    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

        THE DISRUPTER SERIES: DIGITAL CURRENCY AND BLOCKCHAIN TECHNOLOGY

    =======================================================================

                                    HEARING

                                   BEFORE THE

               SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 16, 2016

                                   __________

                               Serial No. 114-126

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Chairman Emeritus                    Ranking Member
    ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
    GREG WALDEN, Oregon                  GENE GREEN, Texas
    TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
    MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
    MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
      Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
    ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
    CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
    GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            JERRY McNERNEY, California
    BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
    PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
    DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
    MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
    ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
    H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
    GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
    BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III,
    BILLY LONG, Missouri                 Massachusetts
    RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
    LARRY BUCSHON, Indiana
    BILL FLORES, Texas
    SUSAN W. BROOKS, Indiana
    MARKWAYNE MULLIN, Oklahoma
    RICHARD HUDSON, North Carolina
    CHRIS COLLINS, New York
    KEVIN CRAMER, North Dakota

                                     7_____

               Subcommittee on Commerce, Manufacturing, and Trade

                           MICHAEL C. BURGESS, Texas
                                     Chairman
                                         JANICE D. SCHAKOWSKY, Illinois
    LEONARD LANCE, New Jersey              Ranking Member
      Vice Chairman                      YVETTE D. CLARKE, New York
    MARSHA BLACKBURN, Tennessee          JOSEPH P. KENNEDY, III,
    GREGG HARPER, Mississippi                Massachusetts
    BRETT GUTHRIE, Kentucky              TONY CARDENAS, California
    PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
    MIKE POMPEO, Kansas                  G.K. BUTTERFIELD, North Carolina
    ADAM KINZINGER, Illinois             PETER WELCH, Vermont
    GUS M. BILIRAKIS, Florida            FRANK PALLONE, Jr., New Jersey (ex
    SUSAN W. BROOKS, Indiana                 officio)
    MARKWAYNE MULLIN, Oklahoma
    FRED UPTON, Michigan (ex officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, opening statement..............................     1
        Prepared statement...........................................     3
    Hon. Tony Cardenas, a Representative in Congress from the State
      of California, opening statement...............................     4
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     5
        Prepared statement...........................................     6
    Hon. Fred Upton, a Representative in Congress from the State of
      Michigan, prepared statement...................................   100

                                   Witnesses

    Jerry Brito, Executive Director, Coin Center.....................     7
        Prepared statement...........................................    10
    Juan Suarez, Counsel, Coinbase, Inc..............................    20
        Prepared statement...........................................    22
    Jerry Cuomo, Vice President, Blockchain Technologies, IBM........    35
        Prepared statement...........................................    37
    Paul Snow, Chief Architect and Co-Founder, Factom, Inc...........    47
        Prepared statement...........................................    49
    John Beccia, General Counsel and Chief Compliance Officer, Circle
      Internet Financial.............................................    53
        Prepared statement...........................................    55
    Dana V. Syracuse, Counsel, BuckleySandler, LLP...................    64
        Prepared statement...........................................    66
    Matthew Roszak, Chairman, Chamber of Digital Commerce, and Co-
      Founder, Bloq, Inc.............................................    74
        Prepared statement...........................................    76

                               Submitted Material

    Letter of March 14, 2015, from Ryan Zagone, Director of
      Regulatory Relations, Ripple, to Mr. Upton and Committee
      Members, submitted by Mr. Burgess..............................   101

        THE DISRUPTER SERIES: DIGITAL CURRENCY AND BLOCKCHAIN TECHNOLOGY

                                  ----------

                           WEDNESDAY, MARCH 16, 2016

                      House of Representatives,
    Subcommittee on Commerce, Manufacturing, and Trade,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 11:50 a.m., in
    room 2123 Rayburn House Office Building, Hon. Michael C.
    Burgess (chairman of the subcommittee) presiding.
        Members present: Representatives Burgess, Lance, Bilirakis,
    Brooks, Schakowsky, Cardenas, and Pallone (ex officio).
        Staff present: Leighton Brown, Deputy Press Secretary;
    James Decker, Policy Coordinator, Commerce, Manufacturing, and
    Trade; Graham Dufault, Counsel, Commerce, Manufacturing, and
    Trade; Melissa Froelich, Counsel, Commerce, Manufacturing, and
    Trade; Giulia Giannangeli, Legislative Clerk; Paul Nagle, Chief
    Counsel, Commerce, Manufacturing, and Trade; Olivia Trusty,
    Professional Staff Member, Commerce, Manufacturing, and Trade;
    Dylan Vorbach, Deputy Press Secretary; Michelle Ash, Democratic
    Chief Counsel, Commerce, Manufacturing, and Trade; Christine
    Brennan, Democratic Press Secretary; Jeff Carroll, Democratic
    Staff Director; Caroline Paris-Behr, Democratic Policy Analyst;
    Timothy Robinson, Democratic Chief Counsel; Diana Rudd,
    Democratic Legal Fellow; and Matt Schumacher, Democratic Press
    Assistant.
        Mr. Burgess. The Subcommittee on Commerce, Manufacturing,
    and Trade will now come to order. I will recognize myself 5
    minutes for the purposes of an opening statement.

    OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
                  IN CONGRESS FROM THE STATE OF TEXAS

        I want to welcome all of our witnesses. Good morning, and
    welcome to the next hearing in our Disrupter Series. Today we
    will be examining digital currency and blockchain technology.
    This technology has the potential to disrupt a whole host of
    industries from financial services to manufacturing, supply
    chain management, and to health care records, by infusing
    transparency and trust in traditionally closed systems.
        This is a new technology. The White Paper describing the
    first public blockchain application, Bitcoin, was published in
    2009, and already there has been a billion dollars in capital
    investment over 1,000 firms, most of which are startup
    companies.
        Having seen the development of email, development of the
    Internet, transitioning of the United States economy to the
    digital space in the last two-and-a-half decades, I am
    interested to hear from our panel about what the development of
    blockchain technology means for the next 25 years of global
    commerce.
        Bitcoin is the best-known digital currency and a good case
    study for the disruptive nature of the blockchain. The Federal
    Reserve Bank of Chicago highlighted how Bitcoin's blockchain
    solves two basic issues with digital currency, by controlling
    the creation and avoiding its duplication. Bitcoin limits an
    individual's ability to copy and paste new money files to
    double spend--we do that in the Federal Government sometimes--
    to double-spend digital wealth through advanced cryptographic
    signatures.
        The solution Bitcoin presents to currency may also be
    applied to other asset cases, including intellectual property,
    mortgages, and other property records. In a way, it provides a
    way to create singular possession online, mimicking possession
    in the physical world, but with a transparent and immutable
    ledger recording of the possession along the way.
        While there have been issues through the development and
    growth of Bitcoin, including some of the Mt. Gox issues, the
    technology has withstood the stress of growth to date. In the
    same way that the Internet has transformed communications, the
    adoption of blockchain technology has the potential to disrupt
    digital asset transfers.
        Cyber security is at the forefront of this subcommittee's
    activities in this Congress. It is fascinating to see the
    possibility of another technological revolution on the horizon
    that could help address the trust and security issues that are
    a daily challenge for individuals and companies in every sector
    of the United States economy.
        However, to serve as an alternative to today's settlement
    mechanisms, the technology must demonstrate the scaleability
    needed to handle the volumes of transactions to flow through
    United States firms on a daily basis. I do hope our panelists
    will discuss their work and address the concerns about the
    viability of the blockchain moving forward.
        I have heard about many potential use cases for this
    technology, including digital health records, where security
    and immutability are necessities. I would be interested to hear
    how blockchain technology could help individuals gain control
    over their health records and transparency into how those
    records are created and shared.
         Today's witnesses represent a variety of interests in
    digital currency and blockchain technology industries. We will
    hear about what consumers can do today using digital currency.
    We will also hear about consumer protection issues that may
    develop. Even more exciting is the potential for consumer
    benefits that have yet to be realized for the firms that
    leverage the blockchain.
        Currently, a number of regulatory bodies at the State and
    Federal level have weighed in or are considering action around
    Bitcoin and other blockchain applications. While there are
    serious concerns to be addressed with the anti-money laundering
    effects for digital currency, we should also be cognizant of
    the future applications of the blockchain technology that may
    improve transparency in both the public and private sectors.
    These future applications could be stifled if the regulatory
    environment becomes too burdensome on small companies trying to
    leverage this new technology.
        Once again, I want to thank all of our witnesses for taking
    time to inform and educate us about the applications and future
    potential of digital currency and blockchain technology. I
    certainly look forward to a thoughtful and engaging discussion.
        [The prepared statement of Mr. Burgess follows:]

                 Prepared statement of Hon. Michael C. Burgess

        Good morning and welcome to the next hearing in our
    Disrupter Series. Today we will be examining digital currency
    and blockchain technology. This technology has the potential to
    disrupt a whole host of industries from financial services to
    manufacturing supply chain management to health care records by
    infusing transparency and trust into traditionally closed
    systems.
        This is an incredibly new technology--the whitepaper
    describing the first public blockchain application, Bitcoin,
    was published in 2009. And already there has been $1 billion in
    capital investment to over a thousand firms, most of which are
    start-ups.
        Having seen the development of email, the Internet, and the
    transitioning of the U.S.'s economy to the digital space in the
    last two and a half decades, I am interested to hear from our
    panel about what the development of blockchain technology means
    for the next 25 years of global commerce.
        Bitcoin is the best known digital currency and as a good
    case study for the disruptive nature of the blockchain. The
    Federal Reserve Bank of Chicago highlighted how Bitcoin's
    blockchain solves the two basic issues with digital currency:
    controlling its creation and avoiding its duplication. Bitcoin
    limits individual's ability to copy and paste new ``money
    files'' to double spend or accumulate ``digital wealth''
    through advanced cryptographic signatures. The solution Bitcoin
    presents to currency may also be applied to other asset cases
    including intellectual property, mortgages, and other property
    records. In a way--it provides a way to create singular
    possession online, mimicking possession in the physical world,
    but with a transparent and immutable ledger recording the
    possession along the way.
        While there have been issues through the development and
    growth of Bitcoin, including the Mt. Gox issues, the technology
    has withstood the stress of growth to date. In the same way
    that the Internet transformed communications, the adoption of
    Blockchain technology has the potential to disrupt digital
    asset transfers. Cybersecurity is at the forefront of this
    subcommittee's activities this Congress. It is fascinating to
    see the possibility of another technological revolution on the
    horizon that could help address the trust and security issues
    that are a daily challenge for individuals and companies in
    every sector of the US economy.
        However, to serve as an alternative to today's settlement
    mechanisms the technology must demonstrate the scalability
    needed to handle the volume of transactions that flow through
    U.S. firms on a daily basis. I hope the panelists will discuss
    their work to address concerns about the viability of the
    blockchain moving forward.
        I have heard about many potential uses cases for this
    technology, including for digital health records, where
    security and immutability are necessities. I would be
    interested to hear how blockchain technology could help
    individuals gain control over their health records and
    transparency into how those records are created and shared.
        Today's witnesses represent a variety of interests in
    digital currency and Blockchain technology industries. We will
    hear about what consumers can do today using digital currency.
    We will also hear about consumer protection issues that may
    develop. Even more exciting is the potential consumer benefits
    that have yet to be realized for firms that leverage the
    blockchain.
        Currently, a number of regulatory bodies at the State and
    Federal level have weighed in, or are considering action,
    around Bitcoin or other blockchain applications. While there
    are serious concerns to be addressed with anti-money laundering
    efforts for digital currency, we should also be cognizant of
    future applications of the blockchain technology that may
    improve transparency in both the public and private sector.
    These future applications could be stifled if the regulatory
    environment becomes too burdensome on small companies trying to
    leverage this new technology.
        I thank the witnesses for taking the time to inform us
    about the applications and future potential of digital currency
    and blockchain technology. I look forward to a thoughtful and
    engaging discussion.

