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Stephen F. Lynch: Thank you,
Katrina. Thank you Clement.

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Thank you, Marcos for your good
work. Good morning and welcome

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to the members of the House
Financial Services FinTech Task

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Force and to our distinguished
panelists. So since the pandemic

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has severely narrowed the scope
of our work in the closing weeks

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of session, and because of the
urgency of competing priorities

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like the Heroes Act, and because
of the committee's wider

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economic response, it has
limited our opportunity to take

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up other important legislative
initiatives, we thought it would

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be helpful to restart that
process in a way by having an

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informal discussion about the
near term possibilities for

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blockchain related legislation
in a way that allows us to

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reconcile the enormous potential
that blockchain offers our

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society but also acknowledging
and addressing the concerns

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around fraud and investor
protection and the possible

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facilitation of unlawful
activities like tax avoidance,

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drug trafficking and terrorist
financing among others. This

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morning, I am absolutely
delighted to introduce a stellar

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group of experts and deep
thinkers on this issue, who I

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believe can help us introduce
and optimize the blockchain

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blockchain technology in a way
that meets the highest

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expectations of all of the
stakeholders in our society. So

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let me begin by introducing our
panelists. The panelists for our

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event are we had Narula,
director of the MIT Media Lab

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digital currency initiative. The
digital currency initiative is

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dedicated to researching
blockchain and digital

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currencies, serving as a
convener for stakeholders in

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blockchain technology, and
promoting diversity and

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education within the blockchain
and digital currencies spheres,

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Alan Wright is associate
clinical professor of law and

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the founder and director of the
tech startup clinic at Cardozo

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Law School. Professor Wright is
also co author of blockchain and

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the law a very good book that I
highly recommend, especially for

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lawmakers. I'm going to talk a
little bit about that later. I

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have a quote from it, and he is
also an expert in internet and

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emerging technology issues. Mr.
Wright has previously testified

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before the House Committee on
Science, Space and technology on

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this very same topic. Danelle
diction is the CEO and Executive

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Director of the stellar
Development Foundation. The

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foundation supports technical
and business communities with

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stellar blockchain ecosystems,
which were launched in 2015. And

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stellar is an open source
network for currencies and

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payments. I just want to say,
parenthetically, Mr. Wright, I

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did read your book a couple of
years ago, when it first came

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out. I know you wrote that along
with your co author DePhilippi.

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Blockchain In The Law, I highly
recommend it, I actually read it

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twice. It's in my E version, it
is heavily highlighted. I think

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it's an excellent book it it
gets into the, you know, more

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profound issues, I think around
blockchain and what it means for

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our society, I think it's very,
very helpful for lawmakers to

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think about the, those different
dimensions of this rather than

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just a, you know, a single issue
or a single technology. But I do

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want to read one quote, which
which might guide us as

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lawmakers, this is a quote, it
says, despite showing great

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promise, Blockchain based
networks run the risk of

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creating discrete risks that
could destabilize central

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banking, and indeed, the Fed has
come out and voiced those

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concerns. It could also
destabilize financial markets

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and the administration of
commercial agreements. And

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blockchain may support new forms
of unlawful activity, which you

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might think will be a concern to
lawmakers. These risks are

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particularly acute, because the
technology is deployed to rework

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fundamental systems and
institutions that define our

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modern society, the very
definition of a revolutionary

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technology. So as we begin, I
want to say that our goal here

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in the task forces is an in
these very solver discussion is

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hopefully to raise the level of
understanding of blockchain

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technology by our members in the
public to match the level of

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excitement around black chain
technology. So with that, I will

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ask the Narula, director of the
MIT Media Lab digital currency

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initiative to offer your
remarks. Thank you.

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Neha Narula: Thank you very
much, Congressman Lynch. And

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hello, every and good morning to
everyone. I want to thank the

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members of the committee for
inviting me here today to

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participate in this member
briefing. So, as Congressman

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Lynch said, my name is Neha
Narula. And for the past four

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years, I have been the director
of the digital currency

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initiative at the Massachusetts
Institute of Technology. I am no

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stranger to MIT, having received
my PhD in electrical engineering

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and computer science, from MIT
in 2015. The digital currency

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initiative or DCI has a mission
to make it as easy to move value

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as it is to move information by
engaging in neutral and rigorous

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research and while serving the
public good. We are computer

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scientists and open source
software developers who have

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been working on architectures
for digital money since 2015.

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And might I just add, I'm really
happy to have the opportunity to

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engage further with lawmakers.
We don't often get that as

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computer scientist. I'm also
honored to currently be working

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on a multi year research
initiative with the Federal

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Reserve Bank of Boston to
determine if we can design build

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and test a robust digital
currency platform that can meet

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the needs of a national retail
payment system. So I just wanted

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to set the stage of it. I think
our financial system is just not

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currently working for everyone.
The poor pay the highest fees,

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we've seen examples where the
wealthy have been able to flout

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AML and CFT rules in cooperation
with large banks. And it's taken

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months for people in the US to
receive their stimulus checks.

