC has jurisdiction to you know bring me up on securities fraud charges you have private cause of action no no no question about there once the network is functional and therefore the tokens are doing what they were intended to do whether that's storage or other things the value of that token now really is not a function of the efforts of the developer it's the really the question of what's the utility of that token much like any other commodity and so therefore you know certainly my view is that in that case the underlying token itself should be regulated as if it were a commodity because that's actually kind of the nature of what it's actually doing Thank You mr. Ness the last prong of the Howey test identifies as an investment contract or transaction in which an individual expects profits solely from the efforts of the promoter or the third party yet for almost every token project there are multiple avenues for holder to come into possession of a token when a net works fully functional token can be purchased through promoter traded on a secondary market exchange within a network or earned by performing work to support the network in each of these cases the efforts of the holder vary and can implicate the how D test differently how should regulators think of an asset that has multiple methods of delivery an asset that can be both purchased and iron ore should the method of delivery determine the regulatory regime governing an asset fortunately I think it's a relatively simple answer which is that it it really comes down to the same test which is pre functionality versus post functionality or whatever we end up deciding is the trigger point for determining the different status it seems to me that however you come by this I mean I suppose there are two two fundamentally different ways one is to get it from the issuer directly the other is to get it from some third party and if it is in pre functional the pre functional stage and you are getting it obtaining it from the issuer I would argue that is a primary offering of an investment contract even if it's essentially earned on a network because at that point there's a lot of case law out there that you know if you do work for a security you know you've paid for the security there's consideration there in the services so I I wouldn't say that there's a difference between earning it versus buying it it's going to be a security depending on its characteristics as you know as we end up defining them pre functionality versus post functionality mr. gore fine in your testimony you mentioned the new working group set up by F sock and the Commission's work with the SEC and other regulators this committee cares a lot about coordination between financial regulators when it comes to these sorts of matters so can you talk more about how the regulator's including the CFTC and working together are working together I should say to understand and clarify their overlapping jurisdictions and how it affects the virtual currencies yes thank you it's a great question and we agree that that coordination in collaboration with our sister agencies is very important on this type of a topic you know one thing about this space that's common across a lot of areas of financial technology is that it inherently cuts across Geographic and jurisdictional boundaries so it's very important to make sure that we are coordinated and sharing information with each other so certainly on the topic of crypto currencies we are working closely with the SEC to make sure that we are coordinated and just to step back and explain how we view our rule set the definition of commodity under our statute is very broad so a lot of things are commodities and we're soon after the World Cup so think about soccer balls those are commodities just because something is necessarily a commodity doesn't mean that we have a direct regulatory interest it's only when we start to see the rise of futures or swaps products built on those commodities that we have kind of direct oversight but when the SEC applies the Howey test and determines whether something fits within a securities law framework that certainly matters to us because then that's something that would fall under their jurisdiction the need for us to be in close communication with the ICC mr. chairman if you'd indulge me for one last thought for a number of years I sat next to Ron Paul on the Financial Services Committee so when mr. Peterson brought up his observations about gold standard I can't help but think about mr. Ron mr. Paul's story noting that when the Roosevelt administration took us off the gold standard in 33 they sealed every safe-deposit box in every financial institution in America and before you could open it you had to have a federal official of appropriate nature or state designee to be with you so they could make sure you didn't have any gold coins gold bars or gold certificates in those safe-deposit boxes so I think the ranking member brings up some interesting observations even gold wasn't safe in 34 you'll back mr. long reach of government so thank you David Scott five minutes Thank You mr. chairman you know there is a good amount of very serious and legitimate concern about coins that are being offered I mean I'm not sure we realize it but there are over one thousand six hundred coins currently and growing every day and and we've got to look closely and watch how these coins are being used and if it is appropriate for them to be regulated to make sure that they're not being used improperly I'm not sure that the panelists or the audience or those who may be watching via television know but I find it very concerning that in the indictment of the twelve Russian hackers that hacked the DNC's servers did you know that they included in those charges within the indictment was the fact that the Russian hackers used principally Bitcoin when purchasing the service when registering the domains and otherwise making payments in furtherance of illegal hacking activity on the United States elections so what I'm saying is that with every new tool our technology's moving fast it's going at a rapid rate and we've got to grab hold on what we're doing to make sure that we do everything we can to ensure that these new coins are not being used illegally or for illicit activities guys I am very sorry but I have to interrupt in here again the arguments the arguments against I'm just talking Bitcoin right now but the arguments against Bitcoin are super bad I mean why can they not come up with good arguments here is one okay you guys want to hear a real argument against Bitcoin I'm gonna give you one all right it's not scalability it's nothing like that but Bitcoin has a deflationary aspect okay because as long as the price goes up people do not want to spend it or the incentive to spend it is not given okay the the currency is getting scarcer and scarcer right in 2020 there will be the next whole finning so a block producer is not getting 12.5 Bitcoin every 10 minutes anymore or block producers in general are not getting 12.5 Bitcoin anymore only 6.25 and so on and so on and by the year of like 2100 whatever pretty much all the Bitcoin or mind or then I mean it's still getting there's still more Bitcoin to get mind but yeah just very few right so there is a definition deflationary aspect about Bitcoin now if Bitcoin wants to become the world's currency what's gonna happen to the economy if everyone is just holding and they have no incentive to spend it what's going to happen to the economy the economy is gonna dry out okay capitalism works because we have inflationary money like the US dollar so people have a high incentive to spend that money and then keeps the economy going alright if we have a dish different deflationary monetary system who is gonna spend money anymore okay what about what about that for example what about an argument like that I mean all this hack stuff I don't know man it's just not good enough I don't know like when the Russians attacked our election system now I also have read in some news coverage of studies studies that are out there that think that not all of these AI CEOs are a positive thing there's a lot of debate on that and I think our ranking member mr. Peterson expressed that okay what is this maybe they thought maybe they thought what this guy is maybe they thought what this guy saying is not that important so we're just gonna cut it off I'm not sure about it of their relative yeah they totally cut him off man they thought all right enough trash talk yeah let's move on that's weird man 2018 four two three four ATP now it comes back again over here I guess you'll ative risk of space especially retail participants to be participating and we encourage them to really do their research and ask themselves important questions about the value of a lot of the different types of offerings that are out there it's an area that we think education is a key component I'll also add that from an enforcement perspective the CFTC is a well as well as a lot of other agencies are looking to target bad actors that are trying to take advantage of a lot of the enthusiasm around space so the combination of Education enforcement and then proactive engagement as lab CFTC is doing are important regulatory tools for us to deploy you ever saw a smart Austin Scott five minutes think Thank You mr. chairman and well we are a long way from the peanut fields in Sycamore Georgia and I can't help but wonder somebody who prior to getting elected to Congress actually had a series seven what would a prospectus on a coin offering look like it I don't know if it would be one page or or tense that guy hi or is it just me thousand pages or more but one thing that it's clear to me is that you can certainly create a coin for anything you can create a coin for any color you can create a coin for any opposite color so there's an infinite number of coins that can be that could be created I see no way to regulate every coin offering that's out there but I would also tell you that when you turn on CNBC and they show the Dow the SP and the Nasdaq on one side of the screen and on the other side of the screen is a value for Bitcoin then certainly it's reached the level where we need to have some type of regulatory certainty in this in this area most of my questions are for mr. core fine you run lab CFTC and you have held office hours around the country where you've met with with many people in the industry can you tell us about the interesting concerns of the developers who are working on token-based projects and how sensitive they are to the regulatory environment yeah thank you for the question and in fact I'm heading this afternoon up to New York to have another round of office hours with innovators we've had any credible opportunity to go to various cities and and meet with folks that are heavily involved in a lot of projects across the spectrum that you've heard about today and you know it strikes me that it is a new generation that is really looking through a technology lens as to how we can transform markets make markets more efficient and effective but there are a lot of questions that they have and that's the reason we have the engagement function of lab cftc a lot of folks are trying to get a lay of the land and start to understand the alphabet soup of regulators in DC so through labs CFTC we do try to establish some guideposts and educate as to how just little update breaking use Bitcoin just broke through seven thousand five hundred dollars