        Mr. Burgess. I will yield back my time and recognize Mr.
    Cardenas of California as the ranking member of the
    subcommittee.

     OPENING STATEMENT OF HON. TONY CARDENAS, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Cardenas. Thank you very much, Mr. Chairman. I would
    like to thank all the witnesses for coming forward today to
    help enlighten us about your views on what we are going to talk
    about in this hearing today. In this hearing, we are looking at
    digital currency and blockchain terms that don't often enter
    every conversations. Although with today's Metro shutdown, the
    ride-hailing services using the blockchain may have helped
    people get here to work today.
        As we continue this subcommittee's Disrupter Series, we
    again run into the same key question--how must yesterday's
    rules evolve to fit today's technology. Digital currency like
    Bitcoin lacks many of the features we usually associate with
    traditional money like the U.S. dollar. It doesn't come in
    paper bills. It is not issued or guaranteed by a Government.
    Electronic transactions with digital currency may not require a
    bank to serve as an intermediary.
        Digital currency has not been widely adopted in part
    because it has several changes. Digital currencies lack some of
    the protections provided for more traditional financial
    products. The value of currencies like Bitcoin has fluctuated
    wildly. Few merchants accept them at this point. Meanwhile,
    digital currencies have become associated with illegal
    transactions such as money laundering, ransomware, and the sale
    of illicit goods and services.
        If digital currencies are to be widely accepted at
    legitimate payments, they need to provide sufficient safeguards
    for their users, and they need to come under an adequate
    regulatory regime to address unlawful use, particularly in
    terms of money laundering and financing of terrorism. But
    digital currency is really just our entry point for discussion
    of a more fundamental innovation--blockchain.
        Blockchain is this concept of a digital public ledger to
    track transactions. It is an innovation that can have many
    different applications. Blockchain could have many other
    applications beyond digital currency. Proponents talk about
    blockchain's ability to cut out intermediaries. In some cases,
    this could be helpful.
        At the same time, we need to think about what we may be
    losing in the process of cutting out this middleman. For
    example, in financial transactions, the middleman is the bank,
    and banks have rules and reporting requirements they must
    follow to prevent money laundering and financing of terrorism.
    If the bank is cut out, we need alternative means to detect
    such activity.
        While blockchain is theoretically transparent as an open
    ledger, permissioned blockchain, where the ledger is private or
    invitation-only, could potentially enable anti-competitive
    activity. These are not arguments against blockchain. Rather,
    they are challenges for developers to address as innovation
    moves forward. Developers have a responsibility to protect user
    privacy, stop fraud, and prevent use of their products for
    illegal activity.
        Carrying out these responsibilities may look different than
    it did for earlier products, but let's be clear. Compliance
    with rules to protect consumers or protect our security is not
    an inconvenience. It is a necessary part of participating in
    our economy. One of our roles on the subcommittee is to wrestle
    with how new technology affects consumers and interests with
    the law.
        States are already figuring out how to regulate these new
    products and markets. Federal agencies are monitoring digital
    currency markets. These efforts require understanding the
    unique attributes of these new technologies. As we start
    examining this new space, I hope our witnesses can help inform
    our discussion and provide answers on not only how blockchain
    can be used but also how these uses interact with rules to
    protect consumers and protect security.
        With that, I welcome our witnesses, and I look forward to
    the testimony today.
        Mr. Burgess. The Chair thanks the gentleman. The gentleman
    yields back.
        The Chair recognizes the gentleman from New Jersey, Mr.
    Pallone, 5 minutes for your opening statement, please.

    OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF NEW JERSEY

        Mr. Pallone. Thank you, Chairman Burgess. While some
    members surely have heard of Bitcoin, few have likely heard of
    the recordkeeping software underpinning it called blockchain.
    Today we will have the opportunity to explore the benefits and
    risks of using crypto-currency sometimes referred to as virtual
    or digital currencies. We also will get an understanding of the
    benefits and risks of the blockchain for financial and
    nonfinancial uses.
        Whether using Bitcoin, the most well-known and widely used
    crypto-currency, or another one, peer-to-peer digital
    transactions have the potential to reduce fees and wait times
    for consumer purchases. In addition, crypto-currencies can
    offer advantages to underbanked and unbanked populations,
    especially in regions where state-backed currency is
    consistently unstable and traditional financial services are
    less accessible. They also may offer users increased privacy in
    comparison to traditional payment methods.
        However, at the same time crypto-currencies raise important
    issues that should be explored, they are not legal tender, and
    their value is not guaranteed by any central authority.
    Therefore, they have proven to be vulnerable to price
    volatility, deflation, and hacking. In addition, many existing
    consumer protections, such as requirements that banks have
    systems in place to limit consumer loss and detect money
    laundering, may not apply to crypto-currencies.
        For example, current law ensures that you are not
    responsible for unauthorized credit card charges over $50. No
    such protections exist for purchases made with crypto-currency.
    Also, digital payments can be irreversible, making simple
    consumer transactions like returns and chargebacks more
    complicated or impossible.
        While originally created for crypto-currency, the
    recordkeeping technology, blockchain, has gained enormous
    interest in the last few years with more than $1 billion raised
    in venture capital so far. In the financial sector, firms are
    looking at placing stock and bond trades on the blockchain. In
    the nonfinancial arena, the full range of possibilities may be
    endless. Blockchain is being tested for possible applications
    in health care, green energy, copyright, and voting, to name a
    few.
        The blockchain can automate contracts, making them faster
    to complete. They can increase transparency in property rights
    disputes and help protect intellectual property. And, in many
    sectors, the blockchain may improve privacy protections, reduce
    human error, and lower administrative costs.
        Just as with crypto-currencies, blockchain raises important
    issues for us to explore. Some experts have pointed out that
    permission blockchains, in which only vetted and approved users
    can participate, may use anti-competitive tactics or price-
    fixing that would violate antitrust regulations. Others have
    suggested that the blockchain is too rigid for many potential
    applications. It does not include the necessary flexibilities
    to ensure consumers have basic rights, such as the ability to
    resolve disputes.
        So I just want to reiterate that consumer protections must
    be considered as these new technologies are developed. I look
    forward to hearing from all of our witnesses about the current
    and future uses of crypto-currencies and the blockchain, and
    the consumer protections that go with them hand in hand.
        And, again, Mr. Chairman, I thank you, and I yield back the
    balance of my time.
        [The prepared statement of Mr. Pallone follows:]

                 Prepared statement of Hon. Frank Pallone, Jr.

        Thank you, Chairman Burgess. While some members surely have
    heard of Bitcoin, few have likely heard of the recordkeeping
    software underpinning it called the blockchain.
        Today we will have the opportunity to explore the benefits
    and risks of using cryptocurrencies, sometimes referred to as
    virtual or digital currencies. We also will get an
    understanding of the benefits and risks of the blockchain, for
    financial and nonfinancial uses.
        Whether using Bitcoin, the most well-known and widely used
    cryptocurrency, or another one, peer-to-peer digital
    transactions have the potential to reduce fees and wait times
    for consumer purchases. In addition, cryptocurrencies can offer
    advantages to underbanked and unbanked populations, especially
    in regions where state-backed currency is consistently unstable
    and traditional financial services are less accessible. They
    also may offer users increased privacy in comparison to
    traditional payment methods.
        However, at the same time, cryptocurrencies raise important
    issues that should be explored. They are not legal tender, and
    their value is not guaranteed by any central authority.
    Therefore, they have proven to be vulnerable to price
    volatility, deflation, and hacking.
        In addition, many existing consumer protections, such as
    requirements that banks have systems in place to limit consumer
    loss and detect money laundering, may not apply to
    cryptocurrencies. For example, current law ensures that you are
    not responsible for unauthorized credit card charges over $50.
    No such protections exist for purchases made with
    cryptocurrency. Also, digital payments can be irreversible,
    making simple consumer transactions like returns and
    chargebacks more complicated or impossible.
        While originally created for cryptocurrency, the record-
    keeping technology--blockchain--has gained enormous interest in
    the last few years, with more than one billion dollars raised
    in venture capital so far. In the financial sector, firms are
    looking at placing stock and bond trades on the blockchain. In
    the nonfinancial arena, the full range of possibilities may be
    endless--blockchain is being tested for possible applications
    in health care, green energy, copyright, and voting, to name a
    few.
        The blockchain can automate contracts, making them faster
    to complete. They can increase transparency in property rights
    disputes and help protect intellectual property. And in many
    sectors, the blockchain may improve privacy protections, reduce
    human error, and lower administrative costs.
        Just as with cryptocurrencies, blockchain raises important
    issues for us to explore. Some experts have pointed out that
    permissioned blockchains, in which only vetted and approved
    users can participate, may use anticompetitive tactics or price
    fixing that would violate antitrust regulations. Others have
    suggested that the blockchain is too rigid for many potential
    applications, and does not include the necessary flexibilities
    to ensure consumers have basic rights such as the ability to
    resolve disputes.
        I want to reiterate that consumer protections must be
    considered as these new technologies are developed. I look
    forward to hearing from all of our witnesses about the current
    and future uses of cryptocurrencies and the blockchain and the
    consumer protections that go with them, hand-in-hand. Thank you
    and I yield back.

        Mr. Burgess. The Chair thanks the gentleman. The gentleman
    yields back.
        Seeing no other members present who wish to give an opening
    statement, the Chair would like to remind members that,
    pursuant to committee rules, all members' opening statements
    will be made part of the record.
        And, again, we want to thank our witnesses for being here
    with us this afternoon, for taking their valuable time to
    testify and educate the subcommittee. Today's witnesses will
    have the opportunity to summarize their opening statement,
    followed by a round of questions from members. Our witnesses
    for today's panel hearing include Mr. Jerry Brito, Executive
    Director at Coin Center; Mr. Juan Suarez, counsel at Coinbase;
    Mr. Jerry Cuomo, Vice President of Blockchain Technologies at
    IBM; Mr. Paul Snow, Chief Architect at Factom; Mr. John Beccia,
    General Counsel and Chief Compliance Officer at Circle Internet
    Financial; Mr. Dana Syracuse, former Associate General Counsel
    of the New York Department of Financial Services at
    BuckleySandler LLP; and Mr. Matthew Roszak, Chairman of the
    Chamber of Digital Commerce and co-founder of Bloq,
    Incorporated.
        We certainly appreciate you all being here today. We
    recognize the significant expertise that is before our panel
    today. We will begin the panel with you, Mr. Brito, and you are
    recognized for 5 minutes for an opening statement.

