    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

     BUILDING BLOCKS OF CHANGE: THE BENEFITS OF BLOCKCHAIN TECHNOLOGY FOR
                                SMALL BUSINESSES

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

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD
                                 MARCH 4, 2020

                                   __________

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 116-076
                 Available via the GPO Website: www.govinfo.gov

                                ______

                 U.S. GOVERNMENT PUBLISHING OFFICE
    39-892                WASHINGTON : 2020

                       HOUSE COMMITTEE ON SMALL BUSINESS

                     NYDIA VELAZQUEZ, New York, Chairwoman
                             ABBY FINKENAUER, Iowa
                              JARED GOLDEN, Maine
                              ANDY KIM, New Jersey
                              JASON CROW, Colorado
                             SHARICE DAVIDS, Kansas
                              JUDY CHU, California
                               MARC VEASEY, Texas
                           DWIGHT EVANS, Pennsylvania
                            BRAD SCHNEIDER, Illinois
                          ADRIANO ESPAILLAT, New York
                           ANTONIO DELGADO, New York
                         CHRISSY HOULAHAN, Pennsylvania
                             ANGIE CRAIG, Minnesota
                       STEVE CHABOT, Ohio, Ranking Member
       AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                              TROY BALDERSON, Ohio
                              KEVIN HERN, Oklahoma
                            JIM HAGEDORN, Minnesota
                            PETE STAUBER, Minnesota
                            TIM BURCHETT, Tennessee
                              ROSS SPANO, Florida
                            JOHN JOYCE, Pennsylvania
                           DAN BISHOP, North Carolina

                     Melissa Jung, Majority Staff Director
       Justin Pelletier, Majority Deputy Staff Director and Chief Counsel
                       Kevin Fitzpatrick, Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Nydia Velazquez.............................................     1
    Hon. Steve Chabot................................................     2

                                   WITNESSES

    Mr. Shane McRann Bigelow, CEO, Ownum, LLC, Cleveland, OH,
      testifying on behalf of the Chamber of Digital Commerce........     4
    Ms. Dawn Dickson, Founder and CEO, PopCom, Columbus, OH..........     6
    Mr. Marvin Ammori, General Counsel, Protocol Labs, Wilmington,
      DE, testifying on behalf of the Blockchain Association.........     7
    Mr. Jim Harper, Visiting fellow, American Enterprise Institute,
      Washington, DC.................................................     9

                                    APPENDIX

    Prepared Statements:
        Mr. Shane McRann Bigelow, CEO, Ownum, LLC, Cleveland, OH,
          testifying on behalf of the Chamber of Digital Commerce....    22
        Ms. Dawn Dickson, Founder and CEO, PopCom, Columbus, OH......    28
        Mr. Marvin Ammori, General Counsel, Protocol Labs,
          Wilmington, DE, testifying on behalf of the Blockchain
          Association................................................    35
        Mr. Jim Harper, Visiting fellow, American Enterprise
          Institute, Washington, DC..................................    38
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        Letter from Engine...........................................    52
        Testimony of Shamsh Hadi, CEO of Zorrosign, Inc..............    57

