Senate Committee Listens to Bitcoin Experts, Expresses Open-Mindedness
Expert Witnesses Ask Government to Enable Innovation
Today, a select group of U.S. officials and expert witnesses convened in Washington to discuss the current challenges facing law enforcement and regulatory agencies before the U.S. Senate Committee on Homeland Security and Governmental Affairs, in a hearing called “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies”.
Senator Tom Carper, a Democrat from Delaware and Chairman of the Homeland Security and Governmental Affairs Committee, presided over the hearing.
Bitcoin Like the Early Internet
Senator Carper opened his first question by comparing Bitcoin and digital currencies to the early days of the Internet. When the Internet was first growing in popularity, a lot of people jumped to concerns about cyber crimes, consumer protection, and privacy. But no one, at the time, could have imagined some of the achievements, from Google search to YouTube videos to connecting the world through social networks. Sen. Carper asked the first panel to comment on this comparison.
The panel, composed of representatives from FinCEN, the Attorney General, and the Secret Service, called the comparison relevant. There is a lot of innovation that can come from digital currencies. Governmental bodies need to stop crimes without stifling progress.
“We want to operate in a way that does not hinder innovation,” said Jennifer Shasky Calvery, Director of FinCEN, It’s important to “strike a balance,” she said.
Mythili Raman, Assistant Attorney General for the Criminal Division, added “virtual currency services in and of themselves are not illegal, so long as they obey laws.” She said that her group recognizes that there are legitimate uses of digital currency services.
Who Moves Faster? Criminals or Law Enforcement
Senator Carper also asked the panel how equipped and capable they felt in chasing digital currency criminals. “How confident are you that we will be able to deal with the potential criminal behavior in virtual currencies?” he asked. And, “What role does the legislative body have to play to make sure you have the resources you need?”
Edward Lowery of the Secret Service explained that law enforcement agencies have been successful in stopping virtual currency related crime. The Secret Service, in particular, has investigated many first-of-their-kind criminal activities.
Liberty reserve was called out as the largest money laundering case ever. Silk Road was mentioned as well.
Lowery made an important clarification that, although Bitcoin is in the spotlight, the predominant Eastern European cyber-criminals have not gravitated toward Bitcoin, but rather toward digital currency in locales with less aggressive laws.
Raman also asserted confidence. “We’re nimble and aggressive enough to keep up with the threat,” she said. But added that they are not ignorant to the challenges such as anonymity, working with other countries who have differing degrees of the law, and so on.
Bitcoin for Good
With so much emphasis on financial crimes, Sen. Carper asked for examples where digital currency has worked for the good?
Some of the examples provided included serving the unbanked or underbanked in our society through structures like stored value cards. Also online banking was called out as a way to make business more efficient and therefore better for the consumer.
Raman stated that there is “plenty of opportunity for virtual currency to operate within existing laws.” With respect to addressing financial crimes, we just need to “keep pace” and “remain vigilant.”
Bitcoin Experts Encourage Government to Build Supportive Environment for Innovation
In the second panel, Bitcoin experts from the Bitcoin Foundation, Circle, and George Mason University commented on what was needed to encourage innovation and consumer protectionism.
Patrick Murck, General Counsel for the Bitcoin Foundation, gave an overview of Bitcoin in his opening statement, calling it “like email for money” and “programmable cash.” He emphasized that while we think about Bitcoin as solely a currency now, it could have wide-spread benefits to non-financial services applications like identity verification and property management.
Murck said that Bitcoin can reduce exploitation of underbanked people, even in the U.S. where financial exclusion is a problem. “Access to financial services directly correlates to increases in dignity and self-liberation,” said Murck. Bitcoin can help move people from being unconnected to connected via the digital economy.
Law enforcement may need to develop new methodologies, Murck said while at the same time complimenting the examples of success in adapting to increasingly digital and connected world.
Murck said that the Bitcoin Foundation is “looking beyond the Silk Road,” adding that the markets (the price of Bitcoin) expressed relief when the Silk Road owner and operator was arrested.
Related: The Fall of Silk Road
Who is Bitcoin?