      STATEMENTS OF JERRY BRITO, EXECUTIVE DIRECTOR, COIN CENTER;
        JUAN SUAREZ, COUNSEL, COINBASE, INC.; JERRY CUOMO, VICE
       PRESIDENT, BLOCKCHAIN TECHNOLOGIES, IBM; PAUL SNOW, CHIEF
     ARCHITECT AND CO-FOUNDER, FACTOM, INC.; JOHN BECCIA, GENERAL
         COUNSEL AND CHIEF COMPLIANCE OFFICER, CIRCLE INTERNET
    FINANCIAL; DANA V. SYRACUSE, COUNSEL, BUCKLEYSANDLER, LLP; AND
     MATTHEW ROSZAK, CHAIRMAN, CHAMBER OF DIGITAL COMMERCE, AND CO-
                          FOUNDER, BLOQ, INC.

                        STATEMENT OF JERRY BRITO

        Mr. Brito. Mr. Chairman and Ranking Member, members of the
    committee, my name is Jerry Brito, and I am the Executive
    Director of Coin Center, an independent nonprofit research and
    advocacy center that is focused on the public policy issues
    facing crypto-currencies like Bitcoin and Ethereum. Our mission
    is to be a resource to policymakers and members of the media
    who want to learn more about digital currency technology and to
    develop legal research that meets the policy challenges this
    technology presents.
        I want to thank you for inviting me to participate in this
    hearing. I would like to provide some background on the
    technology we are discussing. I would also be happy to answer
    any technical questions that you might have or to explain some
    of the regulatory activity that we have seen to date.
        Now, digital currencies are nothing new. They have existed
    for decades from Microsoft points to Facebook credits to
    airline miles, and neither are online payment systems new.
    PayPal, Visa, Western Union Pay, these are all examples. So
    what is it about Bitcoin and similar cryptograph-based
    currencies that make them unique? Bitcoin is the world's first
    completely decentralized digital currency, and it is the
    decentralized part that makes it unique.
        Decentralized means that there is no issuer, no central
    authority, and there is no company, no building, no server.
    Before the invention of Bitcoin, for two parties to transact
    online, to transact electronically, always required a trusted
    third party, someone like PayPal or Bank of America.
        Why was that? Well, what would an online transaction have
    looked like without a trust intermediary? Let's think first
    about a cash transaction where no third party is needed. If I
    hand you a $100 bill, you now have it and now I don't, and we
    can verify that the transaction has taken place by looking at
    our hands.
        If we try to do that online, what would that look like?
    Well, we would have to represent the $100 billion digitally,
    and we would have to basically create a $100 digital file, and
    I would attach that $100 file to a message, much like I might
    attach a photo or Word document to an email, and I would send
    it to you.
        You would then have the $100 file, but what about me? When
    I email a Word document to you, is a document deleted from my
    computer? No. I retain a perfect digital copy. So if it was a
    $100 file, I would retain the perfect digital copy of that same
    $100 bill, and I could send it to a second person or a third
    person or a fourth. This is what computer scientists call the
    double-spending problem, and we solve that problem by employing
    trusted third parties like PayPal.
        When I send you $100 using PayPal, I don't communicate
    directly with you. Instead, I ask PayPal to deduct that amount
    from my balance on their ledger and add it to yours. This
    means, however, that we must each have an account with the same
    party that we trust. Bitcoin's invention is revolutionary,
    because for the first time the double-spending problem can be
    solved without the need for a third party. Bitcoin does this by
    distributing the necessary ledger among all the users of the
    system, via a peer-to-peer network.
        Every transaction that occurs in the Bitcoin network is
    registered in a distributed public ledger which is called the
    blockchain. The global peer-to-peer network, composed of
    thousands of peers, takes the place of the intermediary. You
    and I can now transact online without an intermediary.
        Now, why would one use Bitcoin instead of a traditional
    payment system? There are many reasons, but chief among them is
    because if there is no intermediary transaction costs can be
    lower, making Bitcoin transactions cheaper and faster than some
    existing systems. And perhaps more importantly, though, Bitcoin
    allows for new kinds of transactions that were never before
    feasible, including micro transactions, self-executing
    contracts, and other innovations.
        Bitcoin is an open network protocol. This means that unlike
    PayPal or a credit card network, you don't need permission to
    join and transact. As a result, Bitcoin is an open platform for
    innovation, just like the Internet itself. In fact, Bitcoin
    looks today very much like the Internet did in 1995.
        So some dismissed the Internet then as a curiosity, but
    many could see that such an open platform for innovation would
    allow for world-changing applications to be built on top of it.
    Few in 1995 could have foreseen Facebook or Skype or Netflix,
    but they could see that all the building blocks were there for
    some amazing innovations. Bitcoin is like that today. We can't
    conceive yet what will be the killer applications on Bitcoin
    and open crypto-currencies, but it is pretty obvious the day
    will come.
        Bitcoin faces some challenges, however, and chief among
    them is regulatory uncertainty, especially at the State level.
    If we think back again to the early Internet, it was not until
    the Government made it clear that it would pursue a light-touch
    regulatory approach that Internet innovation really took off.
        Bitcoin today is in need of similar commitment from
    Government. Therefore, as you consider regulatory policies that
    affect this infant technology, you should take care to measure
    their impact on continued innovation. If you need any further
    assistance as you consider digital currencies, please do not
    hesitate to contact us at Coin Center. Again, our mission is to
    build a better understanding of these technologies and to
    promote a regulatory climate that preserves the freedom to
    innovate using blockchain technologies. We are more than happy
    to connect you with the appropriate academics, experts, and
    practitioners in the space.
        Thank you for your time, and I look forward to your
    questions.
        [The prepared statement of Mr. Brito follows:]
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        Mr. Burgess. The Chair thanks the gentleman.
        Recognize Mr. Suarez for 5 minutes for your opening
    statement, please.

                        STATEMENT OF JUAN SUAREZ

        Mr. Suarez. Chairman Burgess, Ranking Member, and members
    of the subcommittee, thank you very much for the opportunity to
    testify this morning on the role that virtual currency may play
    in disrupting today's financial services landscape.
        My name is Juan Suarez, and I am counsel for Coinbase, the
    world's leading retail Bitcoin exchange platform. Coinbase was
    founded in early 2012 with the simple goal of becoming the
    easiest place to buy and sell Bitcoin. At the time of
    Coinbase's founding, one Bitcoin cost less than $10, virtual
    currency had not entered the mainstream, and little to no
    venture capital had been invested into the industry.
        Today, 4 years later, one Bitcoin is valued at several
    hundred dollars, several leading online merchants accept
    Bitcoin as a means of payment from customers all over the
    world, and over $1 billion of venture capital has been invested
    into the space. We believe the rapid emergence of Bitcoin,
    together with other decentralized virtual currencies, is
    attributable to certain core characteristics that naturally
    orient the technology towards innovation and free and open use.
        These characteristics include the following. First,
    decentralized virtual currencies are, by definition,
    distributed, meaning that perfect strangers may transact
    securely online without requiring the involvement of a trusted
    intermediary or a proprietary infrastructure. Second, virtual
    currencies are openly accessible via Internet-connected devices
    anywhere in the world. And, third, decentralized virtual
    currencies typically operate via an open source software
    protocol, and any software developer can build and
    independently own applications that facilitate new and
    innovative interactions among users.
        These characteristics are strongly reminiscent of the early
    Internet, which began as an open network with modest
    underpinnings. They grew to revolutionize commerce and the way
    we communicate and which contributed untold billions or
    trillions of dollars to the United States economy.
        Virtual currency, in our view, has the same promise. It has
    the fundamental capacity to expose entrenched financial
    services to unprecedented competition, to bring about new
    efficient and global consumer financial products, and, by
    virtue of very low marginal transaction costs, to unlock entire
    new industries never before realized.
        Today we are still in the very early stages of virtual
    currency. The most widely adopted use of virtual currency thus
    far has been as an asset class for investing savings or for
    trading, but there are a great many additional applications of
    virtual currency with enormous promise.
        And to just give you two examples, first, simply, as a
    means of payment for a good or service. Bitcoin rails have
    several advantages relative to customary online payment
    methods. Bitcoin is truly global, so a merchant can immediately
    accept payment from customers worldwide. Bitcoin is a push
    payment method. A merchant need not collect, and a customer
    need not provide sensitive payment credentials to settle a
    transaction.
        This reduces proliferation of a customer's personal
    information and reduces the risk of catastrophic data breaches.
    And as a push payment, like handing over cash, there can be no
    fraudulent reversals, which cost online merchants billions of
    dollars in avoidable losses each year. This translates into
    savings.
        Today, prominent payment processors that have integrated
    Bitcoin payment rails advertise processing fees less than one-
    third the cost of fees charged by those same processors to
    process card transactions. A second use case is remittance for
    peer-to-peer payments. Bitcoin and derivative technologies
    enable transactions that can be processed and settled at a cost
    of pennies, in some cases even less.
        As of the time of this testimony, the fee associated with
    an average Bitcoin transaction is in the range of approximately
    10 cents or below. That means a consumer can send, for example,
    $100 worth of Bitcoin anywhere in the world for just a few
    pennies. Today that same transaction would cost consumers
    around the globe on average more than $7 using conventional
    remittance services.
        These and many other applications of virtual currencies are
    being actively pursued by thousands of developers all around
    the world, and we anticipate enormous innovation and growth in
    the virtual currency economy in coming years. And through the
    hard work of companies like Coinbase, together with core
    development teams, we can ensure that this innovation occurs in
    a safe and secure manner with cooperation among industry,
    consumer protection agencies, policymakers, and law
    enforcement.
        Thanks very much, and I look forward to any questions you
    may have.
        [The prepared statement of Mr. Suarez follows:]
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        Mr. Burgess. The Chair thanks the gentleman.
        Mr. Cuomo, recognized for 5 minutes for your opening
    statement, please.

