US Congress unanimously agrees that cryptocurrency is complicated
Congress has a momentous responsibility to help shape Internet 4.0, but it's not really feeling it.
A pair of hearings on cryptocurrency wound through the US government on 18 July, one in the form of a US House of Agriculture public hearing, and one in the form of a US Congressional Subcommittee on Monetary Policy and Trade.
A lot of different perspectives were on display, but all participants unanimously agreed that cryptocurrency is pretty complicated.
One of the first challenges might have been giving a quick crypto rundown for a confused audience, explaining what everyone was doing there and what they were expected to do after listening to all that talk about blockchains and digital assets.
Amber Baldet, former JPMorgan blockchain program manager, Zcash board member and founder of Clovyr, rose to the challenge.
"Email allows you to send a digital version of a birthday card to a grandchild instantly. Cryptocurrency like Bitcoin gives you the ability to put the digital equivalent of ten dollars inside that card," she explained.
And the reason everyone was there that day, she said, was to be cognisant of the need to lay fresh groundwork for the next generation of technology and to be aware of the impacts their decisions can have.
"Imagining a mature, interconnected global ecosystem of such markets feels like standing in the 90s, looking at a pre-World Wide Web electronic bulletin board system and trying to imagine Netflix streaming on your phone. The prospect seems so fanciful as to be impossible, but here we are," Baldet said.
"Everything old is new again, and we are at the precipice of the same concerns for cryptoasset networks as for the Internet," Baldet said. "The difference, of course, is that we did not previously need to decide if every e-mail message was possibly a security with potential for capital gain and loss, or report the number of emails we sent on our tax returns.
"The discussion today concerns the financial classification of the assets that cross the wires, which is important, but cannot be completely decoupled from the treatment of the Internet.
"It's not just about our banking sector, not just corporate supply chains, not just consumer payment rails, but how all these things might be connected both here and abroad to reduce friction and open new possibilities for economic growth. It is recognition that we are building next-generation systemically important infrastructure for the American economy. It's also about learning 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."
The gist is that it's quite clear by now that distributed ledger technology is here to stay, and that there's very real potential in decentralised currencies, asset tokenisation and everything else the technology can bring.
And because the technology crosses so many industries, Baldet says, it's not enough to explore it from the perspective of a financial product, a currency or any other single thing. It crosses into the physical Internet, data transfer laws, regulations around encryption, financial regulations and everything else. As such, it might be helpful to explore it from the perspective of how to regulate the Internet as a whole and to consider it as a technically quite similar, and equally impactful, development.
"The peer-to-peer protocols which underpin cryptoasset networks are not much different than those that underpin the Internet; they are just rules for how to route bits and bytes. They do not care about the legality or morality of what crosses the wire and can be used in service of business as usual, political action, commission of crimes, facilitating human rights, or sharing funny photos of cats."
As such, it's important for politicians to lean into the technology with eyes wide open and step meaningfully.
Baldet also noted the diversification benefits of decentralised digital assets, and chided the idea of currency being a zero-sum game where bitcoin and the US dollar can't live side by side.
"There is no technical reason we cannot have both centralised (FedCoin-like) and decentralised (Bitcoin-like) digital assets in circulation, to provide consumer choice and allow risk diversification," she said. "Going forward, I encourage more discussion of strongly encrypted, privacy-preserving digital currencies coupled with opt-in selective disclosure, as opposed to options like mandatory cryptographic backdoors or "golden keys," which make our systems attractive targets for nation-state sponsored cyberattacks and hackers."
In a nutshell, it's about laying the groundwork for a brand new system where assets of any kind can fluidly and instantly move around the world and be manipulated as needed.
It's not (entirely) about regulating some new asset class, fighting money laundering, protecting consumers or stopping dark web drug deals. The big picture is about building a whole new digital world.
It's an inspiring sentiment, but the response from many representatives was anything but.
Having once described crypto as "popular with guys who want to sit on their couch and tell their wives they are going to be millionaires," Rep. Brad Sherman now took the opportunity to declare that congress should "prohibit US persons from buying or mining cryptocurrencies."
"Mining alone uses electricity which takes away from other needs or adds to the carbon footprint. As a store, as a medium of exchange, cryptocurrency accomplished nothing except facilitating narcotics trafficking, terrorism and tax evasion."
Apparently, Sherman won't be on board until someone finds a way to build Internet 4.0 without consuming any energy.
Others were more politely befuddled.
"We're creating another money supply here as I see it. I just don't know how that works," said Rep. Rick Allen. "Our dollar sets the mark for the world. I can't visualise how this would work."
"There's a lot of things here that don't make much sense to me," agreed Rep. Collin Peterson. "Over 80% of the initial coin offerings are scams" he helpfully added.
I'm just "a flip phone guy in a bitcoin world," lamented Rep. Doug LaMalfa.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.