ladies and gentlemen over our framework applies and in some situations we'll explain well this is where the CFTC fits and then there are questions that you may need to look at securities laws to understand the interplay there but in response to a lot of common questions we were getting that's why we published the FinTech primer it's our way of kind of facilitating conversation with the community to make sure we are being responsive and where possible providing as much clarity as we can other efforts of CFTC have been around things like actual delivery is a question that comes up a lot in the cryptocurrency realm so our division of markets and oversight has put out a draft interpretation that deals with actual delivery all of these are efforts to start enhancing and providing as much clarity as we can mr. Corin you suggest in your testimony that the Commission has an interest in this technology being used for capital markets infrastructure many of us on this committee including myself have introduced a piece of legislation the CFTC Research Modernization Act have you had a chance to review that legislation and do you think it could help the Commission understand the emerging financial technologies and and help us better understand how we need to regulate or in some cases not regulate certain areas yeah thank you I mean one of the things that we're really focused on doing is making sure that we're engaging with technologies and fully understanding them so what you're raising is you know the ability to give the CFTC authority to research and test new technologies I'll give one example of how that may work in this space we talked a little bit about private and permission to distributed ledger technologies which could impact and improve capital markets infrastructure there's a lot of interest from market participants who are saying there may be more efficient ways for us to do for example regulatory reporting in a lower-cost way for them and in a way that for the regulator is is more consumable if we can receive standardized data without kind of the traditional push process that could be very valuable what what you're pointing out congressman is that authority that that's proposed in your legislation would allow us to actually work with a consortium that type of infrastructure and that way from a CFTC perspective we could better understand how can this technology benefit our markets how would regulatory reporting be facilitated and really kind of lift the hood and really understand the technology instead of having kind of a high-level conversation so those types of authorities would be very very helpful to us thank you very much Gemma sighs I miss custard – thank you very much mr. chair and thank you this has been a very enlightening hearing another interrupting here real quick for all those people who are saying that this is not the right hearing this is the hearing from earlier today okay this is a rerun I think the second one didn't start yet if the second one starts let me know guys okay it will probably not be on this YouTube channel but there are gonna be two hearings today all right so yeah we're just gonna check that in here real quick if there is something on Twitter should be on Twitter but it doesn't seem it has started yet someone said it's like one hour away or something okay I'm not quite sure if you're gonna go over the other one as well or is it that one wait a second that's that's super good quality as well right I'm not quite sure if it's that I'm not sure about that anyway we got to continue guys I'm gonna appreciate all the wisdom mr. Gore fine picking up on the CFTC regulations such as it is do you have sufficient resources at the CFTC or what would you recommend that you need from Congress going forward thank you well harness that the Chairman on this our Chairman has been very vocal about the need for the CFTC to have the right resources to be able to keep pace with our markets and regulate our markets most effectively I believe he's asked for 281 million dollars for our budget and a lot of those resources would be utilized not only with bringing in economists but also making sure we have the technologists in house to be able to keep pace I'm I'm a lawyer I know multiple layers deep of the onion when you're talking about technologies but we really need to be able to get to the core of technology to make sure that we're ascertaining where new risks are arising so certainly with greater resources our agency would be able to even scale up some of those activities so I would just say for the record one obvious place to look for those resources would be to get the IRS on top of how to tax the benefits and the gains that are being made because one of the most troubling comments today is that the IRS is not on top of how to how to capture those gains and I think that's something that we need to look at but it's also something on your side with some conversations with your counterparts at the IRS I want to quickly turn to the two professors and get a sense of a very troublesome aspect of this and if anyone else wants to comment so Credit Suisse analysts last year identified that 4% of the addresses hold 97% of the Bitcoin in the world and the philosophical goal of Bitcoin is to replace governmental backed fiat currency but if that goal is achieved you'd have an unprecedented amount of wealth and power concentrated in the hands of a very small number of people is this concerning to you and what should lawmakers be doing with in this regard and there's a couple minutes left it to some extent it's not surprising because most economic small economics ends up with some centralization so an irony is that the technology is supposed to be a dis decentralized that was why this struck me because all the commentary has been this and so it's one of the natural ironies because we all humans tend towards clusters and clumps and centralization and taking into account with the indictment that some of these addresses are in Russia with people that were a do harm to our so more specifically to your question some of that concentration is because it's the large exchanges the crypto exchanges like coinbase has 20 million accounts they may not all be active and they hold 20 billion dollars of crypto funds and the market I should have said the market went up in the last day so it's now about 290 billion but just one exchange has a big chunk of it so I don't know if that is that then owned by multiple parties well so it's it's I'll speak a little bit like an accountant which I know the Chairman can appreciate but is that coinbase has a several accounts but they're only there coinbase and then if I wanted to trade I don't but if I wanted to trade then I have an account at coinbase these addresses would be in coin bases name not in my name so I only have a right to coinbase coin basis actually has whatever you want to call a right on this ledger in Florida the heart of my question is that not very many people end up controlling that is influencing and and if if the long-term goal is to cut out state-sponsored currency that is problematic in my view yeah I think you're right to be concerned about the centralization of power but it when it's not necessarily so that a single address equates to a single legal entity in any way any one person can generate any number of addresses that have smaller or larger amounts and we don't really have a proper way to it what do you think the percentage would how would you describe to the public watching today the interest rebukes there certainly are loci of power but also if you look at the movement in some of those earlier addresses or larger addresses it's commonly accepted that about 25% of something on a network like Bitcoin have not moved or have basically been lost at this point and so you'll see funds sitting in places and simply not moving and the the common consensus is that the private keys are the access to those wallets have simply are those addresses have simply been been lost what my time is up and I'll yield back but just to make a plea for democracy somewhere in this process I I appreciate the Chairman for scheduling the hearing thank you this is definitely something which is interesting and the concerns are given that you could say right now well but wait a second I mean there are some people out there with hundred thousand Bitcoin how can the average person ever catch up with that well the answer is they cannot they can't I mean we have rich and poor people right now and we will have rich people and poor people when Bitcoin would be the global monetary system okay that's a big would be but yeah that's not going to change and the second thing is for me it's it's kind of interesting that I mean of course well okay now let me put this let me say this differently I mean it is definitely the the question of power is definitely given as well I mean if you think about it as she explained the coin base for example has one or two or 10 or 100 Bitcoin wallets they're managing the private keys for you so as long as you just have a coin base account and you have your assets on an exchange well you are not you are not the one who are holding those Kryptos right they can do whatever they want with it pretty much so it's like a bank okay and that is something that I tell people many times you should get a hardware wallet and you should get your cryptocurrencies on a cold wallet okay because as long as you hold them on an exchange well you are not fully in control of your assets and that does not really make it then we are exactly back at the example that I told you about when you see $50,000 in your bank account right now when you do a banking and you see $50,000 as a number well as long as they are showing you fifty thousand you're good or you think you're good but as soon as they decide to do something with that money or just boom for that money from your account they're doing that and coinbase could do that as well okay so yeah I don't know what I just said but anyway guys I think someone was saying that we have the other life stream going on right now I'm not quite sure if it's that one can someone please confirm that real quick by the way guys just for look at that this is that daily Bitcoin chart just has a little interruption in here this is the daily Bitcoin chart so this hand shoulder inverse hand shoulder neckline here at 6,900 approximately I mean it happened it happened it happened look at this I mean let's just go back in time in here real quick and check when we had the last time such games it was probably over here but only for three days here we have we are in four days the fifth day actually in a row where we are in the greens I mean probably have to go back here I mean I would not confirm this a bull market at all just to give you that update real quick I do not confirm this to be a bull market at all I confirm this to be a bull market above this line over here that is just my personal opinion about it $11,800 mmm so yeah this is either gonna be the biggest bull trap in history and people are going to be super crushed if we are gonna fall from here or it could be something else okay guys um do we have another livestream going on right now let me check Twitter in here real quick I'm sorry guys I'm not so organized I admit it but it should be on Twitter if it would be life it should be somewhere on Twitter right and there's nothing on Twitter yet the 2:00 p.m. meeting started but where is it on the same channel no it's not on the same channel