                        STATEMENT OF JERRY CUOMO

        Mr. Cuomo. Good morning, Chairman Upton, Ranking Member
    Pallone, Chairman Burgess, Ranking Member Schakowsky, and
    members of the subcommittee. My name is Jerry Cuomo, and I am
    the Vice President for Blockchain Technologies at IBM. And
    thank you very much for the opportunity to testify this
    morning.
        We at IBM believe that blockchain is a revolutionary
    technology. With blockchain we can reimagine many of the
    world's most fundamental business interactions, and at the same
    time open the door to new styles of digital interactions that
    we have yet to even imagine. You are wise to include blockchain
    in your study of disruptive technologies, because blockchain
    has the potential to vastly reduce the cost and complexity of
    getting things done across industries, Government agencies, and
    social institutions.
        I also want to tell you what blockchain is not. It is not
    Bitcoin, the crypto-currency. While blockchain is the core
    technology that enables Bitcoin to operate, it can be used for
    entirely different purposes. Whereas Bitcoin operates as an
    anonymous network, blockchain can be used as a trusted network
    to handle interactions with known parties.
        It is our strong feeling that the benefits of blockchain
    are realized in its broadest use, across the broadest set of
    industries, from supply chain to trade settlement, from tax to
    land deeds, birth certificates and social security. This
    morning my testimony makes four points, which I will summarize
    now.
        The first point is about how blockchain changes the game.
    At the center of a blockchain is the notion of a shared ledger.
    Think of this as one of those little black accounting books.
    However, this book has seemingly magical properties. You see,
    members of a blockchain network each have an exact copy of the
    ledger. New entries in the ledger are instantaneously
    propagated throughout the network. Therefore, all participants
    in an interaction have an up-to-date ledger that reflects the
    most recent transactions, and the transactions, once entered,
    cannot be changed.
        Now, let me tell you why and how blockchain actually
    changes the game. Transactions can now be settled
    instantaneously versus in days. Cost is reduced due to
    elimination of middlemen. And because of how these transactions
    are stored on the ledger, the chances of tampering and
    collusion are greatly reduced.
        My next point is blockchain technologies must be made
    enterprise-ready. The core blockchain technology must focus on
    security and privacy concerns that arise within enterprise use
    cases. In addition, computer systems and networks must be
    architected so they scale up and can handle immense volumes of
    transactions. Simply put, we in IBM are openly working with a
    group of industry collaborators to build a new blockchain from
    the ground up, with privacy, confidentiality, scaleability, and
    auditability, front and center. This is what enterprise-ready
    means, which leads me to my third point.
        Blockchain must be open. For blockchain to fulfill its
    potential, it must be based on nonproprietary technology. And
    doing so will encourage broad adoption and ensure compatibility
    and interoperability of systems. Specifically, this enterprise-
    ready blockchain must be built using open source software with
    a combination of liberal licensing terms and strict governance.
    Only with openness will blockchain be widely adopted and enable
    innovation.
        We are participating with over 30 industry players in the
    Hyperledger Project led by the Linux Foundation to create an
    open, enterprise-ready blockchain.
        And my last point is blockchain will greatly benefit from
    Government participation. Blockchain holds the promise of
    enabling more effective interactions between Government and
    business. For example, working as an invited member of an
    enterprise blockchain, Government agencies could be able to
    better collaborate in financial and commercial systems, and
    spot potential problems before they become critical, regarding
    everything from tax to land use.
        So it is critical that U.S. companies and Government
    agencies lead the world in demonstrating the potential of
    blockchain.
        Now, I should add that blockchain isn't the answer to
    everything. There will be situations where it will improve
    efficiencies, but there will be others where it is simply not a
    good fit. Furthermore, we should not underestimate the
    technical and organizational challenges of building and
    adopting blockchain systems.
        Blockchain is a classic emergent technology, but it is so
    strikingly different from what people are used to that many
    leaders are adopting a wait-and-see attitude. Now, we applaud
    judicious caution, but now is the time to quickly assess the
    potential of blockchain and begin experimenting. Therefore, we
    urge Congress and the Obama administration to study and
    discover the best uses of blockchain for the U.S. Government.
        We also want to pay attention to regulatory approaches to
    maximize its potential while protecting the interest of
    citizens. Blockchain may have begun its existence as the
    underpinning of the crypto-currency, but now it stands in the
    open, a powerful tool ready to serve business and society.
        And thank you again for your invitation and I would be glad
    to answer any questions you have.
        [The prepared statement of Mr. Cuomo follows:]
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        Mr. Burgess. The Chair thanks the gentleman.
        Mr. Snow, you are recognized for 5 minutes, please.

                         STATEMENT OF PAUL SNOW

        Mr. Snow. Thank you, Chairman Burgess and members of the
    subcommittee for the opportunity to testify before you today. I
    am Paul Snow, the Chief Architect of Factom, a protocol to
    provide blockchain solutions to a wide range of problems above
    and beyond simple currency transactions.
        Let me do something strange here. I am a developer, and so
    I am going to talk to you about what a blockchain really is
    and----
        Mr. Burgess. Mr. Snow, I hate to interrupt. Just be sure
    your microphone is on. I think----
        Mr. Snow. You know, I might be on now. Do I need to reset?
    OK.
        Well, I am going to do something strange here, and I am
    going to try to help you guys be developers like I am. I am
    going to actually explain to you what a blockchain is. OK?
        First and foremost, if you don't understand hashing
    functions, you will never understand blockchains. Now that is
    scary, so let me tell you what a hashing function is. Any piece
    of data at all--a picture, a video, even your signature, your
    address--any piece of data at all can be mathematically
    constructed to create a very small fingerprint, and that
    fingerprint is unique for that piece of data.
        If I make one little change to that data, I will get a
    completely different fingerprint, and no fingerprint of any two
    data sets, no hash of two different data sets, has ever
    matched. This is called no collisions. There is no collisions.
    So fingerprint, certain data. Change it, break the fingerprint.
        Now, we talk about blockchains, so what is a block? Well,
    block is a lot of data. It is a lot of transactions, but it
    could also be records, it could be records for a mortgage, it
    could be the process by which you validate a land title in a
    land titling system. It is just a bunch of data.
        Now, we make blocks. We take a bunch of this data, and we
    put it together. That is a block. And guess what we do to it?
    We hash it. Now, what have we done when we hashed it? We have
    created a block of data you never get to change again, because
    if you change it, you will break the hash.
        Now, what do we do with a hash? Well, we will put it in the
    next block, and then we will collect some more data. Now, that
    is the chain in blockchain. It is a chain of blocks completely
    tied down and secured against any modification in the future by
    the hash that is in the next block in the chain. And as I
    progress and collect more data, nobody gets to change the past,
    and that is really the magic of blockchain.
        So what can I do with blockchains? I can do a lot of stuff.
    Can I secure a lot of data? Well, yes, because there is this
    other trick we can do with hashes, and that is we can have a
    tournament. How many of you have been to a tournament before?
    Have you ever seen a tournament bracket? You can follow your
    team all the way from the beginning, competing against
    thousands of other teams, all the way to its winner slot. Your
    team always wins, right? All the way to the winning slot, and
    all I have to consider is that team and the games it plays in.
    I don't have to look at all of those other participants.
        Ms. Schakowsky. Can Cub fans do that, too?
        Mr. Snow. What is that?
        Ms. Schakowsky. Can Cub fans----
        Mr. Snow. Cub fans, yes, they can. Sometimes the chain is a
    little shorter.
        So the idea is I can take a ton of data, and I can create
    one--I can combine--instead of games that are hashes, I can end
    up with one hash at the end that secures a ton of data, and
    there is a small path to any piece of data that proves that
    data hasn't changed. I don't have to look at everything.
        Factom is built on that. That is the protocol that I am
    building, and I build a collection of these Merkle Trees, these
    tournament brackets, for data that is collected, and I place
    that hash in a public witness. And the public witness in this
    case is Bitcoin blockchain, because it has the most secure data
    structure on the planet right now.
        But we can also go put it in IBM's Hyperledger or in
    Ethereum or many other blockchains, and we create a basis by
    which you can write an application that runs in the context of
    a private chain within all the security that we need for some
    applications. And it can access vast sums of data, like weather
    data, like transactions on exchanges, huge sets of data, and
    prove that that data is historically correct and accurate. And
    that is basically the power of the blockchain is to create
    histories that you can trust that can be validated and verified
    and can be used across many different systems.
        And I will be happy to answer any questions anybody has.
    And if you want to apply as a programmer, I can certainly talk
    to you about that, too. Thank you very much.
        [The prepared statement of Mr. Snow follows:]
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        Mr. Burgess. Yes. Not likely. Mr. Beccia, you are
    recognized for 5 minutes, please. The Chair thanks the
    gentleman.
        Mr. Beccia is recognized.

                        STATEMENT OF JOHN BECCIA

        Mr. Beccia. Thank you, Chairman Burgess, Ranking Member
    Schakowsky, and members of the subcommittee. My name is John
    Beccia, and I am General Counsel and Chief Compliance Officer
    for Circle Internet Financial. We are a consumer company
    focused on making payments more secure, safe, and simple.
        Circle is a member of the Electronic Transactions
    Association, the leading trade association for the payments
    industry. I am grateful to be part of the subcommittee's
    Disrupter Series. The blockchain represents one of the most
    important technical innovations of our time. It has potential
    to impact myriad industries, retail, media, health care,
    Government, and energy, but today I am going to focus, really,
    on how the blockchain can impact financial services, talk a
    little bit about the benefits, risks, and the regulatory
    environment.
        There is no question that payments can be improved.
    Traditional payments are controlled by networks that charge
    fees for transactions and have cumbersome processes that are
    subject to data breaches. Digital currency holds promise to
    improve payments, since there is no central authority and the
    value is stored across a distributed network.
        So what are the benefits? For consumers, it can be used in
    a variety of transactions. It can be used to split a lunch tab
    with your co-workers, a mother sending funds to a daughter in
    college, or someone sending money to a relative overseas.
    Digital currency makes these transactions simple, less costly,
    and secure, and it also provides instant access to funds. It
    also offers privacy, because on the blockchain personal
    information is not disseminated.
        Digital currency has the ability to reach unbanked and
    underserved communities. Cross-border transactions are offered
    at a fraction of the cost of typical remittance fees. Merchants
    also like this technology because of the benefits. It is not
    subject to interchange fees, chargeback risks, or the liability
    of storing customer information.
        Blockchain technology is still in its infancy. While there
    are over 12 million people with digital wallets, more than
    100,000 merchants accepting Bitcoin, and nearly 200,000 daily
    transactions, the majority of consumers are still learning
    about the benefits of Bitcoin. Like any other technology on the
    Internet, adoption is going to take some time.
        At Circle, we believe that money should be exchanged
    freely, the same way people exchange other information over the
    Internet, whether it is photos, messages, et cetera. Our social
    payments application allows consumers to make payments in
    multiple currencies on the Circle platform and to anyone
    anywhere in the world on the blockchain. It also is done in a
    fun mobile experience that uses tools like GIFs, emojis, and
    photos.
        Incubation and blockchain testing among firms of all sizes
    is really setting the stage for the expansion of financial
    products, economic growth, and job creation. Now, there are
    some risks associated with digital currency, and I am sure you
    have heard about those risks, and the industry has worked very
    diligently to address those risks.
        First, digital currency is subject to money laundering.
    Unfortunately, global AML laws are updated and really should be
    revised to account for 21st century technology. The transparent
    nature of the blockchain, however, provides us some more
    transparency to detect illicit activity. The industry has
    created risk management systems which are really innovative and
    have collaborated quite a bit with Government to address these
    risks.
        Second, which I believe is important to this committee,
    consumer education and protection is vital. The CFPB and the
    FTC have issued advisories on digital currency. Companies in
    this space should have disclosures to provide clear language
    about fees, risks, obligations, and dispute resolutions.
    Consumers need to know their funds are secure, and that is why
    our customers have FDIC insurance protection if they are
    holding dollars in their account, and we have also secured
    private insurance for those customers who are holding digital
    assets.
        Third, those digital assets really need to be protected, so
    companies like us who are acting as custodians need to have
    best-in-class protocols to ensure that we are protecting
    digital assets whether they are online or offline. And that is
    why we support the White House's recently announced Cyber
    Security Action Plan and feel that companies should work to
    make sure that all financial transactions are safe.
        The regulatory environment for digital currency has evolved
    quite a bit over the last couple years. For companies like
    Circle, we need to be registered as a money transmitter at the
    Federal level as well as licensed State by State. Whereas
    States like California have pending legislation on digital
    currency, New York has created their own BitLicense, and that
    was finalized last year.
        We are currently the one and only company that does have a
    BitLicense, and we take that responsibility very seriously. In
    addition, the Conference of State Bank Supervisors are coming
    out with regulatory principles, or have come out with
    principles, in an attempt to provide clarity among the States.
        While we are encouraged by the regulatory framework, there
    is work to be done. Regulatory uncertainty and/or regulatory
    arbitrage makes it difficult for businesses to utilize this
    service and for consumers to feel confident in the service. We
    also encourage Congress to consider more efficient charter
    choices, both the digital currency-based firms as well as
    FinTech firms in general.
        Disruption in payments is happening now. The lessons
    learned from digital currency and financial services can be
    applied to other industries, and we look forward to discussing
    that with you in question and answers.
        Mr. Chairman, this concludes my testimony. I look forward
    to answering any questions you may have. Thank you.
        [The prepared statement of Mr. Beccia follows:]
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        Mr. Burgess. The Chair thanks the gentleman.
        Mr. Syracuse, you are recognized for 5 minutes.

