[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.]
A P P E N D I X
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