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And at the same time, we're
seeing this massive digitization

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as more and more of our economic
activity moves online. But we

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don't necessarily see the
capacity to provide consumers

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with exciting new low cost
services. So we have an

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opportunity today to rethink
money, rails and value rails at

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a fundamental level and to build
a foundation for a more

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inclusive, innovative economy.
We can meet consumers where they

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are onboard more of them, and
provide better integration with

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digital services. But not only
that, we can begin to research

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how to take advantage of this
new technology to consider new

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and more efficient models for
enacting our public policy

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goals. But we must be
responsible and cognizant of the

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risks of the technology and the
incentives of the participants

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involved. It's not clear it's
best to follow the path of

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internet platforms were what
started as a very open

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competitive landscape. The web
evolved to monolithic companies

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which emerged with control over
all aspects of our digital

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lives, including civic
discourse. These companies have

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emerged as de facto gatekeepers
for what news we see and what

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programs were allowed to run on
our devices. And it's clear to

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me that as we engage in this
next era for digital money, we

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need to be thoughtful and focus
on open accessible platforms

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which promote competition and
choice.

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Though we might be tempted to
rely entirely on the exciting

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developments in the private
sector for this innovation, the

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ethos of move fast and break
things is not going to work for

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global payment systems. Central
banks responsible for

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safeguarding financial stability
are rightly entering the fray to

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more deeply understand the risks
and promises of this technology.

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In addition to this important
research and development, we

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need to deeply interrogate new
technologies and examine their

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underlying incentive structures.
Some people have proposed that

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blockchain technology is best
suited to build upon and to

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create economic innovation. So
you will hear about systems that

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utilize blockchain technology
and blockchain like data

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structures. I want to stress
that whenever you hear the word

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blockchain, you should remember
to ask which blockchain that is

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very important, as they all have
different designs, features,

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security properties and
incentive structures. Saying

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something uses blockchain is
kind of like saying I would

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travel between Cambridge and
Washington DC using

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transportation that could be
Amtrak, 737, or a bicycle. There

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are many different ways to build
digital currency and to build

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this innovation, many of which
can provide interfaces without

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requiring a blockchain. We're
currently in the research phase,

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and we need to make sure we're
including neutral, unbiased,

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rigorous technology researchers
in the conversation. And of

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course, we must consider the
underlying tension between

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privacy and enabling our public
policy goals to prevent criminal

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activity and fraud. This, to me
is the most interesting research

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question we face today. I think
that the technology can actually

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help us quite a bit here. But we
have to be willing to think

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beyond our existing structures,
which I would argue are not

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necessarily working well enough
anyway. So we really have this

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opportunity here to rethink the
structures from the ground up.

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Using this technology, wherever
flickable I thank you very much

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for your time and I'm greatly
looking forward to this

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conversation.

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Stephen F. Lynch: So, I would
like to introduce previously

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introduced Aaron Wright, for
your for your opening remarks.

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Welcome.

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Aaron Wright: Thank you very
much. Thanks, Representative

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Lynch and members of the
committee of financial services.

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I really appreciate the
opportunity to brief you on it's

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an important topic. And
Representative Lynch thank you

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for the kind words. As noted
before, my name is Aaron Wright,

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and I'm a clinical professor at
Cardozo Law School, right direct

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Cardozo's blockchain project. My
research focuses exclusively on

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blockchain technology. Over the
past six years I've written

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extensively on the topic,
including as noted before, co

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authoring a book blockchain and
law will a code which was

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published by Harvard University
Press.

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The way I like to think about
this is the modern day Alchemist

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who birthed Bitcoin into
existence brought to life a new

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technology that has the
potential to profoundly impact

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the delivery of financial
services. Many have analogize

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blockchain to the internet. And
while that analogy is often not

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a perfect fit, it serves as a
useful way to understand the

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technology, the internet enabled
us to send information across

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the globe nearly
instantaneously. And if you

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think back to an era before the
internet, it was difficult to

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send things like a letter to
another person, you'd have to

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read it on paper, drop it into
mailbox and have that letter

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routed through a number of
intermediaries before it was

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delivered to its intended
recipient days, if not weeks

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later. The Internet change that
with email and obviously other

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forms of technology. Match
messages can be sent nearly

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instantaneously anywhere around
the globe, regardless of the

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jurisdiction of the intended
recipient, and the Internet

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fundamentally, and dramatically
reduce the cost of sending

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messages. And this simple change
has had a lasting impact on how

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parts of society are structured.
industries have altered business

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models, media consumption has
shifted, ecommerce is replacing

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brick and mortar establishments.
And we're now grappling with new

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challenges as the internet
matures. blockchains

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fundamentally, though, are more
than just money, they may do the

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same thing for finance. And they
may even in the most optimistic

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light underpin the next
generation of the Internet, what

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folks are calling the
decentralized web or web through

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an open permissionless
blockchains fundamentally do

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move assets almost like you
know, they reduce the cost of

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transmitting value, and
potentially thin the need for

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intermediaries creating
opportunities and obviously

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regulatory challenges. Today,
blockchain technology is still

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growing. In a sense, we're still
in the email phase, we're still

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doing research. As Jess was
noted, the assets relying on

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this technology are often
natively digital

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cryptocurrencies, like ether and
Bitcoin and tokens of various

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different stripes. It may look
like a toy, but in the long run,

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we could see other forms of
tangible value increasingly

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relying on blockchain
technology, including tokenized

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forms of intellectual property,
securities lending interests and

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title to real property. As more
assets move on to a blockchain

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and as the technology is able to
handle more complex financial

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transactions, we may see
financial business model shift

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new ways to engage in financial
services that benefit consumers,

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along with novel novel
regulatory challenges. Over the

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past five years, blockchain
technology is rapidly developed

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as technologists have
increasingly explored a

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technology related to a
blockchain known as a smart

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contract. smart contracts as a
term is a bit of a misnomer.