                     STATEMENT OF DANA V. SYRACUSE

        Mr. Syracuse. Mr. Chairman, Ranking Member Schakowsky, I
    thank you for inviting me here to speak today. My name is Dana
    Syracuse. I am counsel at BuckleySandler LLP, and I am the
    former Associate General Counsel of the New York State
    Department of Financial Services, which is the principal
    financial services regulator in New York State.
        While I was there, I was responsible for helping to lead
    several initiatives, including bringing enforcement matters
    against some banking institutions for AML/BSA failures and
    violations of OFAC sanctions programs, helping to lead the
    department's effort in the area of cybersecurity, and also
    helping to lead the department's efforts in the area of
    regulation of emerging payment systems, including Bitcoin,
    blockchain, and my current practice at BuckleySandler focuses
    on these same areas.
        For the sake of clarity, I want to break out what the
    regulatory environment looks like in the area of the payment
    system around Bitcoin, separate and apart from blockchain. I
    agree with my fellow panelists that the Bitcoin payment system
    really is revolutionary and has the power to bring into the
    financial fold the unbanked, the underbanked, and those who may
    not have the benefit of a modern banking system.
        It also has the possibility of being the catalyst of
    driving the modernization of our Apollo era payment system into
    one that is faster, less expensive, and more reliable. But the
    challenges faced by regulators in this new era is going to be
    how to create the appropriate guard rails that protect
    consumers, prevent money laundering, and impose proper
    cybersecurity standards while at the same time not hindering
    innovation.
        In New York, with the drafting of the BitLicense, where we
    came out was not regulating Bitcoin, not regulating the
    underlying blockchain protocol, but rather taking a functional
    approach and regulating those who are acting as financial
    intermediaries, meaning those who are put, in essence, in a
    position of trust. So that includes the law companies,
    exchangers, and transmitters.
        And because of the kinds of functionality that they were
    offering, the regulation, therefore, imposes certain
    capitalization requirements, anti-money laundering
    requirements, cybersecurity, which I think the importance of
    cannot be understated, and the other challenge is how to do
    this while at the same time continuing to help foster
    innovation.
        And that is why the BitLicense has an on ramp for smaller
    companies, and it is something that I would encourage any other
    States or regulatory bodies that choose to step into this area
    also include, because the fact of the matter is, you know, this
    is an area that has a tremendous amount of innovation, and it
    is, I believe, unreasonable and could be a hindrance to
    innovation to potentially saddle companies like that without
    outsized compliance functions that may not necessarily equate
    with the potential dangers that are there.
        I also believe that a uniform approach would--across all
    the States would be a good goal. The Uniform Law Commission has
    an effort underway right now, and Mr. Beccia mentioned the CSBS
    model framework as another example.
        Now, turning to blockchain, you know, there is--the
    blockchain is the underpinning backbone architecture on which
    different applications can be built, Bitcoin being the most
    well-known. There is significant interest in the way banks and
    clearinghouses and exchanges may use blockchain to transform
    existing business models, whether they be through closed
    systems or on the public blockchain.
        Significant time and money is being spent in understanding
    this. While blockchain is new, the kinds of functionalities
    that are going to come out of it--securities clearing, identity
    management--those are not. So the question that needs to be
    asked is, you know, when these new functionalities arise, is
    there an existing regulatory framework that already answers the
    question or meets the concerns, if it is for protection
    concerns, the AML concerns, that Government and regulators
    could potentially have.
        The other important thing to take away from this is that
    regulation around the blockchain protocol itself would be a
    hindrance to innovation. It is ill understood right now,
    companies that are doing some of the creative work in there
    haven't reached I would call it market adoption yet sufficient
    to say that it is worth the candle of potentially saddling them
    with burdens that they don't need.
        In conclusion, you know, regulation in the area needs to be
    smart. It needs to be the result of study. And I thank you and
    look forward to your questions.
        [The prepared statement of Mr. Syracuse follows:]
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        Mr. Burgess. The Chair thanks the gentleman.
        Mr. Roszak, you are recognized for 5 minutes for an opening
    statement, please.

