Posted 10 months ago | by Catoshi Nakamoto
The U.S. Senate Banking Committee held a hearing on July 27th entitled: “Cryptocurrencies: What are they good for?,” in which senators discussed digital assets their benefits, and useful applicable use cases. At the same time, there was also a hearing on ransomware by the Senate Judiciary Committee where crypto was examined and a meeting with the U.S. House Committee on Financial Services discussing Central Bank Digital Currencies (CBDCs.)
The meeting by the Senate Banking Committee opened up with a negative statement from committee chair Sen. Sherrod Brown who described digital assets and Defi as a “cottage industry,” stating this “funny money” is putting “Americans hard-earned money at risk.” It seems that Brown doesn’t realize that Bitcoin has a fixed supply and the U.S. dollar does not or perhaps that special interest money funding his career may be speaking at the podium.
“A cottage industry of decentralized financial schemes has also cropped up alongside these alternative financial products, in the hopes of creating a parallel financial system with no rules, no oversight, and no limits,” Brown said. ” They claim to enable ‘transparency.’ Their backers talk about the ‘democratization of banking,’ but there’s nothing ‘democratic’ or ‘transparent’ about a shady, diffuse network of online funny money.”
Witnesses for the hearing included — Angela Walch, Professor of Law at St. Mary’s University School of Law and a Research Associate at the UCL Centre for Blockchain Technologies; Jerry Brito, Executive Director at Coin Center; and Marta Belcher, who is Chair at the Filecoin Foundation.
Walch’s testimony stressed the “idealistic rather than realistic understanding” of the crypto-financial system. She said that it’s vital that policymakers have a realistic understanding of crypto.
“I consider flaws in academic, industry, and public understanding of cryptocurrencies can taint policy and risk decisions. Many of the “facts” that we “know” about crypto systems are simply wrong, and making decisions based on idealized versions of crypto systems instead of the realities embeds risk in every decision that is made.”
Walch provided a list of “problematic” terms surrounding the blockchain and digital asset space. These include — immutable, decentralized, trustless, secure, tamper-proof, and open/transparent to name a few words.
Walch also warned of increasing risk as the crypto industry becomes more weaved into traditional finance. Walch hypothesized a scenario in which a software bug in Ethereum “could ripple through those links to the traditional financial system.”
Senator Elizabeth Warren, who has become a strong vocal critic of the crypto industry even calling to put Bitcoin on trial, asked Walch if crypto could help the financial system.
“There is no question that our financial system needs change — big structural change — and we should be willing to consider how these new technologies can help that system,” said Warren, before asking Walch: “Has your research shown that crypto is decentralized in this way?”
Warren personally penned a letter to U.S. Treasury Secretary Janet Yellen yesterday that asked for a “coordinated and cohesive” cryptocurrency regulatory strategy.
One of the points that Warren argued in the letter was that DEFI developers were mostly anonymous and this could present “severe” risks to the country’s financial stability.
“Given that participants and project developers may remain anonymous, DeFi could present particularly severe financial stability risks. According to a 2019 Financial Stability Board report, decentralized financial technologies may raise new forms of concentration risks, unclear allocation of liability, and recovery and resolution challenges.”
What Warren fails to realize is the uncertainty around crypto, and lack of any oversight or comments about what token is and isn’t a security breed this dangerous landscape for investors.
In the letter, Warren further urged Yellen who also serves as the Chair of the Financial Stability Oversight Council (FSOC) to “act with urgency” and adopt an appropriate policy to address the risks posed by cryptocurrencies. “The longer that the United States waits to adapt the proper regulatory regime for these assets, the more likely they will become so intertwined in our financial system that there could be potentially serious consequences if this market comes under stress.”
The senator from Massachusetts added:
“I have become increasingly concerned about the dangers cryptocurrencies pose to investors, consumers, and the environment in the absence of sufficient regulation in the United States.”
Warren addressed similar concerns last month, during a hearing on the development of CBDCs.
Another witness, Belcher answered the Senate Banking Committee hearing’s title question, “what are cryptocurrencies used for?” Belcher stated that cryptocurrency can be the framework for a better Internet, “an alternative to big tech that puts people in control of their own data, protects user privacy and security, and permanently preserves humanity’s most important information.”
She added, “It allows instant and secure monetary value transfer globally, and it creates the ability to program money. This ability — to instantly, automatically send microtransactions across the world — can create economic incentives that enable entirely new technologies.”
The third witnesses testimony, Brito, expanded on some points made by Belcher addressing that cryptocurrency technologies have a vast number of use cases that “extend far beyond the cloistered circles of Silicon Valley and Wall Street.” In contrast, “cryptocurrencies’ technological innovations allow a much broader range of unique applications than traditional sovereign currencies could never provide.”
Some of the crypto applicable use cases that Brito declared would be beneficial to society included — digital payments, secure store of value, microtransactions and metering, and smart contracts.
“Allowing this technology to flourish can also help maintain the position of the United States as the home to global innovation,” Brito said. For that to happen, the ideal regulatory environment that both fosters innovation and adequately protects consumers must be considered. Brito finds that the regulatory regime in the US “goes in the right direction.”
Despite the usual negativity surrounding blockchain hearings, Kristin Smith, who serves on the Blockchain Association, noted the meeting had an increased understanding of the crypto industry.
“It’s very clear that members of the Senate Banking committee have become much more sophisticated in their understanding of cryptocurrency and crypto networks,” Smith said.“It’s very clear that members of the Senate Banking committee have become much more sophisticated in their understanding of cryptocurrency and crypto networks.”