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They're not legal agreements,
although they can be. They're

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computer programs that enable
the creation of more complex and

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automated financial products,
and they can also automate all

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are parts of contractual
relationships. These computer

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programs or scripts are stored
and executed via blockchain,

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which helps developers program
how assets can be pulled and

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transferred. For example, they
can be used to define rules

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related to digital assets, they
can create trust or escrow like

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relationship to pull funds, they
can transfer digital assets to

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one or more persons, they can
render assets non transferable.

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They can record information to a
blockchain, enabling digital

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voting schemes that could be
useful for corporate governance

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purposes. And they can be
triggered based on outside

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information, what technologists
call an Oracle. These three

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building blocks of blockchain
smart contracts and Oracle's

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have enabled the creation of a
number of blockchain based

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financial services that are just
coming to the fore, lending

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services, insurance services,
options and derivatives

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platforms, stable coins and
tokenized securities. Some of

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these services are highly
innovative. by way of

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illustration, smart contract
based systems are enabling

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exchanges that do not rely on a
centralized order book or even

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centralized exchanges. Lending
protocols are emerging that

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don't judge potential borrowers
based on a person's race,

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neighborhood or educational
background. They simply look at

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a person's assets that they have
on hand, organizations called

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Dows, or decentralized,
autonomous organizations are

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popping up that are highly
democratic in terms of how

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they're operated and transparent
in a way that could improve the

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way organizations operate. We're
also seeing a whole bunch of

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proofs of concept that point to
other areas Here's what

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blockchain technology may
present some improvements.

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Blockchain based and online
arbitration systems were an

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arbitrator has the ability to
settle a judgment over the

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internet with less of a need for
enforcement in a traditional

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court. we're even seeing proofs
of concept around real time

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payroll systems where workers
get paid in near real time, and

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we're conceivably the government
could collect taxes in real time

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to. Despite these opportunities
smart contract based financial

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systems create regulatory
challenges. Today, as I'm sure

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many of you are fully aware,
many financial legal regimes

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impose rules and regulations and
intermediaries are in the best

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position to manage financial
risk or protect consumers. With

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blockchain technology, the need
for these intermediaries may be

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thinned or reduced. smart
contracts are hard to modify and

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change once deployed, and
they're being deployed by

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technologists around the world.
These smart contract basis

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systems are a legal nature,
often neutral to regulation and

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thus, they may not have certain
compliance obligations baked in

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at their core.

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As an example, you know, smart
contract basics exchanges today.

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Apologies. One illustration of
this is a smart contract based

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exchanges. Today, exchanges not
only serve as marketplaces to

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buy and sell securities or other
assets, they often also

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neutralize risks through
clearing houses. These clearing

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houses prevent cascading risks
by stepping in if a member of

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the exchange defaults.
Blockchain technology has not

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yet developed or imported some
of these tools found in advanced

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marketplaces to manage these
types of risks. Many of the

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smart contract based systems
also do not have embedded within

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them compliance regimes that
ensure compliance with the Bank

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Secrecy Act, or state money
transmitter laws. blockchains

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also make it easy to create new
digital assets, some of which

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have appreciated rapidly in
value, creating complex

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classification questions
relating to whether these assets

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should be treated as securities,
commodities or something else.

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Like many technologies
blockchains present a tremendous

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amount of promise and risk. Over
the long run, they may fulfill

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their vision of creating a more
participatory, open and

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decentralized financial system.
As the technology develops over

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the internet, it raises complex
challenges, especially if

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financial services are being
provided by autonomous smart

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contract based systems and not
century run companies. Thank you

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00:17:08.460 --> 00:17:10.890
very much, and I look forward to
any questions.

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00:17:13.360 --> 00:17:16.360
Stephen F. Lynch: Thank you,
Aaron. Next, we'll go to Denelle

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Dixon, you're ready for your.

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00:17:23.670 --> 00:17:26.610
Denelle Dixon: Good morning,
Chairman Lynch. Good morning,

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00:17:27.000 --> 00:17:30.390
Chairwoman waters, Ranking
Member member Emmer and members

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00:17:30.390 --> 00:17:32.760
of the committee. Thank you for
having me at this briefing.