     BUILDING BLOCKS OF CHANGE: THE BENEFITS OF BLOCKCHAIN TECHNOLOGY FOR
                                 SMALL BUSINESS

                                  ----------

                            WEDNESDAY, MARCH 4, 2020

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 11:30 a.m., in Room
    2360, Rayburn House Office Building. Hon. Nydia Velazquez
    [chairwoman of the Committee] presiding.
        Present: Representatives Velazquez, Finkenauer, Davids,
    Delgado, Chu, Chabot, Houlahan, Evans, Schneider, Bishop, and
    Spano.
        Chairwoman VELAZQUEZ. Good morning. The Committee will come
    to order.
        I want to thank everyone for joining us this morning,
    especially our witnesses for taking time to travel here to
    testify before our Committee.
        The key to long term growth in our economy is to make sure
    we are creating an environment that encourages innovation. That
    is why since last January we have held hearings on how the
    digital ecosystem promotes entrepreneurship, how small firms
    are leading the way in the clean energy economy, and solutions
    to decrease barriers for women and minorities seeking patents
    and trademarks. Today's hearing is another topic I am excited
    to explore, which is how blockchain technology is being used to
    support entrepreneurship and small business growth.
        I know that when most people hear about blockchain, they
    automatically think of cryptocurrency and bitcoin. While
    blockchain is the technology that enables the existence of
    cryptocurrency, by no means is that its only use. As a member
    of the Financial Services Committee, I have heard firsthand how
    blockchain technology is being utilized in payment processing
    by large banks and insurance companies.
        Today, we have an opportunity to hear from small businesses
    that are using blockchain technology to reduce costs, increase
    efficiencies, disrupt industries, and grow their businesses. As
    we all know, the Internet, once the realm of hobbyists and
    cutting-edge tech experts, has grown into a mainstream driver
    of economic growth and efficiency.
        Yet, much of the power of the Internet is concentrated in a
    few multibillion-dollar companies such as Facebook, Google, and
    Amazon, who gather large amounts of data on consumers, and
    dominate marketplaces. In fact, many small businesses rely on
    these large corporations for advertising, E-commerce,
    distributing their products, cybersecurity, and cloud
    computing. Much like when a Walmart comes to town, it is
    challenging for small businesses and entrepreneurs to compete
    against these massive corporations.
        Blockchain technology can help small businesses compete on
    a more level playing field with larger corporations by
    streamlining operations, reducing reliance on costly third-
    party intermediaries, and boosting cybersecurity networks. By
    deploying blockchain effectively, the technology can have a
    positive financial impact on small businesses.
        Over the last decade, there has been a frenzy of investment
    and entrepreneurship around blockchains. Innovators and small
    businesses are at the forefront of a wide variety of
    blockchain-based technological applications in nearly every
    sector of our economy, including healthcare, the clean energy
    sector, financial services, transportation, and logistics.
        The international competition has begun.
        Many other countries have invested in blockchain research
    and initiated coordinated frameworks. Congress must do our part
    to make sure that the United States remains a leader in
    blockchain development and engagement.
        Because blockchain technology has a wide variety of
    applications, both in government and in the private sector,
    there are a number of federal agencies that have been looking
    at the uses of blockchain technology including the SEC, CFTC,
    and even the IRS.
        However, many of these efforts are not coordinated between
    agencies, leaving uncertainty for businesses and entrepreneurs.
    We must make sure that the federal government adopts policies
    that support blockchain technology as it becomes a driver of
    wider economic growth and efficiency. There is a need for a
    coordinated framework to balance the need for regulation, while
    still supporting innovation, and providing clarity and
    predictability for businesses and entrepreneurs.
        Today's hearing is a chance for us to go beyond the hype to
    understand the benefits and challenges of blockchain
    technology. Our panel today represents a diverse set of
    expertise and viewpoints that will provide insight into some of
    the areas where blockchain is having an impact on small
    businesses. I look forward to the testimony and discussion.
        I would now like to yield to the Ranking Member, Mr.
    Chabot, for his opening statement.
        Mr. CHABOT. Thank you, Madam Chairwoman.
        Technology is continuously being developed to meet the
    needs of a rapidly changing world. From the development of the
    assembly line, to the credit card, to the virtual universal use
    of the Internet, businesses are continually adapting to the
    world around them in order to remain competitive and provide
    for their customers.
        Businesses embrace technological advancements in order to
    reduce costs, streamline processes, increase productivity, and
    maximize customer satisfaction. Though technological
    advancements may be difficult for some to learn and adopt, our
    most innovative minds are searching for ways to do better. Our
    free market thrives on this continued innovation.
        Blockchain technologies are one of the newest advancements
    with a potential to create a positive impact on businesses,
    consumers, and our economy. It is important to examine this
    growing field in order to learn more about the potential
    security benefits and cost reductions. Of course, as with all
    new technologies, we must be aware of any potential challenges
    that could adversely impact individuals or businesses,
    especially small businesses.
        Today, we will hear what the complex world of blockchain
    technology has to offer our small businesses and gain a broader
    understanding of the benefits and challenges associated with
    this technology.
        I want to thank the Chairwoman for holding this hearing and
    for inviting one, in fact, two witnesses from America's
    greatest state, Ohio.
        Thank you, and I yield back.
        Chairwoman VELAZQUEZ. The gentleman yields back.
        If Committee members have an opening statement, we would
    ask that they be submitted for the record.
        I would like to a minute to explain the timing rules. Each
    witness gets 5 minutes to testify and members get 5 minutes for
    questioning. There is a lighting system to assist you. The
    green light will be on when you begin, and the yellow light
    will come on when you have 1 minute remaining. The red light
    will come on, and that means that the time is up, and we ask
    that you stay within that timeframe to the best of your
    ability.
        I would now like to introduce our witnesses.
        Our first witness is Mr. Shane Bigelow, the CEO of Ownum.
    Ownum companies aim to bring more efficiency to vital records
    by converting paper-based processes to digital formats using
    blockchain technology. Prior to joining Ownum, Mr. Bigelow was
    a Senior Vice President and Managing Director at Bear Stearns
    where he managed U.S. business and served on the firm's
    Responsible Investment Committee. Thank you for being here.
        Our second witness is Ms. Dawn Dickson. Ms. Dickson is the
    CEO of PopCom, an automated retail company that uses Blockchain
    to help collect customer insights. As a serial entrepreneur
    with over 16 years of experience in marketing and business
    development, Ms. Dickson has launched four successful companies
    since 2002. Her most recent ventures include Flat Out of Heels
    and PopCom. Thank you for your testimony and for being here
    today.
        Our third witness is Mr. Marvin Ammori, the General Counsel
    of Protocol Labs. Protocol Labs is a research, development, and
    deployment institution for improving Internet technology. Using
    an open source approach to creation, Protocol Labs focuses on
    building systems and tools to improve how the Internet works.
    Mr. Ammori is a leading First Amendment lawyer and Internet
    policy expert. Prior to joining Protocol, he was a legal fellow
    at the New American Foundation, an affiliate scholar at
    Stanford Law School, and law professor in Nebraska. He was also
    the head lawyer for Free Press and has been a leading legal
    advocate in advancing network neutrality. We appreciate you
    being here today.
        Now I yield to the Ranking Member, Mr. Chabot, to introduce
    our final witness.
        Mr. CHABOT. Thank you, Madam Chairwoman.
        Our final witness is Jim Harper. He is not one of our two
    Ohio witnesses, but he is still pretty good. Mr. Harper is a
    visiting fellow at the American Enterprise Institute (AEI).
    Before joining AEI, he worked at the Competitive Enterprise
    Institute and the CATO Institute. Previously, he served as
    counsel for the House Judiciary Committee Subcommittee on
    Commercial Administrative Law and is counsel for the Senate
    Committee on Homeland Security and Governmental Affairs. Mr.
    Harper received his B.A. from University of California, Santa
    Barbara, and his J.D. from University of California's Hastings
    College of Law. And we welcome you here this morning, Mr.
    Harper. We welcome all the witnesses.
        Chairwoman VELAZQUEZ. Mr. Bigelow, you are now recognized
    for 5 minutes.

      STATEMENTS OF SHANE MCRANN BIGELOW, CEO, OWNUM, LLC,; DAWN
    DICKSON, CEO, POPCOM; MARVIN AMMORI, GENERAL COUNSEL, PROTOCOL
        LABS; JIM HARPER, VISITING FELLOW, AMERICAN ENTERPRISE
                               INSTITUTE

                   STATEMENT OF SHANE MCRANN BIGELOW

        Mr. BIGELOW. Good morning Chair Velazquez, Ranking Member
    Chabot, and members of the Committee. Thank you for inviting me
    to speak on this important topic.
        I am Shane McRann Bigelow, the CEO of Ownum. Today, I am
    appearing on behalf of the Chamber of Digital Commerce, as well
    as my company, Ownum, to offer our specific experiences in
    starting a small business that improves the lives of consumers
    by providing quicker and more efficient access to vital records
    and enhances public safety in doing so.
        In the United States, our vital records are used to
    demonstrate ownership, citizenship, birthright, and much more.
    However, acquiring these important documents is cumbersome
    because these records are largely paper based. For most
    Americans this is an annoyance at best and debilitating at
    worst. For the poorest in our Nation, a group
    disproportionately tilted towards minorities, vital record
    acquisition and maintenance can represent the worst in life.
        From a mother who is trapped in an abusive relationship
    with her husband because he is holding hostage her and their
    children's birth certificates and other important documents to
    a title loan store that is pressuring a downtrodden individual
    to relinquish his or her vehicle title in exchange for an
    exceedingly high interest rate loan, vital records are
    regularly at the epicenter of physical and economic
    disadvantage in our most vulnerable communities. Further, our
    government process today requires considerable paperwork and
    more importantly time spent in line at the DMV or Department of
    Health in each state in our Union. This requires time away from
    employment and is an event that requires transportation,
    something that studies indicate our poorest communities lack in
    quality form in much of our Nation. It could easily be said
    that the process to acquire vital records in this country is
    discriminatory.
        The question of course becomes why, in this age of
    technology where cell phones are abundant and internet access
    is readily available, do we still require such antiquated
    processes as filling out paperwork, spending hours in long
    lines, and physically showing up at inconvenient locations, all
    while missing work?
        We have failed to become fully digital because there has
    been no incentive to change. The ecosystem around vital
    records--banks, insurance companies, hospital systems, etc.--
    have accepted the legacy process of using paper as a cost of
    doing business. That was acceptable 20 years ago when our
    technology could not fully support a digital process, but that
    is unacceptable today.
        At Ownum, we aim to change all of that. Ownum is a holding
    company, that was started by Bernie Moreno and me,
    approximately 2 years ago. Under Ownum, other companies are
    created, each with a similar goal. That goal is to digitize a
    particular vital record and the process to acquire it--no
    paper, anywhere, anytime.
        Our first company is Champ Titles, which can be found at
    champtitles.com, where we are digitizing vehicle titles. The
    second company is Vital Chain, found at vitalchain.com, which
    is digitizing birth and death certificates. Each uses
    blockchain technology to improve accuracy and efficiency, and
    fight fraud.
        Ownum's use of blockchain technology is why we are invited
    to be here today. But sadly, the use of blockchain is often a
    source of confusion and one of the biggest delays for
    governments. Unlike in the 1990's and 2000's when government
    promoted business and fostered the internet boom, today our
    governments seem to be doing the opposite with anything related
    to blockchain. This is where this Committee can be of great
    help to any small business or start-up working with blockchain
    technology today. If state governments were encouraged to
    pursue digitization, like what the IRS did when they allowed a
    multitude of vendors to replace paper tax filing with digital
    filing, that would be a great step forward.
        The states need an incentive to allow vendors like us to
    send in and transact completely in digital form the information
    they currently acquire and transact in paper form.
        Ideally, the outcomes Ownum seeks are as follows:
        Help the poorest in our country to gain better access to
    their vital records in a secure way by encouraging Federal and
    state governments to allow for the digitization of not only
    their vital records, but the process to acquire them; use this
    Committee's paper reduction authority to promote the
    digitization of paper-based vital records at the state and
    Federal level in areas where government services are involved;
    provide financial aid to small businesses seeking to provide
    digitization of records; incentivize state governments to adopt
    digitized vital records; and affirm publicly that the Federal
    ESIGN Act applies across all 50 states to blockchain technology
    and other emerging tech.
        By recommitting, as we did during the internet boom, to
    focus our government, at all levels, on what a technology
    enables, we will help our government to pursue digitization
    strategies for vital records. Doing so will enable many
    startups and small businesses like us to build the next
    generation of the innovative and entrepreneurial culture in
    America.
        Thank you, and I look forward to your questions.
        Chairwoman VELAZQUEZ. Thank you, Mr. Bigelow.
        Now, Ms. Dickson, you are recognized for 5 minutes.

