The Senate Banking Committee held a hearing today on cryptocurrency aptly titled Cryptocurrencies: What are they good for? And as one may anticipate, the questions and support of digital asset innovation largely fell along party lines.
For the witnesses, there were representatives from Coin Center, Filecoin, and a law school professor.
In prepared remarks, the witnesses staked out the opinions of the crypto-asset ecosystem.
Mary Belcher, Chair of the Filecoin Foundation, said that “cryptocurrency can be the foundation for a better Internet — an alternative to big tech that puts people in control of their own data, protects user privacy and security, and permanently preserves humanity’s most important information.”
Belcher said the technology is in its early days of development and urged the Committee to “embrace” crypto technology stating the innovation may have a similar impact as the internet – something that was largely misunderstood in its early days.
“There are already thousands of projects building other cryptocurrency applications, from automatically paying music royalties, to compensating people when their data is used, to paying journalists for each view of an article, to incentivizing consumers to use renewable energy. Many of these projects will fail, but some may move technology forward in ways we cannot yet begin to imagine,” said Belcher.
Jerry Brito, Executive Director at Coin Center, joined in support of the new tech. Brito outlined the benefits of blockchain and cryptocurrency using real world examples. Brito as well cautioned on “avoiding undue restrictions.”
“Allowing this technology to flourish can also help maintain the position of the United States as the home to global innovation. In order for us to achieve this promise we must also carefully consider the ideal regulatory environment that both fosters innovation and adequately protects consumers. As noted at the outset, the regulatory regime in the United States goes in the right direction.”
Professor Angela Walch took the opposing position noting she has been studying crypto since 2013. Professor Walch believes that crypto and other digital assets “pose significant risks currently, and the risks they pose increase as they permeate the traditional financial system and more and more people invest.”
“The financialization we have seen of cryptocurrencies and crypto tokens means that a problem in a single cryptocurrency (such as, for example, a software bug that causes the Ethereum network to fork (or split)) could ripple through all the financial products tied to that cryptocurrency, as well as all investors in the cryptocurrency, and companies that provide other services and products related to the cryptocurrency,” said Walch. “Further, since many investors appear to view digital assets as an asset class, a flaw in a flagship cryptocurrency like bitcoin or ether could drag the rest of the digital asset markets down as well. Although we have not yet seen ripple effects from the extreme price movements that seem endemic to digital assets, we cannot rule out such effects in the future, particularly as they become more widely used and more integrated into the traditional financial system.”
Walch sees an unexpected systemic risk emerging to both digital assets that will spill into traditional finance. She said that crypto is idealized and threw shade at “myths about crypto.”
Committee Chairman Senator Sherrod Brown said in his opening remarks that the last thing we should do is “give another industry a chance to wreck things.” On the other side Senator Patrick Toomey said that crypto can improve services and distributed ledger technology is a “powerful innovation.”
Senator Steve Daines said, “the last thing we want to do is regulate these firms into oblivion.”
Senator Elizabeth Warren, a frequent critique of crypto who has been calling for more aggressive regulation, said crypto sounds like a “lousy system.”
“Instead of lousy banks [crypto] puts control in the hands of shadowy developers.”
Warren added that there is no doubt we need more inclusion but she does not believe crypto will provide it.
“Big banks have failed to meet consumers’ needs. In fact, crypto is more dangerous for consumers and more dangerous for our financial system.”
Warren said that all of the warning signs are flashing and regulators need to “step in and do their job before it is too late.”