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today. I'm honored to speak with
you about the functions of

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00:17:35.820 --> 00:17:38.490
blockchain technology and
financial services and to answer

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00:17:38.490 --> 00:17:41.880
any of your questions. My name
is Janelle Dixon, and I'm the

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CEO and the executive director
of the stellar Development

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Foundation. I've been in this
role and working in blockchain

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00:17:48.060 --> 00:17:51.750
for the last 16 months. Prior to
that I was the chief operating

304
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officer of Mozilla, the maker of
the Firefox browser, where I

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spent my time focusing on the
intersection of business,

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00:17:57.930 --> 00:18:01.560
technology and public policy. In
both of these roles. I've

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advocated for and highlighted
the importance of privacy, net

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neutrality, encryption, the need
for openness and

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interoperability and technology
and fostering competition and

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creativity on the web. Today, in
my role at SDF, these policy

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00:18:16.590 --> 00:18:20.310
issues remain an important
focus, as there's a need for

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openness and interoperability
and blockchain so that we can

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foster competition in our space,
as we did in the early days of

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the web.

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00:18:29.070 --> 00:18:31.860
The stellar Development
Foundation is a non stock

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nonprofit corporation. We have
no shareholders, we have no

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00:18:35.250 --> 00:18:39.150
owners, we have no profit
motive. We are not a charity. We

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00:18:39.150 --> 00:18:42.780
pay state and federal taxes. But
our structure allows us to be

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00:18:42.780 --> 00:18:46.350
beholden only to our mission,
which is creating equitable

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00:18:46.350 --> 00:18:50.190
access to the global financial
system. We look to accomplish

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00:18:50.190 --> 00:18:53.820
this mission by making money
more fluid markets more open,

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00:18:54.030 --> 00:18:56.640
and people were empowered
through the use of the stellar

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network. Our work in SDF is
broad, and yet our focus and we

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00:19:00.600 --> 00:19:03.930
are focused on this technology
stack. We shepherd the code base

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00:19:03.930 --> 00:19:06.690
for the stellar network, we
support the growth of the

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00:19:06.690 --> 00:19:10.380
ecosystem, and the use case is
built on top of stellar, in

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00:19:10.380 --> 00:19:13.410
addition to supporting public
policy and education around

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00:19:13.410 --> 00:19:17.520
stellar and blockchain
generally. So what is stellar?

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00:19:17.880 --> 00:19:20.970
Stellar is an open
permissionless decentralized

330
00:19:20.970 --> 00:19:24.720
ledger or blockchain network
that is optimized for payments.

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00:19:25.200 --> 00:19:28.740
There is no single entity,
including SDF, that controls the

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00:19:28.740 --> 00:19:32.430
codebase of the network or it's
gross. You don't need permission

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00:19:32.430 --> 00:19:35.550
to use the technology. It's just
like the underpinnings of the

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00:19:35.550 --> 00:19:39.420
internet. It's open and ready
for your use. The many third

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00:19:39.420 --> 00:19:42.810
parties building innovating and
growing the network are a

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00:19:42.810 --> 00:19:46.200
testament to our open source
background, and are the source

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00:19:46.200 --> 00:19:50.070
of financial innovation and
inclusion. Using stellar makes

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00:19:50.070 --> 00:19:54.270
it possible to create send and
trade digital assets backed by

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00:19:54.270 --> 00:19:58.140
nearly any form of value, and to
do so in a compliant matter

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00:19:58.170 --> 00:20:02.070
manner. The network interoperate
with the traditional financial

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00:20:02.070 --> 00:20:05.490
system to leverage the benefits
of blockchain technology to

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00:20:05.490 --> 00:20:09.570
enhance but not supplant
existing infrastructure. The

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00:20:09.570 --> 00:20:12.300
stellar network has been
operating for over five years,

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and today, the network processes
over 2.5 million daily

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00:20:16.380 --> 00:20:20.820
transactions with over 4.5
million accounts. So as members

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00:20:20.820 --> 00:20:23.760
of this taskforce have likely
heard, there are countless

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00:20:23.760 --> 00:20:26.730
applications for blockchain
technology within the financial

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00:20:26.730 --> 00:20:31.260
services sector. I want to focus
my comments today on just one

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00:20:31.290 --> 00:20:33.900
and that's payments,
particularly cross border

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00:20:33.900 --> 00:20:37.680
payments. The World Bank
estimates global remittances

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totaled 714 billion in 2019. For
seven countries last year,

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00:20:44.220 --> 00:20:48.840
remittance inflows accounted for
more than 20% of the GDP. And

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00:20:48.840 --> 00:20:53.370
according to the UN, 800 million
people that's about one in nine

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00:20:53.370 --> 00:20:57.570
globally are supported by funds
sent home by migrant workers.

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00:20:58.260 --> 00:21:02.670
Unfortunately, remittances
remain expensive and slow.

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00:21:03.090 --> 00:21:06.630
According to 2019. Data from the
World Bank, the global average

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00:21:06.630 --> 00:21:11.550
cost of sending just $200 across
a national border is around 7%.