                       STATEMENT OF DAWN DICKSON

        Ms. DICKSON. Thank you, Chairwoman, Ranking Member, members
    of the committee, it is an honor to be here today to represent
    the great state of Ohio.
        I am Dawn Dickson, a small business owner for 20 years. I
    am what most call a serial entrepreneur. I am driven and
    passionate about business ownership and identifying resources
    to move my companies forward.
        Like many small business owners, I have benefitted greatly
    from SBA programs, including SCORE and Bixel Exchange. In 2016,
    I won $20,000 in the SBA innovateHER Challenge, and last year I
    won $125,000 in the MEDA $1 Million Pitch Competition that is
    also SBA funded.
        I own four small businesses but today I will focus on one,
    PopCom, where I am leveraging blockchain technology for
    specific aspects of my business.
        PopCom is a small B2B tech startup that develops software
    and IoTconnected hardware for self-service retail. This
    includes vending machines and kiosks used to dispense products
    and perform transactions.
        At PopCom, we are using blockchain to optimize machine-
    driven transactions for government-regulated products that
    require identification verification, sales compliance, supply
    chain information, or a combination of all three. There is
    tremendous opportunity in this space, over $3 trillion in
    global revenue, growing to $5 trillion by 2022.
        I want to clarify that PopCom is not a blockchain company.
    We are a technology company that uses facial recognition and
    artificial intelligence in our software. I am simply using
    specific blockchain applications for my business. This is an
    important distinction.
        Blockchain is not a silver bullet. However, it can solve
    problems that small businesses face. Instead of buying our own
    proprietary product, we partner with CIVIC, a secure blockchain
    identity management platform to age gate customers, to execute
    purchases of regulated products, such as cannabis from a
    vending machine.
        As a company, we believe that the most secure way to check
    and confirm a customer's identity, while ensuring their
    personal data remains secure, is to have the customer verify
    their information on their mobile device and store that data on
    the blockchain. We never collect or have access to any of their
    personal data. We know nothing about or from the customer, and
    that is the power of blockchain.
        Blockchain is more than a business tool. It can also be
    leveraged for fund-raising. I know first-hand the challenges
    that small businesses face when raising traditional and
    nontraditional capital.
        In 2016, after I won the SBA InnovateHER Challenge, I still
    could not qualify for an SBA loan, despite already generating
    revenue and having excellent credit history.
        Federal programs are ineffective if they are not accessible
    to the very small businesses they were created to empower.
        In 2018, I made the tough decision to turn down $1.5
    million in VC investment because it would have meant giving up
    over half of my business ownership. After we completed our seed
    round, bringing our funding to close to over $1 million from
    Angel and VC, I decided to do a secure token offering to raise
    capital and to give people in my community the opportunity to
    invest in my business.
        Blockchain technology made this possibility through the
    tokenization of my cap table. A token represents a digital
    share stored on the blockchain, and it is treated no
    differently than a traditional stock certificate. However, the
    token is proof of investment that lives on the blockchain
    ledger forever and cannot be erased or retracted. This gave
    people comfort and security knowing that their money is safe.
        In 2019, I became the first female CEO globally to raise
    over $1 million using equity crowdfunding under Title III, Reg
    CF of the JOBS Act. I leveraged my personal network to raise
    capital through the STO, instead of relying solely on VCI and
    Angel investors to fund my business.
        Access to capital for small businesses has come a long way
    since I started my first company in 2001. However, more needs
    to be done to increase this access in order for entrepreneurs
    to continue to grow, bring products to market, and create jobs.
        Congress is in a position to address these issues and this
    Committee can lead the way.
        There are few financial institutions that will capitalize
    enterprises that are using blockchain. The National Policy
    Network of Women of Color in Blockchain have developed a
    legislative proposal to create a federally-backed SBA 7(a) loan
    for entrepreneurs and small businesses who are using blockchain
    technology. This unique SBA 7(a) loan could help level the
    playing field for all businesses.
        Congress should consider blockchain and cryptocurrency as a
    part of the solution and advance policies that will benefit
    small business owners like me.
        I hope you will continue to engage diverse forces as you
    deliberate legislative priorities to ensure entrepreneurs can
    innovate, build, and grow right here at home.
        Again, thank you for the opportunity to contribute to this
    important debate on behalf of the millions of constituents
    across the Nation that this Committee is tasked to empowering.
        Chairwoman VELAZQUEZ. Thank you, Ms. Dickson.
        Mr. Ammori, now you are recognized.

