[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

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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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