                      STATEMENT OF MATTHEW ROSZAK

        Mr. Roszak. Good morning, and thank you, Chairman Burgess
    and the distinguished subcommittee for the invitation to
    testify today. I would also like to commend your staff for the
    thoughtful engagement going into today's hearing.
        My name is Matthew Roszak, and I am pleased to be here on
    behalf of the Chamber of Digital Commerce where I serve as
    chairman. The Chamber is the world's largest trade association
    representing the blockchain industry. Through education,
    advocacy, and working closely with policymakers, regulators,
    and industry, our goal is to develop a pro-growth legal
    environment that foster innovation, jobs, and investment.
        I am from Chicago, and I have been working as a venture
    capitalist and technology entrepreneur for 20 years, deploying
    over a billion dollars of capital and founding a dozen
    companies during my career. I have also invested in over 20
    blockchain companies through my firm, Tally Capital, and more
    recently I co-founded a software company called Bloq, with Jeff
    Garzik, a technology visionary and core developer of Bitcoin.
        Blockchain technology has captured the imagination of
    thousands of innovators around the world and created what I
    call a generational opportunity for entrepreneurs and
    investors. That translates into once in a lifetime. So think
    railroads, automobiles, telephony, and the Internet. It has the
    potential to play on that scale or even greater. From the
    recent covers of the economists and Bloomberg, if it feels like
    you are reading about blockchain everywhere, well, it is
    because you are, and there is a good reason for that.
        The technology of money has evolved over the centuries from
    shells, wampum, salt, tally sticks, gold, and paper currency,
    to bits and bytes. Today banking and finance are in the process
    of being redefined as blockchain technology is creating an
    entirely new operating system for money and poised to be one of
    the most important inventions in the history of finance.
        Trusted intermediaries will soon be disrupted and
    decentralized peer-to-peer networks will blossom reducing tons
    of friction and saving billions in transaction costs while
    unlocking financial access to the entire world, yet we are
    still in the early days akin to the dial-up phase of the
    Internet.
        In terms of Bitcoin's State of the Union, and taking a
    famous quote from Charles Dickens' A Tale of Two Cities, ``It
    was the best of times, it was the worst of times.'' This very
    much applies to Bitcoin today. Despite some of the sensational
    headlines, investment and innovation in this industry has grown
    at an incredible pace. Venture capital surpassed a billion
    dollars last year, with some of the best and brightest
    entrepreneurs and professionals from Silicon Valley to Wall
    Street to K Street all racing in, along with over 100,000
    merchants accepting Bitcoin for goods and services.
        Bitcoin is indeed alive and well. And also named companies,
    such as Citibank, Deloitte, Foxconn, IBM, PwC, Microsoft,
    NASDAQ, and many more have all dedicated significant resources
    to exploring blockchain technology.
        I would also like to highlight a challenge the Bitcoin
    community is currently facing. Something tells me this
    committee might be able to relate. Making decisions in a
    decentralized system is not easy. Bitcoin is experiencing
    significant growing pains as the number of transactions are
    increasing exponentially. This is a clear indicator of
    Bitcoin's success and a testament to its global adoption.
        Now, the challenges reside in how to best increase the
    throughput of the system in order to support greater
    transaction volumes. Unlike a Government or company, there are
    no members of Congress in Bitcoin, nor a CEO or board. That is
    all purpose-built and part of the fundamental power and beauty
    of Bitcoin's math-based composition.
        However, when there is friction in decision-making, that
    gridlock can sometimes be overwhelming, if the debates, fights,
    and passions involved are in many ways a feature of the system
    and not a bug. There is an opportunity on the horizon to create
    an open forum for building consensus with more constructive
    ways to outline goals, priorities, and risks, which would serve
    as an important barometer for stakeholders in the ecosystem.
    And there are plenty of well-known platforms to draw from,
    including W3C, ICANN, Wikipedia, Linux, and even the United
    Nations, where certain best practices can be explored and
    leveraged.
        Extremely talented and brilliant people have solved some of
    Bitcoin's toughest problems. These statesmen usually work as
    volunteers, purely out of love for the technology. Through
    their Herculean efforts, the system's features, security, and
    especially its resilience have all improved dramatically. The
    system stresses, heals, learns, and evolves.
        In conclusion, the amount of financial and intellectual
    capital being poured into this ecosystem, I see incredible
    promise and opportunity, especially with hundreds of startups
    betting their lives on blockchain, and believe this new
    technological frontier has the potential to benefit society and
    industry with privacy, security, and the freedom of conveyance
    of data, which in my mind ranks up there with life, liberty,
    and the pursuit of happiness.
        Thank you very much.
        [The prepared statement of Mr. Roszak follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Burgess. The Chair thanks the gentleman and thanks all
    of our witnesses. We will move into the Q&A part of the
    hearing. Each member will have 5 minutes, and we will go one
    round and perhaps longer. We may have a series of votes that
    interrupts us, but let me recognize myself for 5 minutes.
        Mr. Syracuse, very fascinating testimony from all of you,
    but yesterday a situation was brought to my attention where
    someone was--a crime was committed, and the crime was committed
    using something called ransomware, which I did not know about
    until yesterday. It is a fairly interesting technology that I
    guess criminals have developed, and the payment was instructed
    to be made in Bitcoins.
        Now, it wasn't like a bag of Bitcoins be taken down to the
    wharf and left under a boat. It was, you know, where do you go
    with this stuff? And when I questioned, you know, ``Well, why
    don't you just follow the digital trail?'' he was like, ``You
    can't do that.'' So can you kind of enlighten me and the
    subcommittee on what are saw of the law enforcement aspects
    here?
        Mr. Syracuse. Sure. I mean, I think that there are a couple
    of things going on in that story. You know, firstly, virtual
    currency, Bitcoin, it is highly traceable. There are services
    in place that regulators and law enforcement have and need to
    educate themselves of if this is going to be regulated that
    allow one to follow using blockchain forensics, the flow of
    funds from one exchange to another or from wallet to wallet.
        The issue also is, at a certain point, that person is going
    to need to exit and get Fiat out. So that speaks to the
    importance of making sure that the exchanges--the entry points
    and the exit points, the on ramp and off ramp--are regulated.
    And also, that story, it is less about virtual currency and
    Bitcoin.
        You know, Bitcoin is used as cash, which can be used in
    criminal enterprise. They kind of outlawed that, but it is a
    story about cybersecurity, and a larger conversation that needs
    to be had around regulation in that area and creating proper
    standards there.
        Mr. Burgess. You know, maybe I have watched too many crime
    dramas on TV, but it seems like Clint Eastwood would have put
    an ink cartridge into the bag of money that stained the dollar
    bills, so that anyone knew when they were pushed across the
    counter that this guy is the criminal. Is there any way
    technologically to attach that sort of detection device to the
    Bitcoin transaction?
        Mr. Syracuse. I think that there are coins that are known
    now that have been used in criminal enterprises that are, in
    essence, marked. But, yes, they can be programmed in such a
    way. But the key thing is to make sure that these blockchain
    forensic tools are being utilized, so you could follow it, so
    you could trace the funds.
        Mr. Burgess. Well, you know, again, that was interesting.
    That case just literally came before me yesterday as we were
    preparing for this hearing today.
        Mr. Brito, did you have something you wanted to add to
    that?
        Mr. Brito. Sure. One thing to keep in mind about
    ransomware, which is a very serious problem, is that it
    predates Bitcoin and decentralized digital currencies. We have
    seen ransomware as far back as 20 years, and what makes
    ransomware possible today is three things.
        It is a breach of a computer. Essentially, you get hacked.
    Number two, cryptography. Essentially, your files on your
    computer aren't encrypted, so you no longer have access to
    them. And, number three, it is a payment method. So in this
    case it is Bitcoin. So you can pay the person who is in ransom.
        Of those three things that are necessary for ransomware,
    encryption and digital currencies have incredible potential,
    you know, good uses, right? So cryptography is what keeps our
    bank balances safe. Digital currency, as we have talked, is
    what makes it possible.
        The third component, though, the breach, the hack, the lack
    of cybersecurity, that is where the real concern is. And I am
    happy to say that, in conjunction with the CDC, Coin Center and
    a lot of the companies in this space have created something
    called blocktion lines, which is a public-private forum between
    law enforcement and the companies in this space to begin to
    discuss and educate law enforcement about how they can do this
    kind of tracking to, you know, get the bad guys.
        Mr. Burgess. Are there places a criminal can go, countries
    to which they can go, where these traceability aspects are
    muted or disrupted?
        Mr. Brito. So the traceability of the coins, as it were, on
    the network cannot be compromised. You can still trace the
    coins. The problem is that the off ramp and on ramp may be in a
    country that is not cooperating with law enforcement in other
    countries. But that, again, is an issue not of Bitcoin's issue,
    of cooperation between law enforcement.
        Mr. Burgess. Mr. Suarez, just briefly let me ask you, how
    do you determine the value of a Bitcoin? Is it all one unit
    size, or are there various sizes?
        Mr. Suarez. Well, the value of Bitcoin is determined in the
    same way that the value of really any kind of digital asset or
    commodity is determined, which is effectively through supply
    and demand. And so the price of Bitcoin on the coin-based
    platform today, which is probably something in the low $400
    range, is really just a function of how many people are willing
    to purchase Bitcoin and how many people are willing to sell it.
        To your question about fractions of a Bitcoin, the reality
    is you can transfer fractions of a Bitcoin, very tiny fractions
    of a Bitcoin, just as easily as you can a full Bitcoin, or many
    Bitcoin. And that opens up very exciting possibilities.
        So, for example, one of the issues I think that was
    discussed today is the concept of micro payments online where I
    can viably send you two pennies worth of value or 10 pennies or
    50 cents worth of value because I am going to tip you because I
    like a comment that you made on my Internet form, for example.
    And that is not a technology or that is not a payment form that
    is viable today, because the cost of those smaller payments
    would exceed the value of that transfer. So we can transact in
    tiny fractions of a Bitcoin.
        Mr. Burgess. That is very interesting.
        The Chair recognizes Ms. Schakowsky of Illinois, 5 minutes
    for questions.
        Ms. Schakowsky. Thank you, Mr. Chairman. I apologize for
    being late. I did get to hear most of the testimony.
        I wanted to ask questions about consumer protection also
    and financial fraud and abuse. There is all kinds of
    protections set up to guard against financial fraud and abuse
    through traditional currency transactions. Banks can flag
    suspicious activity and limit withdrawals, which make it harder
    for a thief or a fraudster to empty out our bank accounts.
        And I understand that those kinds of checks may not be in
    place for digital currency, but I did--and another example
    would be that the consumer protections required by the Truth in
    Lending Act may not apply to loans or credits of digital
    currency, raising questions about transparency and about
    fairness.
        So, Mr. Syracuse, I wanted to ask you, you have experience
    in the public sector and in this kind of regulation. If a
    consumer needs to contest a purchase made, for example, with
    Bitcoin, say the product they bought is defective or the
    service was never performed, are they protected in the same
    ways that they would have been if they had used a credit card
    or a debit card?
        Mr. Syracuse. Not necessarily. But depending on what
    exchange or what facilitator they are using, they may have
    those policies in place. You know, I would be curious to--the
    answer is not necessarily.
        Ms. Schakowsky. Not necessarily. And are those kinds of
    risks, then, disclosed? Do consumers----
        Mr. Syracuse. Yes.
        Ms. Schakowsky [continuing]. Make assumptions, do you
    think?
        Mr. Syracuse. Yes. So under the BitLicense, there are
    certain enumerated disclosures that need to be made. So
    disclosures about volatility, disclosures about the
    irreversibility of a transaction, they have to be made.
        Ms. Schakowsky. And in what form--you know, I get all of
    these privacy disclosures and all of these things that just say
    ``punch agree'' if you agree?
        Mr. Syracuse. Well, that is the issue is at what point does
    one kind of turn a blind eye to it? And then the other issue
    is, in this digital environment, you know, how much information
    can one actually absorb in that little screen? You know, I
    think that there should be a conversation around what consumer
    protection looks like in the digital age as our banking
    functions shift from brick and mortar to an increasingly mobile
    environment. I think it is going to be kind of a necessary area
    to roll up our sleeves.
        Ms. Schakowsky. And what are those things, other ways that
    the digital currency exchanges and wallets can be better
    protected, and what would that look like? Sure. Mr. Snow, sure,
    and then Mr.----
        Mr. Snow. I would like to change the conversation just a
    little bit, because it is in fact true that digital currency
    is--what am I trying to say? Nonreversible, yes. It is a
    nonreversible transaction. But blockchains do have the
    potential for the consumer to have a much more assured
    understanding of what they are purchasing.
        So let me tell a really short story about a friend of mine
    who builds computer parts on a sideline. He is retired, so now
    he spends hours and hours in a bedroom building little kits. It
    is what intel engineers do, I guess.
        And one of his parts, if it is not an authentic part, the
    whole board that he creates, bricks, it kills itself. And he
    can work at it, beat on it, and bring it back to life, but his
    customers get really upset if it has a nonauthentic part on his
    board. So he bought a bunch of chips from Alibaba, you know,
    the Chinese eBay sort of thing, and they assured him he was
    getting valid chips. And he put them on the board, and they
    weren't valid.
        And then when he goes to their consumer protection group,
    the manufacturer always wins. Therefore, he just had to go find
    some more parts and replace all these chips.
        Now, here is where the blockchain can help you. Because you
    can create a public notified ledger of where parts came from,
    the manufacturer of the real genuine part could have put on a
    chain, ``These are parts I have sold to Company X.'' And
    Company X could put on that same chain that it sold these parts
    to Company Y.
        And then Company Y could be the guy that my engineer friend
    is talking to, and he says, ``I want authentic parts,'' and
    they say, ``Yes, you have these three parts. And, see, they are
    in this chain, and I can cryptographically prove that there is
    a path of legitimate parts that came from the manufacturer to
    this guy, and he is about to sell them to me.''
        Now, others would say, ``Well, he could turn around and
    still send you the bogus parts, right?'' But, see, the trick
    is, when the next customer said, ``Sell me some parts,''
    Company Y would have already said, ``He sold the legitimate
    parts to my friend.'' He would have to represent the real parts
    as clones.
        And so you are in a position where we can create audit
    trails for consumers that exist in places well beyond our
    jurisdictions to prove that when you are buying goods and
    services, drugs, food, that it is coming from where it is
    stated that it is coming from, and limit the ability of
    middlemen to pass off clones and knockoffs as the real product.
        Now, that doesn't help at the refund level.
        Ms. Schakowsky. I am going to--we are going to--we are
    about to----
        Mr. Snow. It does help to----
        Ms. Schakowsky [continuing]. Get a gavel here, because we
    have gone over time. So I hear you saying, though, that you
    can--we can build into the creations of consumer protections,
    but I am not convinced that we don't need some assurances,
    outside regulations, some sort of framework that we all agree
    to, and I think the conversation, unfortunately, can't continue
    now.
        But I think that is the conversation we need. How do we do
    it? And maybe some of it is embedded and some of it is imposed.
        Thank you.
        Mr. Burgess. The gentlelady yields back. The Chair thanks
    the gentlelady.
        Mr. Lance, 5 minutes for questions.
        Mr. Lance. Thank you, Mr. Chairman.
        What privacy concerns should the public consider when the
    public is thinking about buying digital currency? To the panel
    in general, anyone who would like to respond. Yes.
        Mr. Beccia. So I would just note there is a couple of
    things that come up in terms of privacy in digital currency.
    First, there is a lot of questions about the anonymity of
    digital currency, and, you know, digital currency does offer
    benefits to consumers. It offers financial privacy.
        So when you are doing a digital currency or Bitcoin
    transaction, you are not giving over your credit card
    information or your personal information in that transaction.
    So if you are buying something on a merchant that accepts
    Bitcoin, like at Overstock.com, that is just a cryptographic
    type of code that you are providing them and not that personal
    information.
        So it is actually a benefit in terms of from a consumer
    perspective. But on the flip side, where regulators look at it
    and are concerned as far as the anonymity, and so not
    understanding either where that money is going or who that
    customer is. And so what we kind of do to mitigate the risks
    are, obviously, similar to any other financial service, we have
    to really know who our customers are.
        And so we have detailed AML programs, and we look at the
    unique risks of our customers. Our customers are mostly online
    customers. They are customers from multiple countries, and they
    are conducting digital currency transactions, which are a
    little more complex. So we need to create systems that are a
    little more technically advanced to address that.
        Mr. Lance. Thank you. At the moment, the public can invest
    in gold or silver or currencies. Does the public have the
    ability to invest in these digital currencies? Yes?
        Mr. Suarez. Yes, Congressman. So absolutely. So one of--the
    platform we operate, for example, will allow customers to
    establish a coin-based account, indicate how many Bitcoin they
    want to purchase, and then to send us money to settle a
    purchase transaction.
        And so the simple answer to your question is, yes, there is
    an existing retail platform that allows customers to purchase
    Bitcoin.
        Mr. Lance. And the price fluctuates, I presume, as is true
    of any other currency?
        Mr. Suarez. That is exactly right. And so most of our
    customers today, at least at Coinbase in the United States, are
    attracted to the volatility of Bitcoin, because they are
    investing effectively in an asset whose value they anticipate
    will go up. And so a lot of savings energy is being poured into
    that.
        Obviously, there are many more applications of virtual
    currency beyond that, but that is the initial use that we see.
        Mr. Lance. Thank you. Are there differences between a
    public blockchain and a private blockchain? Mr. Cuomo?
        Mr. Cuomo. Yes, I will take that one. So I think when we
    typically think about blockchain, we associate Bitcoin. But the
    interesting thing is that the blockchain is a design pattern
    that can be applied very broadly.
        And when we start to apply it to managed things of value--
    that can be land deeds, any kind of certificates, birth
    certificates, death certificates, contracts--things that are
    managed by, let's say, regulated environments, it is attractive
    to start thinking about a blockchain that is permissioned. All
    right? Not just anonymous, right?
        And the beautiful part about the blockchain architecture is
    it allows for this. And the way I am thinking about it is a
    dial, right, where you can dial in at one level very tight
    permissions, so think about it as a membership club. To get in,
    you have to at the door show them your ID card and you are
    allowed to come into the room and transact.
        But a permissioned blockchain could also be permissive,
    right? You can open it up and be somewhat liberal. For example,
    two parties exchanging carve-in numbers may have a certain
    level of permission to exchange cars with one another. Maybe
    one is an auto manufacturer; maybe the other is an auto dealer.
        But the Department of Motor Vehicle--and you might only be
    able to see those cars that pertain to you, right? So you will
    have permission to only see the things on the blockchain that
