[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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