right it's not that's the one from two hours ago not that many people have watched it actually is it this one over here it's not right the stream is life but which one is it is it this one or is it this one wait a second it's this one okay this is the one and here we have better quality guys okay I'm gonna link it as well in the description so I think everyone is alright everyone is all right if we're gonna jump over right you guys are probably happy with that and hope to hear about we are life right now crypto but asset-backed crypto and potentially digital fiat currencies and mostly different second hearing um I'm concerned that if a significant central bank could issue a digital currency that it would have the potential to supplant the United States dollar now for many transactions and even for as the reserve currency around the world and despite the reports that they're exploring at countries like Russia or Venezuela are not really credible economies that could issue yet currencies that would supplant the dollar but if however the ECB now we're to issue digital euros then I think the entire world would very rapidly adopt that for many digital transactions now which should have benefits to consumers and a number of risks associated with that as well and if there is really a credible threat that a digital foreign currency would supplant the dollar ok so here we are to be prepared to respond to that threat I look forward to hearing from witnesses on the economic feasibility of another currency supplanting the dollar and whether digitization it could be a catalyst in such a transition I also look forward to any thoughts the witnesses might have on some of the decision points that have to be made when you decide to create a for example a fiat currency the currencies could be traceable or not they could be traceable only with a court order whether or not trades could be busted in the same sense that a credit card purchase can be broken if you convince some entity that the that the transaction was fraudulent and who makes that call under what circumstances these are what I see the really important decisions that cannot be evaded that when we when we design a digital currency and so the issue of anonymity is is really crucial and at the heart of this as well as what sort of authentication a person will have to present to transact that anything so I look forward to this hearing very much and yield back gentleman yields back and the chair recognizes for the remainder of the time mr. shermin for opening statement two-and-a-half minutes blockchain is a good technology but it can be used to track and transfer sovereign currency there is nothing that can be done with cryptocurrency that cannot be done with sovereign currency that is meritorious and helpful to society the role of the US dollar in an international financial system is a critical component of US power it brought Iran to the negotiating table and then we argue about whether we got a good enough deal or not in the jcpoa we would have nothing had it not been for the role of the dollar we should prohibit US persons from buying or mining crypto currencies Mining alone uses electricity which takes away from other needs and or adds to the carbon footprint as a store as a medium of exchange cryptocurrency accomplishes nothing except facilitating narcotics trafficking terrorism and tax evasion some of its supporters delight in that that if you can disempower the US government from being able to prevent terrorism narcotics trafficking and tax evasion you have somehow struck a blow for liberty that is reason enough to ban it but its role as an investment is at least as bad we have certain animal spirits in our culture or willingness to take a risk to place a bet this can be harnessed by gambling casinos which at least pay very high local taxes and created a city of Las Vegas out of a desert we can better yet harness those animal spirits to get people to invest in risky stocks startup enterprises and provide the technologies and jobs of the future or we can see those animal spirits spent doing nothing but helping create a market for tax evaders narco terrorists and others who find that the US dollar is not to their liking and a very minimum we need investor protection if we're going to have people invest in crypto currencies and crypto offering memoranda and crypto registrations are not would be considered outright fraud and reason for incarceration if they were issued by somebody selling stocks bonds or any other investment and finally there is sin I sin our age the money that we make as a country because we're the reserve currency because we can issue a greenback that does not yield interest there are people who are alive today because of the profits the US government makes on that whether it be our to fund defense or medical research all of that gets diminished with cryptocurrency I yield back the gentleman's time has expired today we welcome the testimony of dr. Rodney Garrett who holds the Maxwell C and Mary parish chair and economics at the University of California Santa Barbara he has served as a technical adviser to the Bank for International Settlements a research advisor to the Bank of England and as a former vice-president this is an interesting guys he's super interesting his time at the Federal Reserve Bank of New York eco led the virtual currency working group for the Federal Reserve System after leaving the the Federal Reserve Bank he consulted for payments Canada and r3 on project Jasper a proof of concept for a wholesale interbank payment system mr. Garrett received his PhD from Cornell doctor Norbert Michelle who is the director of the Center for data analysis at the Heritage Foundation where he studies and writes about financial markets crypto currencies and monetary policy before rejoining Heritage in 2013 Michelle was a tenured professor professor at Nicholls State University's College of Business teaching finance economics and statistics dr. Michele holds a doctoral degree in financial economics from the University of New Orleans dr. Ezra R Prasad is the t'lani senior professor of trade policy and professor of economics at Cornell University is also a senior fellow at the Brookings Institution where he holds the new century chair in international trade in economics and a research associate at the National Bureau of Economic Research he is a former head of the IMF's China division his extensive publication record includes articles and numerous collected volumes as well as top academic journals he has co-authored and edited numerous books including on financial regulation and on China and India finally mr. Alex Pollock is distinguished senior fellow with the R Street Institute welcome back to the committee mr. Pollack providing thought and policy leadership on financial systems cycles of booms and busts financial crises risk and uncertainty central banking and the politics of Finance Alex joined our street in January 2016 from the American Enterprise Institute where he was a resident fellow from 2004 to 2015 previously he was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004 Alex received his master's in philosophy from the University of Chicago and a master's of Public Administration degree in international affairs from Princeton University each of you will be recognized for five minutes to give an oral presentation of your testimony without objection each of your written statements will be will be made part of the record dr. Rodney Garrett you are now recognized for five minutes if you can just push the button there to turn on your mic thank you Thank You chair bar ranking member Moore and members of the subcommittee the convenience of electronic transfers has led to a decline worldwide in the use of cash this is particularly true in countries where systems for transferring commercial bank deposits are more advanced Sweden's mobile payment system swish has been adopted by over 60% of the population and cashews and transactions has fallen below 2% by value countries around the world are introducing their own faster payment systems including the recently launched real-time payments platform in the United States at the same time PayPal venmo and other private mobile payment platforms continue to improve convenience and speed of person-to-person and retail payments by leveraging conventional financial market infrastructures it seems likely that the use of cash will continue to fall and it's worth noting that there is a tipping point at which even if consumers seek to use cash businesses and banks will not want to deal with it what happens then one possibility is that people will be content to transact primarily in commercial bank deposits and things will be business as usual with a much smaller cash component to the monetary base another possibility is that people will demand direct access to some form of digital central bank issued money as a replacement for cash and the third possibility is that will people people will turn to privately issued crypto currencies like Bitcoin these options are not mutually exclusive nor are they independent the adoption rate of Bitcoin will depend not only on its performance as a money but also on the alternative forms of digital money that the central bank provides if consumers perceive that they have inadequate access to a cash like medium of exchange then they may then they may be more inclined to turn to alternatives on the other hand if the central bank offers a digital form of central bank money to the public with sufficient cash like properties then perhaps this will appease those who miss cash central banks are currently evaluating numerous options for digital currencies not just in response to the shift away from cash but also for meeting core objectives and the enhancement of financial market infrastructures ongoing proofs of concept by central banks and private partners consider the use of central bank crip central bank crypto currencies in wholesale systems only these applications are driven by efficiency and cost considerations and have minimal monetary policy implications in these opening remarks I will focus on the merits of a widely accessible retail oriented central bank cryptocurrency that could be used for person-to-person and retail transactions as suggested in blogger JP Kony fed coin proposal a retail central bank cryptocurrency could transact like Bitcoin however instead of having a fixed money supply rule the Federal Reserve would control the creation and destruction of these coins crucially there would be one-to-one convertibility with cash and reserves and hence at retail central bank cryptocurrency would not suffer from the high price volatility that undermines the usefulness of Bitcoin is a store in value and medium of exchange the Fed could also choose to implement a cryptocurrency on a per mission blockchain which means transaction validation could be performed by vetted actors who are accountable for their actions without costly proof-of-work proposals to increase access to decision to bank money have been made before Nobel laureate James told I don't want to stop read the public access to deposited currency accounts at Federal Reserve Bank's over three decades ago a number of things have changed since Tobin's proposal as I mentioned the use of cash has declined a major financial crisis may have changed some people's attitude towards commercial bank deposits and technological advancements offer the potential for issuing digital central bank