    are relevant to your transactions. But the Department of Motor
    Vehicle, when it came in through the door of the club, of the
    car club so to speak, it was given broader permissions as an
    auditor in that blockchain network. So it can see more, and it
    can actually be able to provide an auditing service.
        Mr. Lance. Thank you. I certainly know who IBM is,
    BuckleySandler. These other entities, are these new to our
    commerce in this country? Bloq? Factom? Coinbase? Are these
    relatively new organizations?
        Mr. Snow. We are a really, really old blockchain company of
    about 2 years.
        Mr. Lance. I see.
        Mr. Snow. It is a very new space. Most of us are fairly
    new.
        Mr. Lance. I see. Thank you. My time has expired.
        Thank you, Mr. Chairman.
        Mr. Burgess. The gentleman yields back. The Chair thanks
    the gentleman and recognizes the gentleman from Florida, Mr.
    Bilirakis, 5 minutes for questions, please.
         Mr. Bilirakis. Thank you, Mr. Chairman. Appreciate it so
    very much. Thanks for holding the hearing as well.
        Mr. Roszak, many have raised concerns regarding the
    potential for terrorism financing due to the ability of users
    to make anonymous transactions. Address that, please.
        Mr. Roszak. Criminals----
        Mr. Bilirakis. Address the concerns, yes.
        Mr. Roszak. Yes. Criminals have always been early adopters
    of the newest technology, whether that goes back to the days of
    NASCAR and having a faster car or cell phones or the Internet
    or, in this case, digital currencies being used for terror
    finance and money laundering.
        As we have heard on this panel, the traceability of digital
    currencies is more and more profound. The Chamber of Digital
    Commerce co-founded the Blockchain Alliance, and we are working
    with law enforcement to help them provide the forensics and
    tracing for certain issues that come about with those use
    cases. But those are the very fringe use cases, and, quite
    frankly, digital currencies, especially Bitcoin, is not a great
    use of funding for criminal activities like that.
        Mr. Bilirakis. Thank you. Anyone else wish to address that?
    Yes, please. We will go here--down here.
        Mr. Brito. Sure. I would add that to date we have not seen
    terrorist financing using digital currency, although it
    absolutely is a possibility. What we see instead is the use of
    prepaid cards and other centralized methods that can truly
    guarantee anonymity, and we see the Director of the Financial
    Crimes Enforcement Network at the Treasury Department testify
    before Congress in a hearing about digital currency that cash
    is still the number one way that folks launder money and
    conduct terrorist financing.
        Mr. Bilirakis. Who else? Briefly, please.
        Mr. Syracuse. I would also just add that, you know, it is
    probably more of a concern in the traditional banking
    environment. I know that when I was with New York DFS we
    brought major enforcement actions against banks for failing to
    follow sanctions programs.
        And also, you know, to date, the virtual currency
    community, the Bitcoin community--the ones that are licensed
    have been very responsive, and the figure that I heard to date
    was that something like 5,000 suspicious activity reports had
    been filed. So to the extent that you are dealing with a
    regulated institution, hopefully it is capturing bad activity.
        Mr. Bilirakis. Go ahead, please.
        Mr. Snow. One thing to understand is Bitcoin is a public
    ledger, and so the larger your organization is, the more
    transactions you have. The more transactions you have, the more
    ability forensics has to look at the blockchain and see the
    picture of your organization. This means that Bitcoin
    blockchain is decidedly a terrible use for large criminal
    organizations.
        And this came out in the Department of Justice's digital
    currency conference that they had last year at the Federal
    Reserve Bank in San Francisco, and the FBI and numerous
    agencies stood up and said basically, ``We can dig these
    organizations out of the blockchain. So we really would like
    them to use it. We can capture them.''
        I do think that individuals, small fry, might get through a
    lot easier with digital currency, but the larger the
    organization, the more opportunity to trip up and the more
    opportunity to catch them.
        Mr. Bilirakis. Thank you very much. Very informative. Next
    question, again for Mr. Roszak, what advantages are there for
    consumers to utilize Bitcoin and other digital currencies,
    rather than traditional ways to send and receive assets today?
        Mr. Roszak. Bitcoin, for example, is used for a variety of
    use cases, both as a currency and a store of value. From a
    currency standpoint, it could also be used for micro
    transactions. So think of a nickel going over the Internet is
    expensive today. Using Bitcoin or digital currencies, it is
    very cheap, very efficient, secure, and fast. And a nickel
    might not sound like much, but a nickel from 50 million people
    starts to add up. Part one.
        Part two, remitting money around the world is a very
    expensive endeavor, time-consuming endeavor. Right now, the
    remittance industry is about a half a trillion dollars in size.
    That can get turned upside down with remittance saving lots of
    money and putting that back into the global economy.
        Mr. Bilirakis. Thank you. Next question, why is the price
    of Bitcoin so volatile and is there fluctuation in purchasing
    Bitcoin? Or does fluctuation occur for the funds already
    purchased and available in a consumer's eWallet? I know that
    the chairman addressed this to a certain extent, asked this
    question, but yes.
        Mr. Roszak. Fundamentally, Bitcoin is in a price discovery
    phase, and it is a supply and demand dynamic. And we are still
    in the early days of Bitcoin. There is 15 million, plus or
    minus, Bitcoins outstanding today. It has got a market value of
    about 400, so it is a $6 \1/2\ billion currency today.
        On a relative basis, that is small. But if you look at
    historically, it has been one of the better performing
    currencies on the plant. And as you have heard, the amount of
    investment and innovation that has been planted in this
    industry is still yet to be seen. And so we are at the front
    end of this.
        Mr. Bilirakis. Thank you. You wish to----
        Mr. Beccia. I was just going to point out a similar thing,
    that it is a supply and demand issue. And it is a fact that,
    really, the users are using it or looking at it as early
    adopters more as an asset rather than a currency or a payment
    vehicle. And I think long term, as we see more people using it
    for payments, which I think is really the use case, we will see
    a greater stability in the price and we won't see as much
    volatility.
        But in the meantime, I think that for consumers it is
    important for companies in this space to, one, educate
    consumers about the price volatility, and then do things to
    make sure that those risks are mitigated.
        So as I mentioned earlier, for example, a company like
    Circle, we allow our users to also hold their value in U.S.
    dollars, which is not subject to volatility, but still have the
    benefits of making transactions on the blockchain. So there
    will be different innovations that will take out the price
    volatility, but I think long term, from an economic
    perspective, we will see less fluctuations.
        Mr. Roszak. One final point in terms of financial access.
    So buying a cup of coffee or a pair of jeans here in DC with
    Bitcoin is not going to change our lives. But if you are a
    soccer mom in Brazil, a goat herder in Ghana, or a taxi driver
    in Indonesia, you have a super computer in your pocket, and you
    could buy Bitcoin, and that allows you to participate in the
    global economy. So financial access is a huge driver of digital
    currencies globally.
        Mr. Bilirakis. Thank you very much.
        Mr. Burgess. The gentleman's time has expired.
        The Chair recognizes the gentlelady from Illinois for
    redirection.
        Ms. Schakowsky. Thank you. Mr. Syracuse, I wanted to ask
    you a couple more questions. In your testimony, you stated that
    regulators should focus on the uses of blockchain rather than
    their underlying technology. In New York, you led the process
    of developing the BitLicense program, as you stated in your
    testimony, and this process focused on the use of Bitcoin for
    digital currencies and included a two-day hearing with a wide
    range of stakeholders.
        So what were some of the issues that were discussed in your
    hearing?
        Mr. Syracuse. I think at the hearing there were discussions
    of, obviously, the technology, how does it work, the extent to
    which Bitcoin, the currency, should be regulated and what
    different aspects of the ecosystem should be regulated.
        And the result of that was this kind of functional
    approach, which was figuring out what are the traditional
    functionalities that kind of fall within the jurisdiction,
    which would mean financial--those offering financial services
    and financial products.
        Ms. Schakowsky. But were there existing laws that covered
    or----
        Mr. Syracuse. No.
        Ms. Schakowsky [continuing]. Could cover?
        Mr. Syracuse. So this is another one of the debates which
    was whether or not to put virtual--to regulate this area under
    existing money transmission law or create something new. And
    where New York came out was that for our law, our New York
    State money transmission law, would only govern transmission of
    money from Point A to Point B and wouldn't capture the exchange
    companies or the wallet companies.
        Now, that is not to say that other States would be able to
    capture that kind of functionality under their own money
    transmission laws.
        Ms. Schakowsky. And have some of the other States been
    doing that or not?
        Mr. Syracuse. Some other States are. Some other States are.
    So I believe North Carolina, New Hampshire, and a handful of
    others are attempting to do that. And that is a perfectly valid
    approach.
        Ms. Schakowsky. What factors unique to digital currencies
    did the department think were important in developing new
    regulations?
        Mr. Syracuse. Well, the way we initially kind of got
    interested in it was we were getting inquiries from our money--
    the money transmitters that we regulated saying, ``Is this
    money? What should we do with it?'' And then that kind of
    launched our inquiry. So we sent out subpoenas, we started
    meeting with numerous members from industry, law enforcement,
    academics, and the thing that was interesting was the way these
    new service providers were popping up in the ecosystem.
        And then we started wrestling with, well, what are the
    anti-money laundering concerns? What are the consumer
    protection concerns? Cyber security, you know, the BitLicense
    weaves in a cybersecurity provision. New York State now is
    trying to lead the effort in having a nationwide conversation
    about regulation in cybersecurity. That is a very important
    factor.
        Ms. Schakowsky. Absolutely. Mr. Beccia, earlier you seemed
    to want to make a point and didn't have time. I wondered if you
    wanted to say anything now.
        Mr. Beccia. I thought the consumer protection point was
    very important, and so just to give you a little more of a
    flavor of what companies in the space are looking at. I think,
    obviously, from a State standpoint, States like New York and
    others, and that are regulating this either as money
    transmission or from a separate licensing perspective, have
    right in their regulations very detailed consumer protection
    protocols, whether it is disclosures to marketing materials at
    the point of sale, dispute resolution, and whatnot. And so we
    are very, very cognizant of those.
        I think also there is protections for customer funds, which
    are vital, and so every State--we have to segregate our
    customer funds, we have to have surety bonds for funds, and
    things like that.
        At the Federal level, I think the CFPB and the FTC are very
    engaged here, and so they have issued warnings and advisories.
    They have started to collect complaints on their portals. And I
    would expect to see more regulations in terms of disclosures
    and things that are important and things that are--you know,
    you see at more traditional financial services and apply them
    to digital currency.
        But I think, really, the big picture here is that, you
    know, we operate in a regulatory environment that is very
    similar to financial services. We are still the one and only
    company that has received a BitLicense, and so I can tell you,
    having gone through that process, it was almost like getting a
    bank charter. And so New York took a very thoughtful approach
    and was very thorough in terms of things that Mr. Syracuse
    mentioned, the very important risks, which are AML, consumer
    protection, and cybersecurity.
        And so I think, you know, not only do we have those which
    are similar to financial services, but on top of that they are
    really dealing with the specific risks for this industry.
        Ms. Schakowsky. Thank you. Thanks all of you.
        Mr. Burgess. The gentlelady yields back. The Chair thanks
    the gentlelady.
        We do have a series of votes on, but I wonder if I could
    just go down the panel and ask for your thoughts on what is
    going to be the game changer that consumers see, what
    application of blockchain technology. Mr. Brito, we will start
    with you, and then we will just work down the line.
        Mr. Brito. Sure. I think if I knew, I would be out building
    it and making a fortune. So----
        Mr. Burgess. Wait a minute. Wait. You are not suggesting
    this isn't a productive use of your time.
        Mr. Brito. No.
        Mr. Burgess. Being in front of the United States Congress.
    Come on. This is where I live my life. Please proceed.
        Mr. Brito. That said, you know, as with the early Internet,
    I think the killer applications are going to come from left
    field, maybe things that we can't expect. But if I had to take
    a guess today, I would say it is going to be in areas where
    technology excels and does things that our current payment
    system and our current sort of asset systems do not do. And to
    me those are micro transactions and macro transactions.
        So the ability to have very, very small payments that today
    our existing payment systems do not allow to be efficient or
    economic. Imagine, you know, if you think about the web, the
    business model of the web is essentially either charging you a
    monthly big fee, for video, for audio, for articles, or showing
    you advertising.
        The only reason we have that choice of business models is
    because we can't pay directly a few pennies for this one
    article or this 5 minutes of audio. This technology for the
    first time makes it possible.
        The other is macro transactions, really big cross-border
    payments that today are expensive and take a long time because
    of the expense and inefficiency in the corresponding banking
    system.
        Mr. Burgess. Mr. Suarez.
        Mr. Suarez. Thanks, Mr. Chairman. That is a great question,
    and I also don't know the answer to that. But when I think
    about some of the core attributes of what substantialized
    virtual currency offers, for example, you can engage in a
    transaction without having to disclose your confidential
    payment credentials, and so there are security advantages
    there.
        The cost--as Mr. Brito was just mentioning, it opens up
    opportunities for all sorts of micro transactions that are, you
    know, just economically not possible using credit cards. And
    you think about the global scale of this, which is like the
    Internet. Anyone can plug into it. Literally, anyone in the
    world can develop applications on top of the Bitcoin protocol.
    You start to appreciate the enormous potential.
        So I think a lot of the opportunity lies in micro payments.
    There are people working on technology to allow micro payments
    in browser, and that is what Mr. Brito I think was getting at,
    where you can visit a Web page and automatically transact a
    micro payment to click through to read something rather than
    having to view ads or have a pay wall.
        There are enormous potential, as my colleagues have
    discussed, in terms of using it as a clearance or property
    transfer mechanism. And so I am not sure which of those is
    going to take off, but it is going to be something I think very
    impactful.
        Mr. Burgess. Very well.
        Mr. Cuomo.
        Mr. Cuomo. Yes. Thanks for the question. Great question.
    You know, I think for every one payment, coin-oriented use
    case, there are thousands of nonpayment, noncoin-oriented use
    cases. So what really captures our imagination at IBM are some
    of the use cases that might happen around things like Internet
    of things where they intersect with everyday life.
        So think about insurance and liability. Think about the new
    autonomous vehicles, self-parking vehicles out there. So who is
    liable if a self-parking vehicle crashes? All right? So I think
    what we can give back to our citizens is finer grain with the
    blockchain, finer grain liability insurance, such that when you
    are in control of the car, it is immutably recorded on the
    blockchain that you are in control, you are driving.
        And when the software takes over in your car and starts
    parking, that is immutably placed on the ledger, such that if
    an accident occurs while, you know, the car is self-parking
    perhaps, the manufacturer is liable or the person who wrote the
    software. So when you start thinking beyond coins, you know,
    what the possibility is, it is just amazing.
        Mr. Burgess. Mr. Snow, and let's be brief because I have
    only got a couple minutes left before I have to go vote.
        Mr. Snow. Well, you are beginning to know me, because maybe
    I am not always brief. I do believe that the idea that you can
    know the history and the history can't be changed and you can
    distribute that to all corners of the earth will create new
    ways to organize projects and companies and efforts.
        And so you will see a dramatic reduction in the overhead of
    corporate oversight essentially to create products, goods, and
    services to people. It is basically distribute everything, and
    what that looks like I will----
        Mr. Burgess. We will have to wait and see, won't we?
        Mr. Snow [continuing]. Like everyone else, I don't know.
        Mr. Burgess. Mr. Beccia.
        Mr. Beccia. Yes. So very quickly, thank you, Mr. Chairman.
    So when you think about the early days of the Internet and how
    long it takes for real innovation to evolve, I think you are
    going to see the same thing here, but it is really exciting. I
    think when you look at the payment space and you look at the
    risks, you look at the regulations that are needed, it is
    amazing where we have come even in a short period and where we
    can go.
        But I am really also excited about the other use cases. So
    when you think of having real estate transactions,
    recordkeeping systems for those, for securities, for smart
    contracts, things like that, I think, you know, there is
    endless possibilities there.
        Mr. Burgess. Wonderful. Mr. Syracuse.
        Mr. Syracuse. I think my fellow panelists have touched upon
    most of the salient points, exchanges, the ability in
    insurance, the ability in big data to put ownership of one's
    identity and credentials information into their own hands, so
    it is an asset that they are able to then leverage.
        But I think the truth is, the people that know the answer
    to this question are probably sitting in a dorm room at MIT or
    a dorm room in another part of the world, and the key thing for
    us is to make sure that nothing that, you know, we do as
    regulators will prevent or hinder that, and will create an
    environment where that can grow.
        Mr. Burgess. Yes, Mr. Roszak.
        Mr. Roszak. We have heard a lot of great use cases for the
    movement of money, digital currencies, tokenization of assets.
    And one of the greatest assets that can be employed into this
    new railroad is digital identity, how we manage that identity,
    the privacy, the security, and make each transaction unique,
    whether you are buying something at the convenience store or
    applying for a job or going to the hospital or applying for a
    mortgage.
        Each of those interactions takes a different part of your
    digital identity, and this technology enables you to really
    take control of that and do that privately and securely.
        Mr. Burgess. Since the observation was made that someone in
    a dorm room right now is maybe working on that, whatever that
    next technology is, I will just offer that at some point in the
    future to have my individual medical records only accessible by
    me, but the larger, the identified data available to
    researchers, FDA, whoever wants to study the cross-
    hybridization between this medication and cardiovascular
    disease, the Vioxx story from several years ago might have been
    very, very apparent had that capability been available.
        I want to thank all of you. You know, some mentioned the
    Internet of things. I have just got to tell you, when we had
    the Internet of things hearing, we had things here. When we had
    the drones hearing, we had drones here. I was so looking
    forward to finding out whose face was on the Bitcoin, and I
    still don't know even after the end of this hearing.
         But seeing as there are no further members wishing to ask
    questions, I again want to thank our witnesses for being here.
        Before we conclude, I would like to submit the following
    document for the record by unanimous consent: a letter from
    Ripple. Without objection, so ordered.
        [The information appears at the conclusion of the hearing.]
        And pursuant to committee rules, I remind members they have
    10 business days to submit additional questions for the record.
    I ask our witnesses to submit their responses within 10
    business days upon receipt of those questions.
        Without objection, the subcommittee is adjourned.
        [Whereupon, at 1:20 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                     Prepared statement of Hon. Fred Upton