                       STATEMENT OF MARVIN AMMORI

        Mr. AMMORI. Thank you, Chairwoman Velazquez, Ranking Member
    Chabot, and other members of the Committee for inviting me here
    today.
        I am Marvin Ammori, testifying on behalf of the Blockchain
    Association.
        I head Legal and Policy at a member company called Protocol
    Labs. Protocol Labs was founded in 2015, and now has more than
    117 employees and contractors across 36 states and 16
    countries.
        This year my company plans to launch the Filecoin protocol,
    which is software designed to create a vibrant marketplace for
    online data storage. And Blockchain technology is one key
    enabler of that marketplace.
        So, let's begin with blockchain technology.
        When you cut through the hype, a blockchain is essentially
    a data structure. So, think of a database, a ledger, or a
    spreadsheet. Now, why is there so much hype for a better
    spreadsheet? Because a blockchain stays up-to-date and in sync
    based on software rules and community agreement. So, one person
    or one company does not choose how to update the entries in the
    spreadsheet; rather all (or a specified number) of the
    computers in a network will ?agree to make the update together.
        So, you might prefer a blockchain instead of a traditional
    database or ledger. If you would rather trust a consensus of
    multiple actors versus trusting one single recordkeeper. It is
    that simple.
        So the invention of blockchain technology can affect
    industries far beyond money listed in a ledger, including
    health care, supply chain, vital records, and anywhere else you
    would want multiple people making the consensus, including
    enabling competition in Internet infrastructure, such as
    services like cloud storage.
        So, the Filecoin network will be a marketplace for buying
    and selling cloud. For decades, computer scientists and law
    professors have written about the resilience benefits of a
    programmable, efficient market for storing data, where people
    who have extra hard drive space on their phone or in their data
    center could rent that storage, securely and efficiently, to
    others who wanted access to that storage. Our software will be
    open source, and anyone will be able to download it for free to
    broadcast their desire to buy or sell hard drive space.
        In the Filecoin network, a blockchain will record the
    storage market's transactions. As a result, nobody will be
    needed as a middleman, including us, to manage the marketplace.
    Anyone can rely on software rules and underlying that,
    mathematics for the marketplace.
        So how can Filecoin and the Blockchain underlying it
    benefit small businesses?
        First, creating a marketplace in online storage may drive
    down the cost of data storage, which is a real cost for almost
    every business in every sector. Businesses need reliable and
    secure places to store data as much as they need electricity,
    and many of them pay cloud storage providers to hold and serve
    that data from their data centers. If Filecoin drives down
    storage costs through enabling more competition, small
    businesses will save money, which they can invest in jobs and
    R&D. Further, more small businesses would be able to afford the
    digital file cabinets needed to innovate in data-hungry new
    fields, such as virtual reality, healthcare imaging, and
    artificial intelligence.
        Second, and just as importantly, Filecoin will enable small
    businesses to compete directly in the cloud storage market.
    Today, Amazon is the largest provider of cloud computing
    through its Amazon Webservices Division. This is actually
    Amazon's biggest business, accounting for more than 2/3 of
    Amazon's operating income with high margins. We hope that an
    open storage marketplace can help all the smaller and mid-size
    players to compete more effectively, not based on brand
    recognition or large enterprise sales teams but by competing on
    costs, speed, and security.
        We are not the only company using blockchain data
    structures to create open marketplaces for Internet
    infrastructures, which we hope will decrease the power of
    today's large Internet platforms, and some would say
    decentralize the Internet. Others include new browsers,
    privacy-protective advertising exchanges, video encoding
    marketplaces, identity solutions such as mentioned by Ms.
    Dickson, and highly-distributed computing.
        In sum, blockchains are novel data structures. They may be
    useful in many industries where multiple players prefer
    collectively updating records instead of relying on one central
    updater. One of those industries is Internet infrastructure,
    including our project which we hope will benefit many small
    businesses, and there are many other use cases.
        Thank you. I look forward to your questions.
        Chairwoman VELAZQUEZ. Thank you, Mr. Ammori.
        Mr. Harper, you are now recognized for 5 minutes.