There was some confusion expressed by Sen. Carper about who originally created Bitcoin and who manages it.
“It wasn’t Al Gore, was it?” joked Carper, to which Jerry Brito from the George Mason University Mercatus Center jested back, “he hasn’t denied it!”
Fundamentally, Sen. Carper wanted to know what the risk was in that the original author of Bitcoin, Satoshi Nakimoto, has remained anonymous.
Mr. Murck explained that the Bitcoin Foundation exists to serve the Bitcoin ecosystem, but there is no Bitcoin company.
Bitcoin is decentralized and therefore is inherently transparent, making it difficult for sustained illicit behavior.
While everyone is grateful for the work of Satoshi Nakimoto, said Mr. Murck, more than half of the original codebase has been rewritten. Mr. Brito added that because the protocol is open-source, some of the top technical minds have scrutinized it.
“At the moment, whoever Satoshi is seems largely irrelevant.” said Mr. Murck, adding that maybe that was by design.
Jeremy Allaire adds the Entrepreneur’s Perspective
Jeremy Allaire, veteran entrepreneur and CEO of the newly formed Circle Internet Financial, provided a perspective on the challenges of growing new Bitcoin businesses.
Mr. Allaire confidently asserted that digital currency, and Bitcoin in particular has the potential to decrease business costs, decrease fraud risk, and increase consumer privacy. In short, it’s a game-changer.
He added, “it’s important that federal authorities understand how [Bitcoin] works.”
Mr. Allaire explained that the Internet had been at the center of global innovation in recent decades, especially thanks to open platforms, but financial services have been largely insulated until now. “The same level of advancement can be achieved with Bitcoin,” said Allaire.
For his part, Mr. Allaire’s new high profile startup, Circle, intends to fully comply with all applicable laws, has registered with FinCEN and is applying for licenses with states.
Mr. Allaire suggested that there are risks of not moving fast enough as regulators. While US regulators and law enforncement are justifyable focused on bad actors, there is “also a risk if government doesn’t enable new startups to drive financial services innovation.” The US could fall behind on innovation, he said, explaining that the largest Bitcoin exchanges are now in China and Europe.
Regulatory Tools are Sufficient
It seemed like the areas of greatest agreement were three-fold.
First, everyone on the panel agreed that Bitcoin has the potential for incredible innovation. Second, regulatory bodies must understand the digital currency in a swift manner. And third, the existing regulatory tools are sufficient to govern the use of Bitcoin.
Mr. Murck gave an example of how businesses that even have the word “Bitcoin” in their description are getting bank account applications rejected due to fear and uncertainty about a currency that is only 4 years old.
Mr. Brito compared Bitcoin to 3D printing, saying that 3D printing can be used for good, but it can also be used to create illicit guns. We must understand that the positives outweigh the risks.
With respect to the financial services regulation as it exists, Mr. Allaire acknowledged that the “bar needs to be higher for financial services in the U.S.” He compared the creation of a Bitcoin exchange to a photo sharing app like Instagram. “It’s not appropriate for it to be as easy for financial services,” said Allaire, explaining that Circle raised the appropriate capital upon launch to secure licenses and hire experts.
Mr. Murck made reference to the reciprocity framework in the EU, offering that legislators could look at that as a model. This framework allows businesses to more swiftly get licensed in an EU country if they have been licensed by at least one EU country already.
Wrapping Up: Quoting Einstein and Mrs. Einstein
In closing the two-panel session, Senator Tom Carper quoted Albert Einstein and his wife
Einstein was known to have said, “in adversity lies opportunity,” which Sen. Carper felt was an apt analogy to the current state of Bitcoin.
With respect to his own understanding of the digital currency, he quoted Mrs. Einstein who, when asked of her familiarity with her husband’s work on relativity, responded, “I understand the words, but not the sentences.”
Senator Carper said that he is trying to understand and wants to find solutions that minimize the bad while maximizing the good.
You can watch the 2.5 hour session in entirety on C-SPAN.
The price of Bitcoin rose sharply to $650 following the conclusion of this public hearing.