money in a new way with enhanced features I offer two examples first the peer-to-peer aspect of cryptocurrencies could allow central banks to provide a digital money with anonymity property similar to those of cash whether or not the central bank would want to do this is a complicated issue that requires balancing legitimate demands for individual privacy against concerns related to tax evasion and other criminal activities second there is the potential to approve upon cash by creating what advocates of cryptocurrencies call programmable money programmable money allows trading partners to hardwire the terms and conditions of trades into their transactions so that they may be executed upon fulfilment of conditions without relying on third parties this is particularly useful for transactions that span multiple legal jurisdictions any decision to implement a retail oriented central bank cryptocurrency would have to balance potential benefits against potential risks a common objection to expanding access to central bank money is that it could disintermediate banks however it is also plausible that it could produce healthy competition the risk of excessive dissident or mediation would be mitigated by making any new form of central bank money more like cash and less like deposits thank you and I would be happy to answer any questions thank you dr. Norbert Michele you're now recognized for five minutes chairman bar rep for members of the committee thank you for the opportunity to testify today my name is Norbert Michele I'm the director of center the director of the Center for data analysis at the Heritage Foundation and the views that I expressed today are my own they should not be construed as representing any official position of the Heritage Foundation cryptocurrencies have rapidly expanded since the introduction of Bitcoin in 2008 and their underlying technology a distributed database that allows digital assets to be transferred without a third party intermediary holds the potential to transform the financial industry this innovation should be fostered not smothered my remarks today will provide four specific points relating to the use of cryptocurrencies cash and other alternative forms of money first electronic means a payment have become more widespread as the technology has changed but paper currency cash is still widely a still a widely used form of payment the demise of cash has been widely and steadily predicted since at least the 1970s yet it remains a preferred method of payment for many people Federal Reserve reports show the cash is still the most frequently used form of payment in the US and that it plays a dominant role for small value transactions it also remains the leading payment instrument for expenditure categories such as person-to-person gift transfers food and personal care supplies and entertainment and transportation expenditures as the charts in my written testimony show both the volume and Val you of currency in circulation in denominations including one all the way from one to one hundred dollar bills have steadily increased since the 1990s yeah crease cuz it's a redevelopment that prohibit customers from using cash as was recently reported in a Washington Post story do so at their own peril but this danger this this threat of consumers using an alternative form of payment possibly at an alternative place of business is exactly as it should be competitive processes should take place so that businesses and consumers can discover the best means of payment the fact that cryptocurrency is a new option for making payments though it is in its infant stages should be embraced that brings me to my second point which is that the federal government should not step in and tilt the playing field it should treat cryptocurrency in all other forms of money neutrally this means that it should not be so any particular legal advantage on any particular alternative form of money and that it should remove all legal barriers to using alternative forms of money removing capital gains taxes from purchases with alternative currencies including crypto currencies and foreign currencies would be a major step towards leveling that playing field between alternative forms of payment to further level the playing field Congress should even consider allowing the US Postal Service and other government agencies to accept these alternatives oh and third point is that these competitive forces are the forces that push entrepreneurs to innovate and improve products specifically to satisfy their customers they also expose weaknesses and inefficiencies in existing products the same comported these same competitive forces can and should be used to improve money the federal government's partial monopoly on money limits the extent to which competitive processes can strengthen money and it exposes our money to the mistakes of a single government entity nothing can provide as powerful a check against the federal debasement of money as a threat of competition from a viable from viable alternative forms at Wow my final point is that centralizing cryptocurrencies within any government agency makes little sense the technology promises potential benefits because it's decentralized nature centralizing the technology at a central bank offers no particular advantage over a more traditional electronic database furthermore Congress and the administration should do all they possibly can to ensure that our central bank never offers retail bank accounts to the public whether via a central bank backed cryptocurrency or via a more traditional digital form of money implementing such a policy would give the federal government a complete monopoly of money and effectively nationalize all private credit markets no private entity would be able to compete with the federal government for funds even Ken Rogoff a staunch advocate for phasing out cash and forcing people to use only one type of digital money admits that the biggest threat to the value of currency is often the government itself that Rogoff quote is quite frankly an understatement giving the federal government the power to directly take money from its citizens with a few computer keystrokes in the name of some vague goal of stabilizing the economy simply amounts to the death of economic freedom is a terrible idea and it's Congress's duty to protect Americans from those sorts of tyrannical acts thank you thank you and now dr. Prasad you're recognized for five minutes Shimon bar and members of the committee thank you for the opportunity to testify in front of you on the implications of digital currency broadly defined for the US economy and financial system I should note that two years ago I faced an important choice one afternoon whether to spend that afternoon buying Bitcoin which is not a trivial process or to start working on a paper about Bitcoin and digital currencies for better or worse I chose the latter so today I have no Bitcoin but I do have a paper about the implications of digital currency it's useful to frame our discussion around three questions one should the government or the Federal Reserve provide services that the private sector can provide more efficiently and that is something that a crypto currency for instance could provide second what are the implications for the Fed in terms of its monetary policy objectives of low inflation high employment and most importantly financial stability if digital currencies become widely prevalent and third what are the implications for the u.s. role in the global financial system as when looks at the landscape of cryptocurrencies it's useful to keep one distinction in mind that is the distinction between central bank digital currencies which could use the same cryptographic technology as something like Bitcoin and then non official crypto currencies which are essentially created in the ether or a digital asset with no backing behind them unlike the US dollar which does have backing now there are many proponents of the US and other economies moving to digital forms of fiat currencies and I think there are some legitimate arguments about how that could reduce activity in the shadow economy reduce illicit activities improve the tax base and in some ways even make monetary policy more efficient even at the lower bound where the Fed may not be able to use interest rate policy anymore if all of us were to have non-interest bearing deposit accounts with the Fed which is fast becoming technologically feasible and this is what Professor Tobin had had suggested this would make a certain aspect of monetary policy implementation a lot easier but it's worth thinking about money in a broader sense money is created by the central bank but also to a much greater extent by commercial banks and I think this is going to have a serious implication for money creation in the economy because as new technologies new financial technologies more broadly eat away at the standard business model of banks and its non-bank financial intermediaries start playing a major role in the financial system the question remains what role will banks play because those are the institutions that the Fed has direct control over and that are responsible for creating loans and therefore for creating deposits and a very important part of money the other aspect in terms of thinking about Fed the Federal Reserve's digital currency or any central bank's digital currencies what it does to the payment systems right now the Fed has no role in retail payment systems it has a very important role in intermediating financial transactions among the major financial institutions in terms of clearing and settlement of their transactions with non-interest bearing deposit accounts one could well end up in a scenario where the Fed essentially starts managing a retail payment system as well it's not obvious that this is the ideal solution but it's worth thinking about the alternative if in fact we had a situation where both the retail payment systems and also the wholesale payment systems among banks are managed through distributed ledger technology which might become feasible then what happens in a time of crisis of confidence in normal times this actually might lead to significant gains in efficiency again the private sector might do far more efficiently in at the government the management of these payment systems but the issue of trust in the central bank especially at a moment of crisis of confidence becomes really important so if you look around the world and think about central banks like Sweden that are thinking about introducing a digital version of the fiat currency the objective they have in mind is not to intrude or reduce innovation but basically to provide a backstop to the payment system to make sure that is not all in the private sector and subject to a crisis of confidence there are other concerns related to regulatory arbitrage and the possibility of cross-border capital flows again illicit as well as licit that could be facilitated which would certainly improve efficiency but also potentially also make underground activities easier to execute and finally on the issue of the u.s. dollars role as a global reserve currency there I worry less I think it's possible that if other countries were to issue their own currencies in digital form you could have the medium of exchange shifting towards non official crypto currencies towards other currencies but what preserves the US dollars role as the ultimate global safe haven is not just the its role as a medium