358
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So many people and economies are
dependent on high cost

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00:21:15.300 --> 00:21:19.380
remittances, that the UN created
a sustainable development goal

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00:21:19.440 --> 00:21:23.190
to reduce the per transaction
cost of remittances to less than

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00:21:23.190 --> 00:21:28.650
3% by 2030. So this is where
blockchain can help sending any

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00:21:28.650 --> 00:21:31.860
transaction across the border on
Stellar whether the value is

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00:21:31.860 --> 00:21:37.680
$2 $20 $200, or $2,000. It's
fast, takes less than three to

364
00:21:37.680 --> 00:21:42.450
five seconds on average, and it
costs fractions of a cent. To

365
00:21:42.450 --> 00:21:45.900
give the taskforce a live real
world example of how stellar

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00:21:45.900 --> 00:21:49.680
creates this equitable access to
the global financial system. I'd

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00:21:49.680 --> 00:21:53.310
like to focus on Nigeria. It's
the sixth largest remittance

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00:21:53.310 --> 00:21:57.750
market at over 24 billion
annually. So calory it's a

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00:21:57.750 --> 00:22:01.620
regulated FinTech company in
Lagos, Nigeria, provides cross

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00:22:01.620 --> 00:22:04.440
border payment services for the
Nigerian market and that's

371
00:22:04.440 --> 00:22:08.130
powered by Stellar by
tokenizing, the naira and

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00:22:08.130 --> 00:22:11.070
integrating with the Nigerian
interbank payment network,

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00:22:11.340 --> 00:22:14.970
Carrie developed payment rails
that enable low cost and instant

374
00:22:14.970 --> 00:22:18.630
payments into and out of
Nigerian bank accounts. So their

375
00:22:18.630 --> 00:22:22.230
product which is called Ng and
T, a digital asset that is

376
00:22:22.230 --> 00:22:26.730
backed one to one T Naira is
available on Stellar today for

377
00:22:26.730 --> 00:22:30.000
cross border payments and
digital asset exchange. Now,

378
00:22:30.120 --> 00:22:33.360
carry plays an important role
providing access to stellar in

379
00:22:33.360 --> 00:22:36.540
Nigeria. But then there's
another anchor, we call them

380
00:22:36.540 --> 00:22:40.170
anchors these financial
institutions. That's on Stellar,

381
00:22:40.200 --> 00:22:43.500
this one in Europe. It's a
FinTech company called tiempo

382
00:22:43.710 --> 00:22:46.620
that issues digital assets
backed one to one by the euro.

383
00:22:47.160 --> 00:22:50.970
So with tempo and carry as
endpoints, stellar enables

384
00:22:50.970 --> 00:22:54.330
payments between the EU and
Nigeria that are completed in

385
00:22:54.330 --> 00:22:58.200
three to five seconds, nearly
instantaneous, nearly free to

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00:22:58.200 --> 00:23:01.710
the developer. And there are
built in compliance tools on

387
00:23:01.710 --> 00:23:04.530
Stellar that allow entities
building on the network like

388
00:23:04.530 --> 00:23:08.370
calorie and tempo, to complete
the Know Your Customer, the KYC

389
00:23:08.700 --> 00:23:11.640
and anti money laundering AML
steps required by their

390
00:23:11.640 --> 00:23:15.360
respective regions. So this
generalized asset issuance

391
00:23:15.360 --> 00:23:18.840
toolkit that's built into
stellar includes the ability for

392
00:23:18.840 --> 00:23:22.320
the issuer to take in the
required information before

393
00:23:22.320 --> 00:23:26.280
issuance or redemption of the
digital asset. So it empowers

394
00:23:26.280 --> 00:23:30.090
them to meet their compliance
obligation. This functionality

395
00:23:30.090 --> 00:23:33.270
is built in at the protocol
level, as tokenization is a

396
00:23:33.270 --> 00:23:36.450
fundamental part of the network.
So the supporting code is

397
00:23:36.450 --> 00:23:40.530
reliable, it's vetted, and it's
fast. And when the digital

398
00:23:40.530 --> 00:23:44.190
assets work together, as they do
in the Calvary temple, it tempo

399
00:23:44.190 --> 00:23:48.360
example, converting Fiat in
Nigeria into a digital asset,

400
00:23:48.450 --> 00:23:51.810
sending those assets to Europe,
converting that digital asset

401
00:23:51.810 --> 00:23:55.560
back into Fiat in Europe, and
ultimately depositing that Fiat

402
00:23:55.560 --> 00:23:59.490
into bank accounts of businesses
in Europe, a connected global

403
00:23:59.490 --> 00:24:03.150
financial infrastructure is
created. That's how

404
00:24:03.180 --> 00:24:06.450
interoperability comes to life.
And that's what makes stellar

405
00:24:06.480 --> 00:24:10.650
and blockchain a powerful
technology. remittances are a

406
00:24:10.650 --> 00:24:13.740
core use case for stellar and
expanding the network of bankers

407
00:24:13.770 --> 00:24:17.190
these financial institutions.
Building on Stellar is one of

408
00:24:17.190 --> 00:24:20.490
the ways we seek to create this
equitable access to the global

409
00:24:20.490 --> 00:24:24.720
financial system. In addition to
accessibility, Steller's

410
00:24:24.720 --> 00:24:28.140
technology could go a long way
toward achieving the UN

411
00:24:28.140 --> 00:24:32.070
Sustainable Development Goal. So
as you consider these type of

412
00:24:32.070 --> 00:24:34.920
policy objectives, I want to
make myself and my team

413
00:24:34.950 --> 00:24:38.400
available as resources to the
task force. And I'd love to know

414
00:24:38.400 --> 00:24:41.010
how the task force members are
thinking about remittances

415
00:24:41.100 --> 00:24:43.950
payments and digital assets.
Thank you so much for having me

416
00:24:43.950 --> 00:24:44.520
here today.

