Over two hundred people gathered at the Cato Institute for Tuesday’s conference, “Cryptocurrency: The Policy Challenges of a Decentralized Revolution.” Three keynote speakers and four panel discussions investigated the public policy implications of cryptocurrencies like Bitcoin and the underlying distributed ledger blockchain technology. If you couldn’t make it to Cato and missed the livestream, video and podcast recordings are now available on the event website. Or keep reading for a synopsis of the day’s program.
Before the featured speakers and panels commenced Jerry Brito gave an overview of cryptocurrencies and the current public policy stance towards them. Brito is a leading advocate for a hands-off regulatory approach to cryptocurrencies. In 2014 he launched the Coin Center, a non-profit devoted to educating policymakers and the public about cryptocurrency issues. The staff here at CMFA worked closely with Brito and Coin Center to assemble the conference program. Our sincere thanks to Jerry and his team for their immense help and expertise.
Brito began by saying that digital currency is itself old-hat: banks, credit card companies, and PayPal have offered versions of it since the 1990s. Bitcoin was the first decentralized, peer-to-peer digital currency. Because it was also pseudonymous, public authorities mainly saw it as something useful to criminals. Nowadays they’re starting to see its open-source software as a way of revolutionizing payments.
Brito warned that complex regulations are causing the US to fall behind countries that welcome cryptocurrency startups, including the UK, where MPs have stated their wishes for London to be the epicenter of fintech. One major problem in the US is that money transmitting is regulated at the state level, making it so that firms involved in moving cryptocurrencies have to comply with fifty different sets of laws.
The issue of state level money transmitting laws related directly to the first panel’s topic: cryptocurrencies and consumer protection regulation. Moderated by the Coin Center’s Peter Van Valkenburgh, the panel featured Margaret Liu of the Conference of State Bank Supervisors, Marco Santori, Global Policy Counsel for Blockchain Inc., Melanie Shapiro, CEO of Case Wallet, and Dana Syracuse, attorney with Buckley Sandler who helped draft the New York BitLicense when he was at the New York Department of Financial Services.
The panelists discussed the contrast between regulators’ impulses to protect consumers from the dangers of a new technology and the flexibility startup firms need to develop their products. Shapiro noted that the peer-to-peer validation model of blockchain transactions is self-governing. Santori echoed those sentiments, claiming that the technology’s self-governing nature was “turning regulatory principles on their head.”
Santori also agreed with Brito’s point that firms engaging with the technology might relocate abroad if US regulators are hostile towards cryptocurrencies. Syracuse mentioned that focusing on consumer protection can cause lawmakers to overlook consumer benefits, especially benefits to worldwide consumers priced out of traditional financial services. Liu, providing a regulator-oriented perspective, seemed sympathetic to the industry’s concerns. She agreed that many regulations, designed for yesterday’s issues, can be ill-suited for new technologies and business models.
For the keynote, Commissioner Giancarlo, one of three currently on the Commodity Futures Trading Commission, argued that regulators should adopt “do no harm” as their first principle when making blockchain policy. Giancarlo compared this idea of “do no harm” to Internet policy in the 1990s, which, according to Giancarlo, was based on the idea that, “the Internet was to progress through human social interaction, voluntary contractual relations, and free markets.” Giancarlo called on regulators and policymakers with jurisdiction over DLT (Digital Ledger Technology) to establish uniform principles that ensure blockchain innovation can occur without government permission. You can read Giancarlo’s full speech here. Coinciding with his speech at Cato, Giancarlo published an op-ed emphasizing his point in the Financial Times.
The second panel discussed blockchain technology’s effect on the financial services industry. Marc Hochstein, editor in chief of American Banker, moderated the panel, which featured Paul L. Chou, CEO of LedgerX, Jacob Farber, general counsel at R3CEV, Joseph Lubin, co-founder of Ethereum, and Ryan Zagone of Ripple.
Each of the speakers represent organizations that develop financial services products using blockchain. Ripple, LedgerX, and R3CEV attempt to leverage blockchain for use in global payments, settlements, and financial asset trading. The Ethereum Project is a non-profit foundation that allows developers to build blockchain-based applications.