of exchange but its ability to serve as a safe haven and that requires us institutions which I think are still pretty strong and are going to retain foreign investors trust so I think as a store of value the US dollars will remain secure for now thank you thank you mr. waters recognized for five minutes thanks mr. chairman mr. foster members of the subcommittee all right now it's going to pose as really interesting questions which to answer require some speculation and guessing along with thinking we hope among the intriguing question is whether Bitcoin or another cryptocurrency could become a successfully privately issued fiat currency that would mean being widely accepted constantly used in payments and settlements used to denominator and other enforceable contracts and people going around and not asking what's the price of Bitcoin but what's the price of this in Bitcoin we're way away from that but it's imaginable as the chairman said the history of money demonstrates a wide variety of monies that have been used there have been numerous historical examples of private currencies but to my knowledge there's never been a private fiat currency those are reserved for the power of governments for private currency is an example circulating notes of state chartered banks were common in the 19th century you might have carried in those days in your wallet a five-dollar bill from the third state bank of Scone Creek for example or hundreds of others but all such notes were banked by the loans and investments in capital of the issuing bank they were not fiat money the dominant historical trend in money has been to create ever more central bank monopoly of currency over several centuries of development will the new and ubiquitous computing power of our time reverse this trend and create more competition in currency with dr. Michelle and the famous economist Friedrich Hayek I think it might be a good idea but I don't think it will happen Bitcoin theorists imagine it will but I believe it's easier to imagine moving in exactly the opposite direction that is toward even greater monopoly by the central bank through digital money mr. foster made the point it's not only our own central bank but other powerful central banks we might think about in this context and many central banks are indeed interested in having their own digital currency so the general public not only back could have deposit accounts with the central bank in addition to carrying around its paper currency and the appeal of this idea to central banks is natural it would greatly increase their size role and power with current technology this would clearly be possible the central bank could have tens of millions of accounts with individuals businesses associations immiscible governments and anybody else and there's not much standing in the way of that in terms of pure financial technique but would it be a good idea no it wouldn't in such a scheme the Federal Reserve would be in direct competition with all private banks it would be a highly advantage to government competitor and it would be regulating its competitors that's what central bank evolution tried to develop out of in the American banking system they're about 12 trillion dollars and domestic deposits could a Federal Reserve digital deposit account system grabs a half of them why not that would be six trillion dollars which would expand its balance sheet to ten trillion dollars now what's key in this is to remember that on if you have deposits on one side of your balance sheet you have something else on the other side so what would the Fed do with this mountain of deposits and as as my friend Norbert said well it would have to have to make investments and loans it would become by this means the overwhelming credit allocator of the american economic and financial system i think we can safely predict its credit allocation would unavoidably be highly politicized and the taxpayers would be on the hook where its credit losses the current the risk would be directly in the central bank as opposed to central bank support of somebody else so as as Norbert said I think to have a central bank digital currency is one of the worst financial ideas of recent times still it's quite conceivable to think of as a possibility and it's good for us to think about it in conclusion think if we look at the money of the future digitalization will continue but I don't think the fundamental nature of money will change it will surely be the monopoly issuance play it by a central bank it might be a private currency backed by reliable assets I don't think it will be a private fiat currency like Bitcoin and as we consider all this an increase in the monopoly power of central banks which already have too much should be avoided and thanks a lot for being able to share these views thank you for your testimony in the chair now recognizes himself for five minutes for questioning let me just start with this idea of cryptocurrency potentially supplanting or displacing US Federal Reserve notes as though as a as the world's reserve currency and this is for anyone who wants to chime in with greater use of electronic payments and the advent of digital currencies do you think demand for US Federal Reserve notes will decrease and what what implications does that have for the US dollar I don't think if you look at why the US dollar is as strong as it is and is in demand as it is you have to look beyond just the fact that we have a Federal Reserve that prints Federal Reserve notes we have an economy with strong property rights especially relative to many other countries in the world we have incredibly developed well developed industrialized infrastructure here and as long as you combine those things and have a dynamic economy then the the assets of that of that economy including the money that's predominantly used in that economy are going to be sought after so that's what you should focus on if you want people to want our money if you want people to want to use our money and there's also a downside to being the the world's reserve currency and that's that we can basically sort of continue the fiction that we can print as much as we want and lend as much as we want and that's frankly not a good idea so I that's just not the way that I would think of those things anybody else want to comment on that mr. Paulk another way to think about that is that the United States does have has had and continues to have as my old friend John Macon used to say a competitive advantage in wealth storage services and that's a an advantage it arises out of social infrastructure all the things that Norbert said rule of law enforcement of a contract a strong financial system and of course a powerful government enforcing all of that and I think that will continue but we talked about bank notes and US dollar paper currency does circulate around the world as we know nonetheless I think the electronic forms of money certainly in the wholesale markets will become ever more dominant in spite of the advantages in some situations that paper currency has like privacy dr. Prasad do you want to it is difficult to see an asset that has no intrinsic value and no backing by the government maintaining value as a store of value the initial promise of something like Bitcoin is semi it might become an effective medium of exchange and that promise hasn't quite panned out because it turns out that it is very inefficient and very costly to transact using Bitcoin so in fact many of the non official crypto currencies that are gaining more traction as mediums of exchange are in fact ones that are backed by fiat currencies or other other forms of backing so there is one called tether for instance which is backed one for one with the US dollar and that is beginning to get a traction as a medium of exchange so ultimately the US dollars which is pointed out is maintained in its dominant role through US institutions and the trust in the Federal Reserve let me follow up by basically well by starting with a more kind of fundamental question you talked about the volatility of digital currency and maybe that is the principal reason why it's not the best medium of exchange right now or store value but and it's very core is our crypto currencies money and and and by anyone to chime in on this and if not if cryptocurrencies are not money do they substitute as money did they function as money substitutes dr. Garrett yeah on that point I would point to Hayek who who didn't you like the word money as much as he liked the word currency arguing that that's a property so I think an have currency it's a different extent and so is Bitcoin money well you know I you know for regulatory purposes we may not want it to define that way the IRS CFTC has defined it as a commodity because that's necessary for for regulatory purposes but in terms of the conceptual idea of is it money it is to some extent but it's not currently a very good one for the reasons that have been articulated it's not very good as a medium of exchange because the price is so volatile that means that or a store value but as a medium of exchange it's not good because if the price is if we think the price is going to go down I don't want to receive it and if I think the price is going to go up I don't want to spend it so this volatility undermines its features both as a store value my time is about ready to expire but it would would what its properties as money improve what its quality as money improve what its volatility declined based on adoption rate is adoption rate all that is required to improve its qualities to get to money yeah I mean people have to start using it for transactions I mean I mean if that happens then the price volatility might start to decline the adoption rate has a lot to do with it the way Bitcoin itself is set up has a lot to do with its own volatility but that's only one cryptocurrency but yeah so I would just in general say yes the adoption rate has a lot to do with it my time is more than expired I will now recognize dr. Foster for five minutes thank you and thank our witnesses again oh yeah recently there were reports in the press the estimates of about 20% of all Bitcoin have been lost which strikes me as implying that whatever government or central bank issues digital fiat currency if that was a representative numbers it would be a tremendously profitable enterprise to be in if you have 20% of your cash never you know came back to be redeemed and that's in addition to the interest expense if there is no interest paid on these digital instruments and so it strikes me that whatever country starts doing this and becomes a de facto standard is going to have a permanent cash cow and do you see anything wrong with that analysis Irishman I'd say for any issuer of currency you like to have your currency lost or put away someplace remember American Express cheques which were kind of currency used to used to encourage you to put them in your attic and save them for the future which was tremendously profitable for American Express yeah and you know and the other there have been some concern here that somehow there'd be a big evil government monopoly taking all over all banking functions it seems to me it would be pretty self-limiting if there was no interest paid on these things yeah average person would maintain just a convenience level amount of this and not have all of their net worth and something that paid no interest and so it seems like you just have a reasonable fraction of everyone's net