417
00:24:47.660 --> 00:24:50.210
Stephen F. Lynch: Thank you
Denelle and and I can assure you

418
00:24:50.210 --> 00:24:54.530
that you know, we we've been
looking at that issue of

419
00:24:54.530 --> 00:25:00.860
remittances and, and on that
note, I would also I'd like to

420
00:25:00.860 --> 00:25:06.860
introduce our Chairwoman Maxine
Waters who I think it's, it's

421
00:25:06.860 --> 00:25:10.190
fair for me to say and she can
correct me if I'm wrong. One of

422
00:25:10.190 --> 00:25:14.660
the one of the most attractive
parts of this, this whole idea

423
00:25:14.660 --> 00:25:19.520
of blockchain and, you know,
different platforms Aetherium

424
00:25:19.520 --> 00:25:23.300
and others is that it holds the
possibility of banking the

425
00:25:23.300 --> 00:25:28.910
unbanked. And as Neha and others
have have acknowledged in their

426
00:25:28.910 --> 00:25:33.680
remarks. So, with that, I'd like
to introduce our Chairwoman

427
00:25:33.680 --> 00:25:36.920
Maxine Waters, the gentlelady
from California for her remarks.

428
00:25:46.890 --> 00:25:51.060
Thank you very much, Chairman
Lynch, I'd like to thank you for

429
00:25:51.060 --> 00:25:53.940
holding this briefing. And for
your leadership of the

430
00:25:53.940 --> 00:26:00.360
committee's FinTech Task Force.
block chain technology has great

431
00:26:00.360 --> 00:26:04.440
potential for innovation in
financial services. And it is

432
00:26:04.440 --> 00:26:08.880
extremely important that this
committee continues to explore

433
00:26:09.030 --> 00:26:13.590
the various potential benefits
and risks in its use. While

434
00:26:13.590 --> 00:26:17.970
cryptocurrency is one of the
most well known use cases for

435
00:26:17.970 --> 00:26:22.710
black chain technology. I look
forward to hearing even more

436
00:26:22.710 --> 00:26:27.570
from this panel, other and more
inclusive ways to utilize

437
00:26:27.570 --> 00:26:31.680
blockchain technology, I just
came in on the hearing a little

438
00:26:31.680 --> 00:26:36.840
bit late, but I was able to hear
how it has been used in Nigeria,

439
00:26:37.050 --> 00:26:42.390
that's very impressive, I was
also able to understand how we

440
00:26:42.390 --> 00:26:46.530
could reduce the cost of
remittances, which I think is so

441
00:26:46.530 --> 00:26:50.850
very important. And don't
forget, in my district, that is

442
00:26:50.850 --> 00:26:58.560
46 47%. Latin x, we have
remittances that are going out

443
00:26:58.590 --> 00:27:04.590
every day to many of the Latin
countries. And so I'm very, very

444
00:27:04.590 --> 00:27:08.760
interested in this
cryptocurrency period,

445
00:27:08.940 --> 00:27:13.830
Blockchain in particular. And,
again, I thank you, Chairman,

446
00:27:13.830 --> 00:27:17.250
Lich, for all the effort that
you're putting into it. You are

447
00:27:17.250 --> 00:27:21.150
a leader, and we're looking for
you to bring this to us and help

448
00:27:21.150 --> 00:27:25.560
us move at the right time, in
the right way. Thank you so very

449
00:27:25.560 --> 00:27:26.820
much. I yield back.

450
00:27:28.470 --> 00:27:32.010
Thank you, Madam Chair. I do
appreciate it. Thank you for

451
00:27:32.160 --> 00:27:35.580
your keen attention to this
issue for all the right reasons.

452
00:27:37.170 --> 00:27:40.890
So I'll begin by yielding myself
a few minutes just for some

453
00:27:40.890 --> 00:27:43.740
initial questions. And then
we'll, we'll go in order.

454
00:27:44.070 --> 00:27:48.090
Petrino I think will control the
run of show in terms of who's

455
00:27:48.090 --> 00:27:53.520
next. But may I I did want to,
you know, you mentioned that

456
00:27:53.520 --> 00:27:58.200
you're working, that it yourself
are working with the Boston

457
00:27:58.200 --> 00:28:04.500
Federal Reserve. And that they
are, I was happy to hear one of

458
00:28:04.500 --> 00:28:07.830
our previous hearings. Several
months ago, they mentioned how

459
00:28:07.830 --> 00:28:11.670
they were their goal was was
developing a platform for

460
00:28:11.670 --> 00:28:17.130
payments within the Fed.
However, I think when I asked

461
00:28:17.640 --> 00:28:23.070
how soon we might expect that
they told me 2025 or something

462
00:28:23.070 --> 00:28:29.010
like that. So it was a very long
horizon. And so I'm just