The financial industry is paying more attention to permissioned blockchains, or access-restricted distributed ledgers. Ryan Zagone pointed out that payments are settled much faster on private blockchains than existing systems. Jacob Farber added that permissioned blockchains allow for automated, smart contracts to govern financial transactions. Joseph Lubin compared the permissioned v. permissionless distinction to internet v. intranet, arguing that some institutions and networks need closed blockchains, but this won’t affect the openness of the underlying technology.
We were fortunate to have Patrick Byrne speak. Just the day before he announced an indefinite medical leave of absence from his two pioneering companies: Overstock.com, a major online retailer and the first to accept bitcoin, and the recently founded tØ, a blockchain-based trading and settlement platform for financial securities. Byrne recounted his longstanding appreciation for Cato, beginning with the small-dollar donations he made while a college student. Upon his announcement, he canceled all other professional engagements besides his keynote. He said it was fitting to make his last public speech (for awhile at least) at Cato. We are truly honored.
Byrne offered a concise and poignant explanation of his bullish take on the social value of cryptocurrency and blockchain. Blockchain solves what Byrne called a “6,000” year old problem: the inability for strangers to verify the value of the exchanged assets without a trusted, intermediating third party. This problem contributed to the rise of states and their monopoly on the issue of currency. Blockchain’s disruptive potential might even exceed that of the Internet, according to Byrne. The Internet provided a dispersed method for transmitting information, but blockchain goes a step further by providing a dispersed method of transmitting value.
Discussing the monetary side of the cryptocurrency revolution were Kenyon College economics professor Will Luther, Chamber of Digital Commerce president Perianne Boring, and the Mercatus Center’s Eli Dourado, moderated by our own George Selgin. The panelists began by evaluating Bitcoin’s use as a currency. That use is presently limited. Luther pointed out that Bitcoin processes around 200,000 transactions a day, a high number, but miniscule compared to the 150 million Visa handles. Boring added that merchants hesitate to take Bitcoin now because of its volatile price. At the same time, Bitcoin and the blockchain provide some advantages for merchants. The public ledger might eliminate chargeback fraud in online transactions, for example. The panelists also touched on potential innovative monetary uses for cryptocurrencies. Dourado touted the potential for a self-driving car paying for its own gas in Bitcoin in an “Internet of Things” future. Selgin noted the possibility for cryptocurrency technology to be used as a means for enforcing a monetary rule, à la Friedman’s famous proposal.
On the day’s last panel, moderated by Coin Center’s Jerry Brito, Andrea Castillo of Mercatus, Cato’s Jim Harper, Eric Lorber of the Financial Integrity Network, and Zooko Wilcox-O’Hearn, founder and CEO of Zcash, weighed the privacy enhancing aspects of cryptocurrencies versus potential criminal exploitation. Harper argued that Bitcoin and blockchain’s privacy benefits exceed any potential value for criminals, pithily claiming that the existence of data “doesn’t entitle the government to have it.” Lorber pointed out that the Bitcoin community has an incentive to self-police against criminal use. Castillo emphasized the real, positive benefits of financial privacy, remarking that authoritarian governments think of Bitcoin as “public enemy number one.” Wilcox-O’Hearn had a unique perspective, given his founding role in the cryptocurrency Zcash, which facilitates completely anonymous transactions. Wilcox-O’Hearn pointed out that media reports implying a connection between bitcoin and terrorist finance are all unproven.
Mick Mulvaney, representative for the 5th district of South Carolina and Vice Chairman of the House Subcommittee on Monetary Policy and Trade, closed out the conference. Mulvaney argued that the federal government must take a policy stance on cryptocurrencies. Ignoring the technology would be tantamount to a confusing and obstructionist regulatory stance, given uncertainty about bitcoin’s status as either a commodity or security, and the aforementioned state law issue. Mulvaney, himself a fan of the technology, emphasized his hope for US centrality in future financial technology innovation. He also mused about the implications of cryptocurrencies on the state’s monopoly of official currency issue, even referencing Hayek’s "Denationalization of Money."