worth usable for short-term transactions and and then they would separately in a very competitive banking and investment environment allocate the main bulk of their of their investments elsewhere do you see anything wrong with that analysis Yes Doctor yes I do I think the Fed would pay interest just as they do I'm sorry yeah well as they don't on cash yeah just to be clear the notion that is being floated right now is of non-interest bearing deposit accounts right now this is not clear proposal yet there are different ways of thinking about how to set up a central bank digital currency but the notion of deposit accounts is of non-interest bearing deposit accounts so the concerns that you could have this asset superseding other assets is highly unlikely because again it will be a zero nominal interest rate yield instrument just like cash currently is in regard to your concern about potential technological malfeasance this goes back to the seventh initially went paper currency was printed when counterfeiting was a concern and that's remained to this day one could argue that digital forms of fiat currency could reduce the concern about counterfeiting of paper currency but they are on the flip side and in most issues here there is a one side on the other side but the flip side here is that certainly they would make them very vulnerable to technological hacks and this is why I think most central banks are very concerned about moving forward very aggressively with this because of technological vulnerabilities that are potentially out there you know and so the the promise of blockchain is that it provides essentially an on falsifiable ledger that that would prevent a lot of malfeasance I think the kind that you still will I think forever be worried about is the business of authenticating the person who has access to move these balances around and and operate that system and that's remains an unsolved problem in the digital world is you know how you really oughta gate yourself for different levels of transactions dr. Karen I'm what how does actually Sweden handle this issue in their proposal you know for example in the Swedish proposal do swipe fees just disappear and that you can you can pay and how do you deal out of Sweden deal with the problem if someone steals your cell phone or your identity somehow and proceeds to spend a bunch of money um you know is there a mechanism to get your money back when a fraudulent transaction is taking it away from you no not in Bitcoin I think if you're regarding to the to the current switch system this is a system that's run by the central bank in cooperation with private banks so these are these are still centralized accounts so in the event that your your cellphone was was lost you would still have access to to go to the bank reveal your identity and and and get your account reinstated or you could probably just do that online so the the sweet sweden has has has issued as something called an e Crona report where they're considering alternative new technologies to deal with the replacement of cash but those are still just proposals okay and among those technologies that they're considering is a store value technology and in China which has just massively apparently adopted digital transactions for consumers at least that is that essentially a on account with the two big players whose name I forget to only pay and whatever the other one is so these are essentially everyone has a balance on their and I pay you by transferring some of my balance in Olli paid to you or is there some government operation behind it or central bank operation behind in WeChat essentially is based on using the reset platform and the Ali pay platform but with balances that are already at your bank account so you can link it to your bank account but Sweden is considering its two options either a register based system where you have this electronic deposit accounts like I mentioned or a value-based system are essentially a download digital cash on to your electronic wallet which could be like a credit card so those are the two options in Sweden that are being considered thank you Yeomans time has expired the chair recognizes the vice chairman of the subcommittee mr. Williams from Texas Thank You mr. chairman and thank all of you for today's hearing we're in the exciting first stages of the digital currency movements adaption by mainstream stakeholders and it's become apparent to many that blockchain and other new technologies is the digital currency space offers solutions have the potential drastically alter the financial sector that does business as as Congress and regularly is determine how best to treat these emerging products we must be mindful of the impact our actions have an innovation and the free enterprise at the same time however it's important that policymakers keep in mind the legitimate governmental interest in preventing the use of anonymous digital currency by those who wish to do us harm I look forward to discussing with the experts today on the best path forward so my first question dr. Michelle is you state in your testimony that Congress should work diligently to eliminate tax and other legal impediments to the development of alternative currencies as well as new applications for blockchain technologies what are the impediments to development of alternative currencies new applications for blockchain technologies and what can Congress do about them I think the main one honestly I do believe is capital gains tax the fact that you have to contain keep track a basis in every single transaction you would make that's a that's a major impediment to using anything other than the US dollar for transactions so that's the biggest one otherwise regular to on a regulatory side I think if we look at ESA Bank Secrecy Act any money laundering laws ensuring that nothing is treated differently yes it is true that criminals have used Bitcoin but criminals also have used airplanes computers and automobiles we shouldn't criminalize any of those instruments simply because criminals use them those components I believe are the the main barriers to using to a more widespread adoption of these things in the US okay thank you my next question is dr. Garrett your testimony presents three options for consumers in the event that cash is no longer available to them number one used commercial bank deposits for everyday transactions number two demand direct access to gentles digital central bank issued money and thirdly turn to privately issued cryptocurrencies so what would cause consumers to choose options two and three when option one is an existing familiar technology that has already become an increasingly convenient as a payment method so first of all let me say that I I agree with what you said at the end there I mean there's this there's nothing wrong with our current banking system and people have been very and as I mentioned in my testimony yeah it means nothing wrong bank deposits are constantly arising it's increasing the ease with which we make a not only person to business payments but particularly peer-to-peer payments person-to-person payments so in those scenarios all I outlined the first Center who is probably the most likely but as cash actually disappears that starts to create problems in a society Sweden is currently dealing with this and the governor of the rich Bank recently wrote an opinion piece where he talked about some of the pain points that are that occur when cash when physical cash really starts to disappear and when businesses stop receiving it and so what I'm really talking about is that that future scenario and at that point the central bank has to decide if it wants to withdraw completely from providing a payment device for the general public or whether it wants to offer some sort of digital alternative and one of those digital alternatives could be possibly down the road some form of crypto currency that's it's offered by the central bank and the primary reasons for doing that I think one would be if you wanted to allow some type of privacy component within transactions of this currency like it's currently possible with cash subject to limits and as I said balanced against the risks of of tax evasion and criminal activity these are the options that the central bank will ultimately face and and and my argument is that these are something that we should be prepared for okay let me stay with you dr. Garrett with the dozens of the digital currencies out there all with different attributes that make classifications difficult what is the appropriate framework for us to use if Congress approaches legislation addressing the digital currency well that's a very difficult question that's why I ask you to you well–there's people have the ability to issue these private currencies and they and they're going to exist and I think just like dr. Michael said one can't make something illegal just because it might be used for illegal purposes what I'm arguing is that the is that you know I believe that the central bank does a good job at providing payment services and not only just at the interbank level but also for small payments by the public and I think the central bank should continue to provide the best possible product along those lines and what I'm arguing is is that in a future date that best possible product might involve some of these new technologies but but issued by the central bank's to me remain competitive with those payment devices as opposed to some of these private currencies which which you know are less able we're less able to monitor and and less able to in gentlemen's times expired that the chair recognizes the gentleman from California mr. Sherman no it's gonna sound like some think tanks demand that every turn that we do things that make the federal government less able to meet its financial obligations and then they demand that we have an extensive and expensive foreign policy that costs well over a trillion dollars there's no way to square that unless we abolish Social Security and Medicare we have moved from a gold from 2000 years ago to drafts and paper currency symbolizing gold to wear the paper currency itself has value and now for many decades what has value is paper that represents the paper I pay my rent with a check which represents paper dollars which as recently as the 1930s could be converted into gold but can no longer be and yeah we now have an opportunity to disempower the federal government and to move that power to those a hostile to it the we need a medium exchange we need a unit of value the witnesses have demonstrated that the dollar is much better at that for honest citizens but crypto currencies offer unparalleled advantages to nations that the US government wants to sanction for their terrorist activities to tax evaders and criminals mr. pollak what is the it seems to be a solution looking for a problem what can an honest citizen not do to store value to effectuate a transaction I can be in the smallest Hamlet in rural India and use my Visa card I've never had a problem paying somebody unless they didn't have the money so it's a good we have pretty efficient mostly digital transfers of dollars every day what's the problem we're trying to solve except for the problem that they that the narcotics dealers have the I think the proposal being made for private fiat currencies which as I said congressman strikes me as an unlikely outcome a private fiat currency as opposed to a convertible currency is to give optional ways of