463
00:28:29.010 --> 00:28:33.000
curious, is that still our
understanding? Because, you

464
00:28:33.000 --> 00:28:39.180
know, Congress is slowly
beginning with, you know, we are

465
00:28:39.210 --> 00:28:42.960
slower than slower than the
technology is changing in our

466
00:28:42.960 --> 00:28:47.100
world. Let's put it that way. So
we we struggle to keep pace, to

467
00:28:47.100 --> 00:28:51.960
put it kindly. What is the what
is the current, you know,

468
00:28:51.960 --> 00:28:55.830
prognosis in terms of where we
are with the Fed in in

469
00:28:55.830 --> 00:28:58.500
developing sort of an
institutional platform that

470
00:28:58.500 --> 00:29:02.550
might facilitate real time
payments? Where are we on that?

471
00:29:05.370 --> 00:29:08.580
Neha Narula: Thank you, Chairman
Lynch, for the question. I want

472
00:29:08.580 --> 00:29:11.670
to stress that I cannot speak
for the Federal Reserve Bank of

473
00:29:11.670 --> 00:29:14.310
Boston, I do not represent them
nor her the Federal Reserve

474
00:29:14.310 --> 00:29:18.090
System. However, as I said, I'm
very honored to be doing this

475
00:29:18.090 --> 00:29:21.360
work with the Federal Reserve
Bank of Boston. We are phrasing

476
00:29:21.360 --> 00:29:25.410
this currently as research. We
don't believe that the

477
00:29:25.410 --> 00:29:28.800
technology we have knowledge
about the tech have enough

478
00:29:28.800 --> 00:29:34.830
knowledge about the technology
yet to give any sort of firm

479
00:29:34.830 --> 00:29:38.310
design or firm opinion on what
the technology design for a

480
00:29:38.310 --> 00:29:40.710
central bank digital currency or
digital dollars should look

481
00:29:40.710 --> 00:29:44.400
like. It's also not up to us to
decide whether or not we should

482
00:29:44.400 --> 00:29:50.100
be issuing one. That is, that is
that is the job of Congress. I

483
00:29:50.100 --> 00:29:52.830
will say that a central bank
digital currency or digital

484
00:29:52.830 --> 00:29:55.740
dollar should one be issued is
would be critical

485
00:29:55.740 --> 00:30:00.150
infrastructure. It would be
extraordinarily important and It

486
00:30:00.150 --> 00:30:04.410
would be subjected to a lot of
attack by hackers and even

487
00:30:04.410 --> 00:30:07.380
potentially other nation states.
So it's really something that we

488
00:30:07.380 --> 00:30:10.800
want to make sure that we get
right. And that is why security

489
00:30:10.800 --> 00:30:15.390
and resilience are our number
one priority as we engage in

490
00:30:15.390 --> 00:30:19.230
this research, how do we build
such a system securely. And, you

491
00:30:19.230 --> 00:30:23.250
know, I mentioned responsibility
earlier in my remarks. And I

492
00:30:23.250 --> 00:30:25.650
also mentioned that we have to
think carefully about

493
00:30:25.650 --> 00:30:28.950
incentives. And we have to think
about the role of the private

494
00:30:28.950 --> 00:30:31.830
sector, and how that how that
will complement the role of the

495
00:30:31.830 --> 00:30:35.040
public sector. Unfortunately, a
lot of entities in the private

496
00:30:35.040 --> 00:30:39.030
sector have chosen to issue
tokens and do token sales. And

497
00:30:39.030 --> 00:30:41.850
what ends up happening is that
there is a foundation or there's

498
00:30:41.850 --> 00:30:46.020
a company that owns a vast
majority of these tokens, and

499
00:30:46.020 --> 00:30:49.980
thus has a financial interest in
their technology and in pushing

500
00:30:49.980 --> 00:30:53.280
their technology as a platform.
So even though it's open source,

501
00:30:53.280 --> 00:30:56.310
there might be some interesting
financial incentives at play.

502
00:30:56.640 --> 00:30:59.550
And I think that's part of why
the Federal Reserve Bank of

503
00:30:59.550 --> 00:31:04.350
Boston decided to work with us
at a university. And it's going

504
00:31:04.350 --> 00:31:06.900
to be very interesting to see
how this technology develops.

505
00:31:06.900 --> 00:31:10.920
Stephen F. Lynch: Yeah, thank
you very much. I appreciate

506
00:31:10.920 --> 00:31:14.370
that. You know, what, what
prompted that question was

507
00:31:14.430 --> 00:31:19.500
actually your comments, as well
as Denelle's about how how

508
00:31:19.500 --> 00:31:24.090
stellar is, is operating sort of
an open source, you know,

509
00:31:24.540 --> 00:31:28.980
nonpartisan, no commercial
interest, that that type of

510
00:31:28.980 --> 00:31:32.790
platform, we saw, the
subcommittee actually had the

511
00:31:32.790 --> 00:31:37.650
opportunity to travel to
Indonesia and Singapore last

512
00:31:37.650 --> 00:31:42.570
year, and, you know, they have,
first of all, they have a very