Senator Brown, as an example, expressed: “Some of these underlying technologies may have useful applications, beyond evasion of banking and securities laws — those are generally applications outside of finance.” Brown went on to glorify Filecoin as an example of technology with a useful application.
Simultaneously the Senate Judiciary Committee held a hearing on responding to ransomware attacks discussing cryptocurrency as well.
The witnesses at this hearing were:
- Richard Downing, U.S. Department of Justice Deputy Assistant Attorney General, Criminal Division
- Bryan Vorndran, FBI Assistant Director, Cyber Division
- Eric Goldstein, Cybersecurity and Infrastructure Security Agency Executive Assistant Director
- Jeremy Sheridan, U.S. Secret Service Assistant Director
In his own opening statement for the hearing on ransomware titled: “America Under Cyber Siege: Preventing and Responding to Ransomware Attacks,” Chuck Grassley (R-IA) stated that “cryptocurrency was difficult to trace,” showcasing that he doesn’t understand that there are public and private ledgers.
Richard Downing of the U.S. Department of Justice also made the claim that privacy coins and the Tor network make it difficult to identify cybercriminals responsible for ransomware attacks.
“Many of these crimes involve anonymizing technologies, such as the Tor network and anonymity-enhanced cryptocurrencies, making it hard to identify perpetrators.”
Downing added that cryptocurrency had fueled a rise in crime. Moreover, enhancing the DOJ’s authority to track cryptocurrencies is “very much under consideration”:
“We do not have a current proposal to enhance our authority to track or interdict these kinds of things but it’s something that’s very much under consideration.”
Jeremy Sheridan of the U.S. Secret Service said that cryptocurrencies led to the growing profitability of hacking attacks like those carried out on software company Kaseya, meat supplier JBS, and the Colonial Pipeline.
Lindsey Graham (R-SC) asked Sheridan whether it would be harder to facilitate attacks if cryptocurrencies ceased to exist.
Sheridan responded that it would be more difficult for ransomware distributors to use traditional payment methods. However, in response to a similar question that was asked by Marsha Blackburn (R-TN), he replied that crypto makes it easier to track ransomware payments because they leave a digital trail referencing public ledgers.
Lastly, the U.S. House Committee on Financial Services held a hearing on Central Bank Digital Currencies under the ominous headline, “The Promises and Perils of Central Bank Digital Currencies.”
This meeting was co-hosted with the Subcommittee on National Security, International Development, and Monetary Policy headed by James Andrew Himes (D-CT.)
The witnesses included:
- Julia Coronado, MacroPolicy Perspectives President and Founder
- Yaya Fanusie, Center for a New American Security Adjunct Senior Fellow
- Julia Friedlander, Atlantic Council Senior Fellow and Deputy Director
- Andrew Levin, Dartmouth College Professor of Economics
- Robert M. Baldwin, Association for Digital Asset Markets Head of Policy
Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services opened the hearing with a statement about giving the Fed Reserve the tools it needs to achieve its mandate.
“The Federal Reserve is at the center of our response whenever the economy enters a recession, and thus, it is vital that our central bank has powerful tools to achieve its mandate. A central bank digital currency or CBDC is one potential tool.
In addition to economic matters, as the Fed considers CBDC adoption, Congress must also be mindful of how proposed models will affect the global influence of the U.S. dollar, advance efforts to fight financial crime, impact communities of color, enhance financial inclusion, and balance privacy with the transparency needed to defend the financial system from abuse,” Waters said.
One of the witnesses Julia Friedlander stated six key points. However, her first point is the one that stands out the most.
“First, eighty-one countries—representing over 90 percent of the global economy—are now exploring a CBDC. That is up from thirty-five countries in our original report published one year ago. In our research on and private conversations with central banks, it is clear COVID-19 has played an outsized role in spurring countries to act. The need to deliver an unprecedented fiscal and monetary stimulus with rapid speed led usually cautious central bankers to explore new avenues for innovation in payment systems. Exploration took off as CBDCs became a viable option for many countries.”
Friedlander also noted that five countries have already launched a CBDC, and fourteen were in the process of doing digital pilots. Further expressing that of the four most influential central banks (the Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England) the U.S. is the furthest behind research and development of a CBDC.
One of the most important things to mention about the hearing is that lawmakers asked the witnesses about the implications of surveillance on a digital dollar in the States and how it would function.
Congressman Patrick McHenry (R-NC) said that the U.S. would have to tussle with “privacy rights and civil liberties—something the Chinese don’t give a whit about,” when developing a CBDC. Another congressman Tom Emmer (R-MN) stated that a CBDC would only be beneficial if it was “open, permissionless and private.”
Emmer further elaborated:
“Any attempt to craft a CBDC that enables the Fed to provide retail bank accounts and mobilizes the CBDC into a surveillance tool able to collect all sorts of information on Americans would do nothing other than put the U.S. on par with China’s digital authoritarianism,” Emmer said.
The Federal Reserve is expected to release a detailed research paper on creating a Central Bank Digital Currency (CBDC) in August. The Federal Reserve is said to be working with various groups on the research into the development of CBDC including MIT, the Bank of International Settlements and many more organizations.
With three hearings in one day, there is little doubt that cryptocurrency and blockchain technology has gained the attention of regulatory authorities within the U.S. government. This reporter previously reported that various regulatory agencies including — the SEC, FinCEN, FINRA, and others — are actively watching the crypto sector planning regulation measures for the industry as a whole.
Bitcoin is currently trading at [FIAT: $39,824.81] UP +9.3% in the last 24 hours according to Coingecko at the time of this report.