settlement for anybody but I mean I've got a means of settlement called the dollar a what is the great failure and you have another one called the euro and I have many many choice you 100 views you have leases of gold so so what problem do I have that they're trying to solve unless I'm a tax evader or a narco-terrorist I don't think we can do first of all I'm not pushing I'm not pushing as you know this solution I am trying to illustrate that it is a solution only to the problems of tax evaders criminals and terrorists but I might and offers an opportunity for profit by speculators speculating on a currency whose so value is to help by the aforementioned near do wells go ahead you might argue that people should deserve just as I think dr. Michel did and in my written testimony there's a quote from Friedrich Hayek on this the freedom to choose the denomination of the transactions they want to they want we should allow people to own guns in many circumstances but if the sole advantage of a particular gun is that it has a special tape on it to prevent finger prints from adhering and you would say the honest citizen who wants to hunt wants to make sure that the deer cannot identify the finger prints of the hunter really I would say the sole benefit of that particular tape on that particular gun is to facilitate criminals what other than facilitating criminals and allow people place bets on the value of some of a of a criminal tool I mean we could speculate the value of burglars tools what does this do what problem does it solve can you identify one because I can't I I don't know the extent to which crypto currencies are used in this criminal way I suspect they are some to some extent but so is cash yes rifles are chiefly used for hunting rifles with design not to have fingerprints on them our prey usually predominantly used for crime the gentleman's time has expired and the bells signal that boats have been called on the House floor we will recess for votes in a moment but we will go to mr. Hill for five minutes of questioning then we will recess and we will return and for members who have not had an opportunity we will reconvene for the remainder of the hearing for your questions after votes at this time we will ask mr. Hill for his five minutes of questioning like a chairman bar appreciate the time Dave I just want to interrupt in here for a second I think that we all agreed that was completely ridiculous that comparison I mean why do we need Bitcoin just watch the big short 2008 and someone said it in chat the US dollar is in finished inflationary Bitcoin is not yeah censorship resistant you don't have to be reliant on a third party on someone who is watching your cash flow and I mean there are plenty of reasons let's continue a very interesting panel I was at the u.s. chamber this morning talking about FinTech and the advantages of of exploring how blockchain can change business economics and accounting Logistics very interesting topic today we're talking about something that is the the headline which is constantly chatter about crypto currencies and when I listen to the your testimony I just have flashbacks not personally of course to the 1830s I'm thinking about Wildcat banking when we had no central bank thanks to President Jackson's insistence that we didn't need that and every state in every business and every town issued script or currency I have a book in my at my house of obsolete script and currency that's a collector's guide and it's very thick so help me mr. Pollock understand that that why is this any different I mean I can't imagine that anyone privately issued cryptocurrency could be any more accepted than another you know big picture since why is it not like Wildcat banking of the 1830s congressman I think it's exactly the same as I tried to suggest in my testimony I I said in my written testimony I have in my collection maybe my book isn't as fat as yours a nice copy of a $3 bill issued by the Wisconsin Marine and Fire Insurance Company which acted as a bank in the 1840s in this period you're talking about I think it's exactly the same except those currencies did have a claim on the assets of the bank if the bank had good assets thank you for that and dr. Michele you know the I think if I remember article 1 right coining money is a enumerated power of the of the Congress not the Federal Reserve System yet I'm always in fact chairman of Powell got the question this morning like chairman Powell can decide to do crypto currencies at the Fed where's all this this would still be pursuant obviously to Congress directing that we do this and so tell me your views on on that legally legally I mean I I hate to venture a guess because they they seem to be able to do quite a bit without legislation this is no surprise from your testimony yes thank you but I and then dr. Prasad a question for you you talked about potentially because of blockchain truly an innovative area that potentially you would make some forms of money or credit I'd say obsolete like an account payable receivables for example people wouldn't necessarily have as big a line of credit so you're concerned about future credit creation and open market operations I assume that's where you were coming from and your testimony art of it if you think about the previous congressman's question about what is the point of crypto currencies there are many inefficiencies and that lurk in the financial system including ones that result in crisis but also if you think about payments either using your visa or if you think about cross-border settlement of transactions those are painfully slow sometimes quite expensive and these technologies in principle provide a way of getting around those issues they in principle again I as emphasized that could make transactions much easier to verify to follow through they could ensure finality of settlement of transactions and bring down the cost you're not quite there yet but that's the prospect and that could affect the traditional model of banking especially as non-bank financial intermediaries we talked about Ali pay and Alibaba and China they take over and that could affect how the Fed thinks about financial stability and the transmission of monetary policy as well thank you very much in my in my time remaining mr. chairman since this is the monetary policy committee I have to come in to our viewing audience and to my colleagues mr. Pollock's recent writings on the 40th anniversary of the humphrey-hawkins Act one of my personal favorite laws and we celebrated today quietly here as we had general chairman pal testifying and I've always always find the goals of humphrey-hawkins odd you have full employment and price stability so I didn't get to ask my question and I'll let you have the last word mr. pollak how is price stability consistent with perpetual inflation setting it on an inflation target it is not that's one of the great mysteries of the Federal Reserve how our stable prices which is actually the term in the Act isn't is consistent with their announced strategy of perpetual inflation thank you that's one of the great mysteries of Finance I yield back a gentleman yields back from those good questions and I am informed that because this is going to be an extraordinarily long vote series on the house for we may be losing members and so I'll reverse course and call on our colleague from Ohio for the last set of questions for the hearing and that is Warren Davidson who is now recognized for five minutes for the final question of the hearing thanks for the bonus time chairman and thank you all for being here I assume you're relieved a bit so you won't be waiting for us for an hour and a half or two to get back over here so thank you for your expertise in this and I think just beginning with the nature of currency what is our currency and part of the stability of the US dollar lies not just in the resources of the United States but in the resources of the world the petro dollar everyone has to settle their current account at some level in u.s. dollars because everyone uses crude oil and so we have an effective monopoly on settlement there and it dealt somewhat effectively with the problem of mercantilism involved in gold so prevented hoarding because the oil isn't hoarded if of course Congress continues to tap the Strategic Petroleum Reserve so I assume eventually maybe we can find find an end but in the background of that what creates the stability of money and I and I guess I want to get at in cryptocurrency we use the word for everything we use it for crypto securities that are really nothing more than you know non-voting shares and companies in some cases this is what the he's trying to regulate we've established that that numerous of these crypto commodities or effectively commodities but we're not quite sure that there are currencies mr. pollak you summed it up well by saying there's a big gap between how much is this in Bitcoin and and so I guess that's the question I'd like the panel to explore maybe mister Michelle would you like to pursue dr. Michelle the question specifically being the nature of money in in crypto so what makes it what makes it what would make a crypto currency a currency not just a commodity not an asset how do you move from whether it's Bitcoin or petrol coin or Michelle coin we're in coin I like the sound of that one if if we're talking about a medium of exchange then what we have is either a currency or a substitute for currency or a substitute for money if it's all digital maybe we shouldn't call it currency but the idea is a is what is the medium of exchange and my whole point is that people should be allowed to use whatever medium of exchange that they want to use the the fact that many people think that the Fed is great and the Fed is fine and we should just stick to the central bank that we have that's that's wonderful if nobody else ever believes that way and hardly anybody adopts any alternative form of money then there's no problem nobody's going to use one but if somebody comes up with something better then we should allow that to take place because you highlighted earlier you had it earlier that the government shouldn't shouldn't favor one or the other well we clearly do we coined the money and we have the official money we have the legal tender in the United States mr. Pollak how do you see migrating that path for something to really become a currency to be a currency as I tried to suggest in my remarks you have be readily accepted in settlement of payments and debts and to be a unit which is used to denominator acts and that and that means that people in general believe that that currency is going to be available and accepted by other people and they have to that other people accept that and and everybody else has to believe that other people will accept that as well it's a strange social creation money that comes out of out of belief backed up by sets of enforcement of their great history history of money their high garius to think about yeah I'll just build on that I mean I think I think what you're what you're really getting out with your question is you know why it is Bitcoin have any value at all and as mr. Pollack just said for a currency to have value and to function as a currency it simply has to be the case that you accept it from someone on the belief that someone down the road will accept it from you one of the interesting things that that makes that work apparently with something like Bitcoin is the is the currency supply