Coinbase, Circle and Overstock Testify on Bitcoin in New York to Persuade Regulators
“In a rapidly evolving landscape, the goal of digital currency regulation is to make sure this technology, like the Internet in the 90s, is allowed to flourish and bring all of it’s great efficiencies to the world in a safe manner.” — Fred Ehrsam, co-founder of Coinbase
The New York State Department of Financial Services conducted two days of hearings (January 28th and 29th) on virtual currencies.
The first day featured investors in Bitcoin companies and the second day heard testimony from entrepreneurs and legal experts. Video of the testimony recorded is available online for free viewing.
In this article, we recap a panel on the second day called Virtual Currency Commerce and Consumer Protections, Bitcoin’s interests were represented by entrepreneurs and industry leaders:
- Fred Ehrsam, co-founder of Coinbase, a bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin;
- Jeremy Allaire, Founder, Chairman & CEO of Circle, a financial services company developing products that make it easy for consumers and businesses to exchange, store, send and receive digital currencies; and
- John Johnson of Overstock.com, a discount online shopping retailer based in Salt Lake City, Utah that sells a broad range of products including furniture, rugs, bedding, electronics, clothing, jewelry and cars.
In the opening statements, Ehrsam stated that in a “rapidly evolving landscape” the goal of digital currency regulation “is to make sure this technology, like the internet in the 90s, is allowed to flourish and bring all of it’s great efficiencies to the world in a safe manner.” He referred to Bitcoin as an “extremely powerful technology” and stated that Coinbase’s goal is “to bring the efficiencies created by the Bitcoin network to the masses.” Ehrsam lauded Bitcoin’s ability to transfer and prove ownership without a third party.
Circle Internet Financial CEO Jeremy Allaire’s opening statement listed the many benefits of digital currency: a significantly lower cost than credit card companies, a powerful open platform, global in scope, and nearly instant, verifiable transactions.
Allaire acknowledged that there are currently many risks associated with bitcoin, such as price volatility as well as a lack of consumer protections and safe guards around the theft of digital assets.
Executive Vice Chairman of Overstock.com Jonathan Johnson recounted that in early January, Overstock.com became the first major online retailer to accept bitcoin as payment for merchandise. On the first day, Overstock.com transacted 700 sales ($130,000) in bitcoin, and as of January 29th had recorded $600,000 of sales with 3000 customers, many of whom were new to Overstock.com.
What Does the Future Hold for Bitcoin?
Panelists were asked where they envision Bitcoin in a year. Eshram called Overstock.com “a great beacon” for the future adoption of Bitcoin, and he cited a demographic shift in Coinbase.com’s user base away from an early tech adopter crowd to one more representative of the mainstream.
Pictured above: executives from Coinbase, Circle and Overstock.com testify in New York
Allaire stated that Bitcoin is entering a phase of being a commercially viable option. He anticipates that as the utility value of bitcoin increases then people who have bought bitcoin, and are holding bitcoin, will stop holding and begin to spend more freely. Allaire stated that lack of clarity around regulation as potentially limiting to Bitcoin’s adoption. He listed potential pitfalls for Bitcoin: IRS tax issues, money laundering and anonymity issues.
Overstock.com stated that in a year, they hope that some suppliers are accepting bitcoin so as to be able to hold and spend bitcoin instead of immediately converting the crypto-currency to USD. Johnson said that, “as adoption increases, at some point we’ll reach a tipping point.
Is Bitcoin Really Anonymous?
The question of anonymity was addressed with all panelists saying that overall anonymity is not an issue. Allaire stated that Circle is heavily invested in compliance networks but emphasized the importance of a level of anonymity in order to prevent spying. Allaire explained that, without appropriate safeguards, the use of personal identifiable information could be used in ways that consumers may not want.
On the question of market volatility, all panelists envisioned that, with a shift away from speculation and towards commercial transactions, crypto-currency price stability would occur over time.
Allaire stated that for price stability, the “single most important thing we can do is get some serious exchanges established here in New York that are focused on being mature trading platforms that are able to be used both by retail investors but also by large institutional participants.” When this occurs, “We will see greater volume, greater liquidity, more sophisticated pricing tools, derivatives, hedging, etc which will allow price volatility to subsist a great deal.”
The NYDFS said that viewers from 108 different countries had watched the panel discussions on Bitcoin, and asked the panelists about the specific challenges businesses face due to the nature of a global market. The panelists said that regulation between states and countries is presently limiting the adoption of Bitcoin. Allaire said that digital currency is one of the first major Internet driven technology issues that will require collaboration on a world wide basis. Digital currency will require a degree of coordination in order to take hold. Overstock.com said they currently only accept bitcoin within the United States.
Coinbase said that a scaling of requirements of state legislation is important in digital currency adoption. Allaire said that states are using outdated rules on transactions that do not account for the Internet. There was a call from the panelists for a common licensing model and examination to be established throughout the states. Allaire encouraged legislatures to have a “forward leaning posture.”
Overstock.com said that the greatest risk in using virtual currency is presently liquidity. Johnson said that the question is “Will bitcoin be immediately exchangeable for dollars?” Right now through a partnership with Coinbase, Johnson said, the answer is yes.
Can a bank or corporation go and create their own version of Bitcoin? The panel said this is highly unlikely. Bitcoin is an open protocol, which has allowed it to be peer reviewed for years. In a way the world has never seen before, no one owns Bitcoin, and, no one controls it. An institute trying to replicate it wouldn’t have the same impact as Bitcoin.
The panel stated that they would like banks and insurance companies to become involved in Bitcoin. However, Allaire said that established banks have very little interest in Bitcoin adoption due to its murky Silk Road history, but he did not feel it was an issue of risk. The panelists predicted that it will take awhile for the risk industry to be willing to get on board.
All panelists compared Bitcoin’s potential to that of the Internet in the 90s and expressed a hope that, with a growing global awareness, regulation doesn’t inhibit the “enormous potential” of the Bitcoin network but will instead put the necessary foundations in place to prevent crime, protect consumers and allow Bitcoin to thrive. The decisions made by the New York State Department of Financial Services will influence and set precedent for the way the rest of the United States deals with regulating digital currencies.
CC image by aa7ae.