        Our Disrupter Series continues as we focus on digital
    currency and blockchain technology, just another example of how
    innovative uses of technology are powering the economy into the
    future. From executing smart contracts to settling money
    transfers in minutes instead of days, millions of folks in
    Michigan and across the country could see the blockchain
    transform how they engage in everyday commerce in the next few
    decades.
        The exciting aspect about this technology, however, is that
    it can do much more than impact currency, it has the potential
    to affect almost every industry that relies on intermediaries
    to establish trust between two parties that want to do
    business. This can change how folks sell their car, sign a
    mortgage, or share music.
        Back home in Michigan, startups are raising millions in
    venture capital to grow their blockchain-based businesses. For
    example, BTCS, headquartered in Troy, Michigan, raised $4.25
    million in 2015 to develop its transaction verification
    services business on the Bitcoin blockchain.
        In the manufacturing space, supply chain management
    continues to challenge companies' internal management functions
    as well as recall effectiveness. Given that the blockchain
    shows everyone in the network the current state of any asset
    and that asset's history on the blockchain, tracking a
    particular good around the world from port-to-port is now
    possible and the information trustworthy, which can help
    improve logistics for the auto industry.
        In the public sector, blockchain technology could
    positively disrupt voting, compliance, and real-time reporting.
        The applications for blockchain technology are truly
    incredible. Everywhere there is an asset transfer, the
    blockchain can bring transparency and trust. As with any
    emerging technology, it is important to understand the risks
    and benefits to consumers and I hope our panel can speak to
    these issues for digital currency and future blockchain
    applications.
        I thank Chairman Burgess for continuing the Disrupter
    Series and highlighting the positive impact that emerging
    technologies, like the blockchain, are having on our economy.

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