rule there's a fixed rule for how the money increases over time but that's known and fixed and so you don't have to worry that the issuer of the currency will behavior responsibly and devalue it so that's sort of a fundamental aspect that gives Bitcoin dial you once once somehow that process has started where people have started to believe in it but it also is is it can be problematic because it means that you you have a fixed rule and you are not able to provide currency in a way that might be beneficial in general for the economy thank you so much I'm sorry I couldn't get to everyone and frankly couldn't get to nearly all my questions but nearly universal liquidity I think is the defining characteristic and then we can't get to the store of value related to petrol but thank you so much for your time and thanks for your indulgence chairman thank you for your questions and thank you for yielding back your time and I'd like to thank all of our witnesses for their testimony today again I apologize for the brevity of the hearing I think we had a lot of members with a lot of interest but because of the interruption of votes we will have to end this hearing a little bit early but given the fact that digital currencies and crypto currencies will continue to have a greater and greater impact on our financial system and the broader economy I'm sure we'll be revisiting this issue and exploring this topic further in the future without objection all members while five legislative days within which to submit additional written questions for the witnesses to the chair which will be forded to the witness for the response ask our witnesses to please respond as promptly as you are able this hearing is adjourned Wow ladies and gentleman Wow so we're done right we're completely done that belief or is there anything else I'm not quite sure to be honest Wow all right so I have to say a few things in here before we're gonna end this dream obviously so there are two hearings by the way for those people who just joined right now thank you everyone for joining we have 1,100 people in here which is completely amazing I didn't expect that so yeah if you guys liked the content definitely make sure to leave a like I always say that in my videos it's kind of weird to say their life right now make sure to smash that like button so people later on can watch it as well and also hear the comments and don't forget to subscribe to the channel now here we are gonna come to my comments so the first hearing was definitely more positive but on the first hearing also people seemed a little bit well I would not say no actually it was balanced and I think that if we compare this to the first hearing or to the last hearing that we heard a couple months ago well people were not educated about cryptocurrencies at all they have no idea what's the difference between you know ripple and Bitcoin for example and I mean this that's a huge difference and so yeah this is something which is definitely better it's definitely positive so I want to start with the positive points in here just think about it guys how serious everything has become okay I mentioned that in a chat already one year ago for example I was getting laughed at when I was telling people hey I invested like eight thousand dollars of my money of my hard-earned money in cryptocurrencies and people were like yo do that are already stupid or what have you lost your mind you can't do that stuff like that and I did it anyway right and people were laughing at me and right now I would say that people are not really laughing anymore I mean if you just think about those two hearings right now what we have seen how serious it has become if you just think about how serious it has become that we are able right now to watch such hearings that's something which is definitely on a positive side what's also well I don't want to say this isn't a positive side or negative side this is just neutral but most of the people who seemed to not understand what's the actual value of Bitcoin those were old people okay if we remember this guy mr. shermin for example I mean he did not really understand what's the value of Bitcoin but if you would ask him what's the value of the US dollar or what's the value of gold he probably couldn't give you a proper answer either right so this is kind of weird and I mean to answer this question what is the value of Bitcoin the value of Bitcoin for me is to have basically a currency which is not getting managed by the fats or by any third party okay in a community we agree on a price right or the markets agree in a price one Bitcoin is worth seven thousand three hundred and seventy two dollars as we speak right now on coin base of course but of course there is some manipulation to that but what we know is that there is no third party which can just manipulate that you know I mean of course there are people who can manipulate it but it's censorship resistant there's not just the third party which can say okay right now which is gonna burn some Bitcoin or which is gonna add some Bitcoin like the feds are doing we know exactly and someone set it as well we know exactly how much Bitcoin will be added to the network we don't know how much Bitcoin are lost okay there are some wallets which haven't which haven't moved funds around since a long time but we know exactly how much Bitcoin are getting into the network it's exactly 12.5 Bitcoin every 10 minutes and after the year 2020 or into 20 it will be 6.25 and then 4 years later it will be half of that and so on okay so for me personally decentralized for me it's the decentralized aspect of Bitcoin that's what gives value to Bitcoin of course you could say well I can send around euros I can send around the US dollar but it's not the centralized that's the main point I mean and that's pretty much it's not the only point but it's the main point the fees with lightning Network are getting it's super low okay we can talk about that as well also it has a really high uptime like ninety-nine point nine six percent uptime and if they're not gonna be major software upgrades or anything I do not really think that there will be a significant downtime also this mr. shermin mentioned visa which was a super bad argument because just a couple weeks ago Ouisa was actually down for a couple hours so yeah there is that so yeah the negative points that the negative points are in here that older people do not understand older someone in chat is saying it's about trust yeah exactly but that's the the third-party point right the decentralisation point if you don't have to trust with third-party if you don't have to trust your bank that you're gonna have access to all your money that you see on the screen on your a finance portal that's a good thing right if you try I mean you have to trust someone right you have to trust the network and for some people that's hard to understand but anyway it seems like a lot of these people do not worship that and and that's a negative point I mean they're basically just saying well I mean I mean also the argument with the criminals that Bitcoin or cryptocurrencies are just for criminals and so on so this second hearing it was not that positive it was definitely not that positive but it is not something and and this is something which you guys have to understand it doesn't matter okay it doesn't matter that's the point the only thing that I'm personally scared of is that the majority of people out there has an IQ of 100 or around 100 and that's not that much right the median of IQ is 100 so let's just put it out there okay most of the people out there are not that smart so if those people just don't care if those people are like yeah I rather have buyer protection from my bank compared to having a non center or a censorship resistant monetary system if people do not understand or if people don't want to have that because because they don't care or they're lazy to store their private keys they're not responsible enough to store your private keys I don't know I don't know adoption is gonna get adoption is gonna get hard I mean that's definitely um that's definitely something we have to keep in mind in here personally I would say it does not matter at all I mean a lot of people are saying or some people are saying that the next financial crisis will drive a lot of people into Bitcoin which is definitely a considerable thought as well I mean if you think about it the next time it will see all these financial products or a lot of these financial products blow up that will definitely give reason to at least have a look at something like Bitcoin so yeah but just to let you just to let you guys know guys do I think this will have a huge effect on the price even if we're talking around a little bit with the Bitcoin price in the chat Bitcoin price going down during this hearing I do not think that this hearing has a big influence or any influence at all right now on the markets it could be it could be but I personally doubt it okay so the markets will do what the markets will do and long term I'm definitely bullish that's for sure oh by the way korgano this morning there some people are actually saying that look at this that's compared to Bitcoin that's quite nice I have a little bit of corn in my back so anyway guys overall I would definitely see this positive how serious everything has become is definitely an indicator for crypto currencies to be something to stay they cannot talk it away anymore they can actually say well cryptocurrencies we got to talk about it when there's gonna be some market capitalization when it's gonna get important it is important it is important right now and market cap well it's not that significant I mean what is 205 50 billion right I mean Blackrock Iran manages like six trillion or something so 250 billion whole market capitalization of cryptocurrencies is not that much and that is positive again so everyone who is in chat right now who owns some Bitcoin or let's say other crew poker

24 thoughts on “LIVE Hearing: "The Future of Money: Digital Currency"”

  1. We are getting dangerously close to the ugliness of ageism here. Older people simply have lived longer and are often heavily vested in things that have been with us for a long time. Consequently they resist alternatives. It has nothing to do with being older directly. I personally am older than time itself, having been born before Unix time zero, and I'm in on the crypto game. People need to avoid such divisive speech if they want to be constructive. We need to keep a big tent that includes both younger and older crypto advocates and not bite at each other because of our diversity.

  2. Thanks for doing this stream Sunny. Frustrating at times with the speakers but very interesting to gain insight into the different views and opinions of regulators.

    Funny to hear you chipping in with commentary, we were all doing it as well!

  3. Damn, my comment got ghost banned by a stupid algorithm… probably because I edited the grammar too much. Yet another reason I hate 3rd party control and censorship.

  4. Everyone has to have ZILLIQA token a portfolio! In case you are running low on funds,take the part in free airdrop www.coinairdrop.ru/zilliqa-free

  5. I can't believe you were the only one who streamed both of these hearings in there entirety! I hope you got alot of subs today!!! And the fact you only got this amount of views shows how early we are!!! Thank you SD!!

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