                        STATEMENT OF JIM HARPER

        Mr. HARPER. Chairwoman Velazquez, Ranking Member Chabot,
    and members of the Committee, thank you for the opportunity to
    testify before you today despite my woeful lack of Ohio roots.
        When I was counsel with the House Judiciary Committee in
    the latter part of the last century, I had the opportunity to
    collaborate with a lot of Small Business Committee staff, so I
    have a lasting affection for the Committee. I do not think any
    of those folks are still here, but I am glad to see consistency
    in the leadership.
        I am Jim Harper, visiting fellow at the American Enterprise
    Institute, and senior research fellow at the University of
    Arizona, James E. Rogers College of Law.
        Since I left the House in 2000, I have been a student of
    technology, including blockchain and cryptocurrency since 2011.
    In my time I came to believe that you really have to understand
    a technology fairly deeply to gather what the consequences of
    the technology are and what might come from any regulatory
    intervention. So my written testimony is fairly heavy on
    blockchain as a technology, the processes by which blockchains
    are created and the use of cryptocurrency in some cases to
    secure blockchains, such as when there are higher value uses or
    larger scale blockchain applications.
        I am going to spare you that lecture here today. You should
    be happy to know that. And I will skip to the consequences that
    I perceive for small businesses.
        You have heard from my co-panelists about specific
    implementations that illustrate the benefits of blockchain. I
    perceive them breaking down into three categories. One, already
    mentioned, just simple efficiency. Blockchains may allow
    various business functions to be conducted at lower cost. On
    the theory that each dollar saved is more precious to a small
    business than it is to a larger business, I think that is a
    distinct and important benefit for small business.
        Second, blockchains may allow for diversified and open-
    market structures that support more niches and specialties.
    Because I like the example so well, I focused my written
    testimony on an effort called Beefchain. Along with saving on
    costs and losses when meat supply may be tainted, a Beefchain
    may allow small producers of specialty meats to serve national
    markets. What a boon for small businesses and consumers who
    might enjoy greater options than what is available through
    commodity meat production.
        Finally, I think blockchains may reduce the competitive
    advantage that large businesses have in the world of data. This
    relates pretty well, Chairwoman Velazquez, to the reference you
    made to the bigger players in tech right now. Large companies,
    not only in tech but throughout industry, have the resources
    and heft to set data standards for their industries. These
    standards may benefit the large businesses themselves. And of
    course, they have access to more data about markets, products,
    customers, and so on.
        Blockchain can bring large communities together to create
    data commons, unowned, nonproprietary stores of data. These
    projects more likely have data structures that serve all use
    cases, including the uses of small business, and they may give
    small businesses access to data that they did not previously
    have. This would give them the ability to use advanced
    analytics and make other uses of data that are now reserved
    only to bigger businesses. So blockchain may lower barriers to
    entry and innovation.
        My friends in the cryptocurrency world may poo-poo the
    benefits of mere blockchain. The larger cryptocurrency projects
    may have world-changing consequences, and that is exciting
    stuff. But I think about it this way: The Internet, when it
    came along, was an amazing tool for communication. When I left
    The Hill 20 years ago, I do not think even I imagined that we
    would have video conversations on our hand-held phones. I did
    not think we would have a language of emojis and gifs that we
    use. I did not think I would be able to keep in touch with high
    school friends from 35 years ago the same way I keep in touch
    with my neighbors. All that is because of the communication
    medium that the Internet created.
        Well, what the Internet itself did for communication,
    blockchain and cryptocurrency may do for recordkeeping and
    administration. That means big changes in how business and
    government are conducted. Big shifts in power, including,
    hopefully, lower power and fewer concentrations of power in
    society, including in those larger businesses. That is
    important, even if it is mostly still potential.
        There will be a lot of consequences to sort through. One
    could argue that the challenges we face in online privacy exist
    because the Internet grew a little too fast for our society to
    absorb it. The net benefits are great though, and they will
    continue to accrue.
        The same goes for blockchain and cryptocurrency. They hold
    out substantial benefits for all sectors of society and the
    world. You are wise as a Committee to be examining this now and
    making this Committee part of the process of ingratiating the
    technology into society so that we can get the benefits from
    blockchain while controlling the costs and the risks.
        Thank you again for having me here today. I look forward to
    any questions you may have of me or my co-panelists.
        Chairwoman VELAZQUEZ. Thank you. Thank you to all of the
    witnesses for great insight that you have provided to us today.
        Mr. Bigelow, small businesses often rely on third-party
    intermediaries or middlemen when conducting business. Can
    blockchain help eliminate multiple intermediaries in certain
    industries, thereby increasing efficiencies and reducing costs
    for small businesses?
        Mr. BIGELOW. Chairwoman, thank you very much for a great
    question.
        The short answer is yes. An example comes to mind from an
    experience recently that might shed light on how this could
    occur. I had to get from a meeting to an airport as is commonly
    the case with my travel. I could not take an Uber or a Lyft, so
    instead I arranged for a car service. I was in the car on the
    way to the airport, and I started talking to the driver and I
    asked is this part of a fleet? He said, the owner started it
    and there are six or seven cars in the fleet. And I asked, how
    often do you cycle through the vehicles? And he said, more
    often than you think. We put a lot of miles on them. And I
    asked, who takes care of that? And he said, every time we have
    to sell the car, the owner gets involved, and he has to go
    through the whole process. I asked, what sort of involvement
    does that require? He said, as far as I understand it, we sell
    three or four cars a year, and every time they do that they
    have to go down to the DMV and take the title, convert the
    title into the new owner or get the title from the lender if
    they just paid off the loan, and they spend anywhere from 3 to
    4 hours either in line or getting to and from the location. I
    asked, does the owner also drive the cars? He said, yes, he is
    a crucial part of our fleet. I said, for the totality of that
    time, that owner is out of pocket. The owner probably makes
    somewhere in the neighborhood of $50,000 to $60,000 per year.
    If you presume that the cost of that time is anywhere from 3 to
    4 hours per instance and there are 3 or 4 instances per year,
    it is very easy to equate that to somewhere in the neighborhood
    of about $500 or $600 per year. That is 1 percent of their
    earnings. That is effectively a tax on that individual.
        With blockchain as the intermediary, immediately the car
    title can be shifted from the bank back to the owner. The owner
    can then give it to somebody else.
        Chairwoman VELAZQUEZ. Is there any industry where this can
    have the most impact?
        Mr. BIGELOW. It is self-serving for me to say, but I
    believe there are two places. For car titles, the example was
    not accidental. This is the low-hanging fruit that exists right
    now in a place where the government can be helpful. Anyplace
    where there is a government-based vital record, if we convert
    that to a digital form, it will help all of the businesses
    around it. Banks and insurance companies, are particularly
    burdened with the cost of titles so vehicle titles are the
    first place.
        Chairwoman VELAZQUEZ. Thank you.
        Ms. Dickson, for all small businesses, improving customer
    service is critical for success. How is blockchain technology
    being used by small businesses to learn more about their
    customers?
        Ms. DICKSON. Thank you, Chairwoman, for the question.
        What comes to mind immediately is our use of blockchain for
    identity management when we use facial recognition. So, as you
    know, face recognition is becoming very big across multiple
    industries and everywhere in the world, really. And on our
    vending machine platform we offer facial recognition to
    understand the customer demographic profile. So, understand
    male, female, approximate age, and your engagement ring.
    However, the privacy concerns around are you taking that
    person's identity data and using that for anything, that has
    been a big concern and that is why we utilize the blockchain so
    that when we do need to confirm that identity for a regulated
    product or for a prescription or alcohol, that we can verify
    they are a confirmed identity, of age, and able to purchase
    that product, but never take their identifying information.
        Chairwoman VELAZQUEZ. Thank you.
        Ms. DICKSON. Okay. Yes.
        Chairwoman VELAZQUEZ. I do not have much time left, but I
    would like to ask a question to Mr. Ammori.
        Do you believe that blockchain, or the use of blockchain,
    by small firms will level the playing field allowing them to
    compete against the big tech, like Amazon, or Google?
        Mr. AMMORI. Well, that is definitely our hope, and I think
    it is the hope of several large investors in the country.
    Andreessen Horowitz and Union Square Ventures essentially have
    a thesis around using cryptocurrency and Blockchain to compete
    with a large platform.
        Chairwoman VELAZQUEZ. Thank you.
        New industry allows policymakers the opportunity to put in
    place rules and guidelines designed to increase equity and
    diversity. What can be done to ensure that communities of color
    and women are leaders in this industry, and that we do not end
    up with an all-boys club that exists in a sector like the
    financial sector?
        Yes, sir?
        Mr. AMMORI. I think there is a whole range of different
    initiatives that would cut across all venture capital. I think
    one thing would be to reduce the general risk around
    cryptocurrency and Blockchain. There are several good rules
    that are being proposed, including tax fairness and clarity
    around securities. And I think if you reduce the risk you will
    get more money in and that will go across the entire diverse
    American economy.
        Chairwoman VELAZQUEZ. My time has expired. Thank you so
    much.
        The Ranking Member is recognized.
        Mr. CHABOT. Thank you, Madam Chair. And I will begin with
    you, Mr. Harper.
        What, if any, challenges are there that may be discouraging
    or preventing any small businesses out there from adopting
    block chain technology?
        Mr. HARPER. Well, there are many across a wide range. There
    is a lot of uncertainty. Blockchain and cryptocurrency are sort
    of category-busting. They do not fit into the old boxes. I
    think most of the agencies are doing a creditable job of trying
    to figure out how old rules apply. And that is generally the
    case, that old rules probably apply, and they just have to
    figure out exactly how. There are little gaps where there might
    be challenges.
        But the lack of certainty around how existing regulation
    applies to various blockchain applications is probably a
    hindrance. Even today, I think the IRS is holding a session to
    hopefully do better on how it categorizes and how it works with
    cryptocurrencies, the value of cryptocurrencies. There are ways
    its done right, which is establishing pretty much that
    cryptocurrencies are property, and you get capital gains if you
    sell at a gain. And there are other cases where it has sort of
    missed and does not fit well with the technology. So a lot of
    certainty needs to grow up around blockchain and cryptocurrency
    so that people can move forward confidently.
        Mr. CHABOT. Mr. Ammori, somewhat related to the question I
    just asked, is Blockchain ready to be fully embraced would you
    say? Or are there still areas that should be worked out before
    mass adoption?
        Mr. AMMORI. I think it is ready. I think some of the areas
    that need to be worked out on the technical side is we really
    need to improve user interface and usability so that all small
    businesses could use it. On the legal side, as Mr. Harper
    mentioned, the tax treatment at the moment is very complicated.
    If you want to just spend bitcoin on a coffee this morning you
    would have to keep track of what you paid for the bitcoin and
    how much it was worth the moment you spent it and pay the
    capital gain or loss on every single transaction. Doing your
    taxes for crypto is the worst nightmare.
        And so, if we could have a di minimis tax exception which
    has been proposed, the virtual currency Tax Fairness Act, I
    think all of you should support that. And then we should also
    have a little more clarity around the CFTC's role versus the
    SEC's role. And they are both trying very hard, but more
    certainty would be very helpful.
        Mr. CHABOT. Thank you very much.
        Ms. Dickson, did you make the right decision in turning
    down that $1.5 million from the venture capital fund? I hope
    the answer is yes.
        Ms. DICKSON. Yes. I appreciate the Ranking Member's
    question.
        Mr. CHABOT. If so, tell us about it.
        Ms. DICKSON. No, it was an excellent decision because it
    allowed me to let other investors from around the community
    invest. So, in the case of venture capital that is one fund or
    a few funds that come together and they are credited, and they
    are already wealthy, and they can invest. But using a STO would
    allow me to leverage friends, family, peers, social media, the
    community, our customers, to invest at as low as $250. So
    instead of having two investors in a round or three, we have
    2,200. But the way it is structured with the token is that it
    is considered as like a syndicate, so it is only one line item
    on my cap table. So, it was a great decision.
        Mr. CHABOT. Great. Thank you.
        Mr. Bigelow, you mentioned the auto title function, and the
    Chair mentioned some other businesses. Are there some other
    governmental agencies or functions that you could envision
    either at the local level or state level or at the Federal
    level that you think would make sense for your technology that
    you have described?
        Mr. BIGELOW. There are. Expanding on auto titles, they have
    an impact on not only the banking industry and the insurance
    industry when it comes to total loss, but they also have an
    impact on the way consumers can use that asset to either
    acquire a loan or value it as part of their total assets for
    other purposes. Birth and death certificates are another great
    place. If you think about the example in my opening testimony,
    we do have a problem in poor and minority communities where
    those assets are very difficult to come by, and the time that
    is spent to acquire them often leads to missed work and
    sometimes can even lead to someone losing his or her job
    because he or she was not there. It is a disproportionate tax
    on that person because the time he or she has to spend in line
    costs them much more as a percentage of their income than it
    does for perhaps someone on this panel to actually spend that
    time in the line.
        If the government determined that we should be digitize all
    of our paper-based assets that are vital records, that would be
    a great use of time and a great benefit to society.
        Mr. CHABOT. Thank you very much.
        Madam Chair, my time is getting ready to expire, so I yield
    back.
        Chairwoman VELAZQUEZ. The gentleman yields back.
        Now we recognize the gentlelady from Kansas, Ms. Davids.
        Ms. DAVIDS. Thank you, Chairwoman, Velazquez, and Ranking
    Member Chabot for holding this hearing.
        I know blockchain offers some pretty exciting possibilities
    for small businesses looking for security and autonomy, and so
    I am really glad we are getting the chance to focus on this
    today.
        We have seen some pretty fundamental security issues with
    Internet and privacy issues. Sometimes the small businesses are
    particularly vulnerable to these things. I am curious if you
    could talk a little bit about just what kind of protections
    implementing blockchain technology in small businesses could
    provide? And I am particularly thinking just about personal
    data.
        And so, Mr. Bigelow and Ms. Dickson, you both have touched
    on whether it is facial recognition or our vital records, if
    you could talk a little bit about the future of privacy
    protection there.
        Ms. DICKSON. I am happy to answer that question,
    Congresswoman.
        Again, just storing the data on the blockchain and allowing
    the customer to grant that access to whether it is a retailer
    or a doctor, the customer, the individual has control over the
    data and that is how they can use the blockchain. And a
    business can use a blockchain even as far as managing human
    resources and any sensitive information about our employees or
    about our customer. So that is what comes to mind immediately
    is just as Mr. Ammori talked about that ledger, that secure
    database, that database that not one person controls. And that
    is really important as it comes to transferring data to
    multiple sources.
        Mr. BIGELOW. To add to that, if you think about your data
    today, it is being used by the large companies that the
    Chairwoman referenced in her opening comments. Blockchain
    offers a path. As Mr. Ammori mentioned, it is a ledger on which
    data can be stored. Because of the transparency often
    associated with public blockchains, you can see how that data
    is being used.
        In the permissioned world, which is where my company spends
    most of its time, it is the protection around that data that is
    crucial. Blockchain is generally not the issue when it comes to
    security. It is the applications on top of blockchain where
    there are vulnerabilities that are created. Blockchain itself
    tends not to be vulnerable.
        Ms. DAVIDS. And Mr. Ammori, I would just like to follow up
    because you mentioned earlier the need for probably an
    additional user, the UX, the user interface and how do we make
    sure that people understand. So if they have the ability to
    control the permission or they are granting authorization, how
    far along are we in developing out whether it is the apps that
    help people navigate that or the different businesses that are
    moving in that direction?
        Mr. AMMORI. There are actually multiple attempts at the
    moment to centralize identity or sovereign identity. I do not
    think there has been a lot of uptake quite yet because I do not
    think we have solved the UX problems.
        But the question about security on the Internet comes
    because when the internet was invented and created, there was
    asset of open protocols anyone could use. Right? The Internet
    protocol. The transmission control protocol. All these
    protocols for email and transmission. Security was not built
    into the protocols of the Internet. Identity was not built into
    the protocols of the Internet. And so, a few large companies
    came along, and one of them kind of owns our identity on the
    Internet, Facebook. Facebook is this giant database of all of
    our names and our friends and our relationships and it is
    controlled by one company. And if you could take that database
    and make it an open blockchain where it is not controlled by
    one platform but you could use encryption and authentication to
    identify yourself, and instead of logging in with Facebook
    everywhere on the Internet, you could log in with Civic or some
    other blockchain application. You could actually take that
    identity and not controlled by certain platforms, and you could
    do the same with security as well.
        Ms. DAVIDS. So, Ms. Dickson, I know in your testimony you
    mentioned having participated--I do not want to get it wrong,
    sorry--with a delegation of 25 industry leaders to address
    blockchain issues. I know it was a Women of Color in Blockchain
    congressional briefing. And I am curious if you can tell me if
    you feel as though we have done up to this point a very good
    job. Or what do we need to continue to do to make sure that we
    are opening those avenues up and hearing what is going on as it
    relates to small businesses and blockchain, particularly with
    women of color?
        Ms. DICKSON. Thank you, Congresswoman.
        You know, you are doing it here today by giving us all the
    platform to be here and speak on it. By giving us the
    opportunity to hold that briefing in October. And just hear us.
    Hear what we have to say. Give us the opportunity to share.
        So, my position is showing the use case. Since we do not
    bill blockchain like my fellow panel members do today, we use
    it. The things that they are building, we need. And I am here
    to be a voice for all of the companies that are really excited
    about what Mr. Bigelow is building and Mr. Ammori are building
    and waiting for us to be able to put those in a practice. So,
    by you doing what you are doing today, you are doing enough,
    and more of this definitely needs to continue.
        Ms. DAVIDS. Thank you. I yield back.
        Chairwoman VELAZQUEZ. The gentlelady yields back.
        Now the gentleman from Pennsylvania, Mr. Evans, Vice Chair
    of the Committee, is recognized.
        Mr. EVANS. Thank you., Thank you, Madam Chair.
        Ms. Dickson, I want to follow up a little bit on some of
    the questions, for example, that have been raised with you.
    Like, what are the other benefits for businesses considering
    using ICOs or STOs to raise capital?
        Ms. DICKSON. Thank you for your question.
        Speaking from just personal experience, the benefit for our
    company was to be able to have a wider pool of investors. You
    know, I live in Ohio. It is no secret I am a black woman, and I
    went to the Ohio State University, but that is not an Ivy
    League school. You know, I did not go to school to be an
    engineer, so my network was really concentrated from 20 years
    of being a business owner and the reputation I built in my
    community. And I wanted to be able to leverage those
    relationships to raise capital and everyone was not accredited.
    And it came down to accredited versus nonaccredited investors.
    So, the benefit of being able to use a secure token offering,
    which I did not do in ICO. I wanted to make a distinction
    between a secure token offering, which is legal under the SEC
    Jobs Act, Title III, and you can raise up to $1,070,000 a year
    that way. And it really allows businesses to leverage their
    networks, their personal networks, nonaccredited investors.
        Mr. EVANS. So do you think only certain types of
    businesses, such as tech businesses for using ICOs or STOs?
        Ms. DICKSON. So, you know, the ideal type of business to
    raise capital in this way are high-growth businesses. So, of
    course, if it is a small business that does not have a 10X
    potential or above, they definitely can look into many other
    funding that is available. There are also other types of
    crowdfunding that exists that are not inclusive of equity. So,
    I would encourage businesses that have high-growth potential to
    have the opportunity and the potential to return high
    investment yields to their investors. So those would be the
    ideal companies to do that.
        But it is an option for any business. However, the very
    extensive due diligence that is required, including financial
    reviews, including being compliant with many of the regulations
    around it, it is not just that anybody can do it. So, the SEC
    has definitely put things in place to make sure that the
    businesses are compliant, they are solid businesses, and they
    have great potential.
        Mr. EVANS. Do you have any concerns relating to the
    security of these type of exchanges?
        Ms. DICKSON. Can you please clarify the question when you
    say ``exchanges'', please?
        Mr. EVANS. In other words, you state that investor tokens
    cannot be sold because the SEC has not approved alternative
    trade exchanges. Can you further, you know, in terms of the
    approval?
        Ms. DICKSON. Yes, sir. So initially, when raising the
    secure token offering in which 2018 was the first year that
    this was legal under the Jobs Act, with the understanding that
    after a 12-month holding period the investors would be able to
    trade those tokens on an ATS and be able to get liquidity
    earlier and not have to hold them for maybe the standard 10-
    year period that a venture capital or institutional investor
    would have to hold them.
        So, since there has not been an ATS Exchange approved yet
    for the trade of these secure tokens that companies like myself
    have done, the investors are still holding onto those tokens
    until that is approved by the SEC.
        Mr. EVANS. Mr. Harper, you have several years of
    experience. What are your thoughts on the security of these
    exchanges and what the government can do to improve security?
        Mr. HARPER. Well, the industry is young, and it is new. And
    there are, unfortunately, a lot of businesses that are
    immature. And actors that are immature. So, it is right to be
    concerned about the security of exchanges, just like the
    security of any application provider. The question that came
    earlier about the security of blockchains in an application
    setting is very important. One of the advantages that
    blockchain has, I think, is simplicity. Blockchains, although
    they are a little bit complex, are really ultimately rather
    simple. They are also open. That is, a lot of eyeballs can be
    on the software and the blockchain itself. And that will cut
    down on security risks, though it certainly does not eliminate
    them.
        So, a lot of the problem in security has not been the
    blockchain itself but it has been the applications on top of
    the blockchain. Some of the smart contracts that people have
    tried to write to run on a blockchain like a Ethereum. There
    are a lot of things to work out in this area. And so, I do not
    think people should rush in, but be careful about the exchanges
    and about the applications that sit on top of any blockchain.
        Thanks for the question.
        Mr. EVANS. Thank you, Madam Chair. I yield back the balance
    of my time.
        The gentleman yields back.
        And I would like to go to a second round and ask some
    questions myself and then if the Ranking Member has any other
    questions, he will be recognized for 5 minutes.
        So, I would like to ask this question to the panel. And Mr.
    Bigelow, you mentioned, right, that we should incentivize state
    government to use blockchain and to deal with some of the
    paperwork and so on.
        So, my question to you is what conditions are needed to
    help encourage the U.S. government to realize the economic
    potential of blockchain technology?
        Mr. BIGELOW. The easiest way to think through it is to look
    at examples. This past winter, the Department of
    Transportation, reissued their statement on the Federal
    odometer statement. They clarified that it could be completely
    in electronic form.
        You would think that ESIGN from years ago would have
    already clarified this. You might even think that their 2016
    revision would have already clarified it. But because titles
    are done at the state level, the Federal government had to be
    very clear about how their one piece of paper that happened to
    be within the titling system but was Federal instead of at a
    state level. They had to be very clear how it could be executed
    at the state level. That clarity is particularly important. By
    being clear, now states are able to move to a more electronic
    process around odometers. Further, the focus was not on the
    technology. They mentioned blockchain as a valid path to go
    down for this electronic record. However, they focused on the
    function, not the technology itself. This is also outlined in
    the Chamber of Digital Commerce's National Action Plan that the
    real focus should be on function, not on technology. If our
    government can do that, we will unlock a lot of value that is
    currently right now unable to be unlocked due to a lack of
    clarity because people are focusing on the tech and not the
    function.
        Chairwoman VELAZQUEZ. Thank you.
        Mr. Ammori and Mr. Harper?
        Mr. AMMORI. I am not sure if this directly answers your
    question, but I believe that the U.S. government should embrace
    a digital dollar, especially if China embraces a digital
    renminbi. I think that will help China compete with their Silk
    Road Initiative and other investments in Africa. And I think if
    we care about the dominance of the U.S. dollar, we should
    really think about what other countries are doing as well.
        Chairwoman VELAZQUEZ. Okay. Mr. Harper?
        Mr. HARPER. There are a couple of examples that I have come
    across of Federal government agencies using blockchain, even
    just experimenting with blockchain, which I think has value
    because it will familiarize people in the agencies with how
    blockchains work.
        At the Treasury Department, if my recollection is correct,
    they are using blockchain to track devices. So, if someone is
    issued a phone or a computer by the agency, software in the
    computer, the phone is programmed to check in from time to time
    whenever there is a login and say I am here. I am in the
    possession of my employee or the employee that works for the
    agency. What a great savings over sending someone around,
    person to person, office to office, to find 70,000 different
    devices as a physical matter? So, it is not the superlative use
    of blockchain, but it is the agency familiarizing itself with
    blockchain. And they will find uses that really take advantage
    of the open data capability of blockchain. That is, things that
    they can put on the blockchain and make open so that people can
    see how the government is operating and see in real time what
    the functions of the government are. I think there is a real
    opportunity there for open government.
        Chairwoman VELAZQUEZ. Ms. Dickson?
        Ms. DICKSON. Thank you. The only thing that I would add as
    a business owner is just making funding more accessible to
    small businesses that use blockchain and also making the
    barrier to entry easier for companies that would like to
    utilize token offerings.
        Chairwoman VELAZQUEZ. Thank you.
        Mr. Chabot?
        Mr. CHABOT. Thank you, Madam Chair.
        I hesitate to ask this question, but I will.
        Mr. Harper, you started out at the beginning saying that
    you were not going to bore us with how this thing actually
    works technology-wise. And as you notice, this is being
    broadcast and there are probably tens of people out there
    watching. And so for that one guy that is out there at home or
    will see this down the road, that technology nerd or the lady
    that is out there watching this that understands--her mom she
    just said--how does it work in like just a couple of minutes if
    you could?
        Mr. HARPER. I like to say the same thing but a different
    way. I say, figuratively thousands of people are watching.
        Think of a blockchain as an e-ledger. The blockchain name
    is kind of confusing. It might be forbidding to people. We can
    understand what email is. It is electronic mail. This is an
    electronic ledger, and it is a way that participants across the
    Internet or any kind of community that is created by Mr.
    Bigelow's company or Mr. Ammori's, they come together, and they
    post information that goes into a ledger. A block is
    essentially a ledger page.
        Cryptography and techniques that I will insist on not
    describing here because I will probably get it wrong, but my
    written testimony might be a pretty good resource. People go to
    the Small Business Committee website and download it there.
    Cryptography ties the blocks together and assures that they are
    not going to be changed. And it ties new blocks to old blocks.
    So, you get a string or chain of blocks that become an
    authoritative record of whatever transaction or whatever event
    is recorded on that blockchain. So, cryptocurrency, like the
    bitcoin blockchain, that is a blockchain that records transfers
    of this asset. And you have an immutable record that lasts
    forever. Thanks to cryptography, it is highly secure. There are
    always attacks and concerns about ways that that immutable
    record could be undermined. But there is pretty clever
    cryptography that secures the blocks in and of themselves and
    then secures the blocks together to make a chain. And it is
    kind of amazing, I think, to create a system for worldwide
    recordkeeping, worldwide administration. It is not owned, or
    government controlled. It is not corporate. It is not
    governmental. It is people getting together and deciding how to
    do things. So, it might be identity. We all exist separate from
    our driver's licenses. Honest, we do. And there are ways of
    doing identity that can prove relevant things about you without
    giving away your eye color, address, height, and weight. You
    need to prove that you are over 21. You need to prove that you
    have passed a certain security check. You can do so at the
    airport, for example, without sharing who you are and where you
    are traveling. They can be assured that you are safe without
    getting a big record of where everybody has traveled. So, there
    is a lot of potential out there.
        That is not the complete technical description but
    hopefully it gets people a little further.
        Mr. CHABOT. Very good.
        And you can tell your mom, ``You are welcome.''
        Thank you. I yield back.
        Chairwoman VELAZQUEZ. The gentleman yields back.
        The gentleman from Pennsylvania, Mr. Evans, is recognized.
        Mr. EVANS. You spoke about smart contracts in your
    testimony and I am concerned about the legal implications of
    using smart contracts. Can you please speak to some of the
    legal issues such as jurisdiction with smart contracts that are
    essentially borderless?
        Mr. HARPER. Yes. I will do a little bit of the technology
    behind smart contracts.
        A block captures events and transactions generally, but
    smart contracts, such as on the Ethereum blockchain, the
    notations in the ledger are actually code that can operate. And
    so, the example I give in my testimony is that a farmer might
    want insurance against bad weather. They can set up a smart
    contract that grabs information from an oracle, that is a
    reliable source. So, if there is bad weather during harvest
    season, they get a payout that helps compensate them for lost
    crops. That kind of thing. So, it is really computer code
    planted in the block chain. They will operate automatically to
    carry out whatever measure people decide they want to do.
        ``Smart contracts'' is actually a misnomer. It is just
    code. A contract is when two people enter into an agreement and
    they have to carry out that agreement one way or another. The
    legal issues arise when someone decides not to or when they do
    not understand the terms of their agreement. This code executes
    the code, no matter what it is. And sometimes it goes badly,
    and there have been examples of smart contract code going
    badly.
        The legal issues, and I might invite Mr. Ammori, also a
    lawyer, to chime in with others. The legal issues may include
    what the legal consequence of a given smart contract is in
    different jurisdictions. You could have someone in Asia enter
    into a smart contract deal with someone in New York, and things
    go wrong. How is that going to get resolved in courts if the
    Asian party believes that their laws should apply and the New
    York party thinks that their laws should. In a way, the
    Internet, but especially blockchain, kind of lifts things off
    of territorial jurisdiction and opens really difficult
    questions about what laws apply, if they can apply at all in
    these kinds of situations.
        So, it is a great question and I have an incomplete answer,
    I am pretty sure.
        Mr. EVANS. Yes, do you want----
        Mr. AMMORI. Thank you for the question.
        So, I think there are ways to address that issue. One, when
    it comes to a smart contract, let's say. Let's say you and I
    have a smart contract and if, you know, there is crop damage
    because of weather, you will pay me some insurance. If that
    smart contract executes but there was something wrong with the
    deal or if there is a dispute, we could still go to the same
    courts. You could go to the courts. The problem is the money
    has already been prepaid. So, if you believe in the Roman
    dictum that possession is 9/10 of the law, right, you would be
    the one who would have to pursue the dispute versus me being
    the one who would have to pursue the dispute. And sue my
    insurance company might be the other way around. So, the legal
    system would still apply.
        And if you are dealing with a system where there is Chinese
    and African and American and Canadian, people all using the
    same blockchain, you could in theory write into the code a
    choice of law provision. So, all disputes regarding the smart
    contracts will be solved through an arbitration, right, if
    there is enough money involved. So, there are ways to actually
    embed real law in the code that is the smart contract. But I
    agree with Mr. Harper. Smart contract is kind of a misnomer. It
    is too highfalutin. It is just code.
        Mr. EVANS. Thank you. I yield back my time.
        Chairwoman VELAZQUEZ. The gentleman yields back.
        Let me take this opportunity to thank all of you for your
    testimony and for helping to shed light on the numerous
    applications of block chain technology. Blockchain technology's
    ability to streamline processes, promote transparency, increase
    security, and decrease costs has the potential to transform the
    way we do business. As these technologies continue to develop
    worldwide, we want to ensure that innovators and entrepreneurs
    have the opportunities to expand upon the enormous potential of
    blockchain technologies to support small businesses and spur
    economic growth. It is clear that there is a role for both
    businesses and government in enabling innovation.
        I look forward to working with my colleagues on both sides
    of the aisle to address the opportunities and challenges facing
    the use of blockchain technology.
        With that, I will ask unanimous consent that members have 5
    legislative days to submit statements and supporting materials
    for the record.
        Without objection, so ordered.
        If there is no further business to come before the
    Committee, we are adjourned. Thank you.
        [Whereupon, at 12:33 p.m., the Committee was adjourned.]

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