513
00:31:43.620 --> 00:31:47.490
disparate population with people
living on 1000s of different

514
00:31:47.490 --> 00:31:52.050
islands, many of them unbanked.
And they also have the advantage

515
00:31:52.050 --> 00:31:55.740
of, they don't have a legacy
brick and mortar banking system,

516
00:31:56.010 --> 00:31:59.730
that that resists some of this
change. So so they've come up

517
00:31:59.730 --> 00:32:08.640
with some innovative sandbox,
sort of pilots that that are

518
00:32:08.640 --> 00:32:11.730
exploring a lot of the things
that we're discussing, that's

519
00:32:11.730 --> 00:32:15.780
why the timeframe issue was, you
know, I know we're in a

520
00:32:15.780 --> 00:32:18.990
competition, in a way we want to
get this right, you're

521
00:32:18.990 --> 00:32:21.750
absolutely correct, in that we
want to make sure we get this

522
00:32:21.750 --> 00:32:25.980
thing right. And Eric Rosengren
is a, a real resource for this

523
00:32:25.980 --> 00:32:28.740
committee and, and personally
for me, and for my office. So we

524
00:32:28.740 --> 00:32:33.270
work with the Boston Fed. So I
will, I would like to take you

525
00:32:33.270 --> 00:32:36.120
up on your offer of
collaborating with the

526
00:32:36.120 --> 00:32:39.960
taskforce, all three of our our
panelists today, that would be

527
00:32:39.960 --> 00:32:45.210
wonderful to have your, your
expertise. It is a it's a full

528
00:32:45.210 --> 00:32:49.230
time job keeping up with the
changes in technology, and

529
00:32:49.740 --> 00:32:55.500
trying to reconcile that the
potential that we have here for

530
00:32:55.740 --> 00:33:00.870
for progress, but including
banking, the unbanked, but also

531
00:33:01.200 --> 00:33:06.150
realizing that we have, we have
a lot at stake because we have a

532
00:33:06.570 --> 00:33:11.100
we have a financial system that
has a lot of integrity with, you

533
00:33:11.100 --> 00:33:16.050
know, the model for the world.
And we seem to be getting a lot

534
00:33:16.050 --> 00:33:21.090
of stuff, right. Right now, but
but this is a time of enormous

535
00:33:21.120 --> 00:33:24.300
change. This is a, this is a
moment of great consequence in

536
00:33:24.300 --> 00:33:28.470
terms of where we go next with
this technology. So we would be

537
00:33:28.470 --> 00:33:34.290
blessed if we add your
expertise, that of MIT. We had

538
00:33:34.290 --> 00:33:43.050
actually planned a, a, you know,
a fin tech bootcamp at MIT, but

539
00:33:43.050 --> 00:33:46.530
because of the pandemic, that
got pulled down, but hopefully,

540
00:33:46.890 --> 00:33:51.870
if we get a vaccine next year,
we'll, we'll renew that effort

541
00:33:51.870 --> 00:33:55.620
and hopefully we'll be able to
collaborate in person. So I'm

542
00:33:55.620 --> 00:33:59.520
going to yield I've taken more
time than I intended to, I do

543
00:33:59.520 --> 00:34:03.120
know that a couple of our
members have expressed the need

544
00:34:03.120 --> 00:34:08.730
to go to other hearings. So I'll
leave that up to Petrina to to

545
00:34:08.730 --> 00:34:12.660
call the or the the order of
show here and introduce the

546
00:34:12.660 --> 00:34:15.060
next. Next speaker. Thank you.

547
00:34:16.170 --> 00:34:19.200
Denelle Dixon: Thank you, Mr.
Lynch. Mr. Davidson, I will now

548
00:34:19.230 --> 00:34:21.060
go to you if you have any
questions.

549
00:34:22.889 --> 00:34:26.669
Warren Davidson: Yeah, thank you
so much. And I'm just euphoric,

550
00:34:26.669 --> 00:34:29.459
that we're having this meeting.
I wish we would have known a

551
00:34:29.459 --> 00:34:32.939
little further in advance, but
I'm grateful and to the

552
00:34:32.939 --> 00:34:36.569
committee and to Mr. Lunch.
Thanks for putting it together

553
00:34:36.569 --> 00:34:40.739
to the panel. I'm impressed with
your backgrounds and the quality

554
00:34:40.739 --> 00:34:45.059
of work and frankly, it gives us
a good chance to illustrate one

555
00:34:45.059 --> 00:34:50.309
the payment systems and you
know, not inherently currency as

556
00:34:50.309 --> 00:34:53.819
a piece of this. But a lot of
times the space is completely

557
00:34:53.819 --> 00:34:59.549
conflated with with Bitcoin. And
the use cases are as infinite as

558
00:34:59.549 --> 00:35:04.769
the use case. Since for the
internet, and and so with the if

559
00:35:05.819 --> 00:35:09.749
the credentials here on on
cybersecurity, for example,

560
00:35:09.989 --> 00:35:13.139
could get it some of that and,
frankly, the decentralized

561
00:35:13.169 --> 00:35:17.069
platform that stellar is working
to build can illustrate some

562
00:35:17.069 --> 00:35:21.509
things. And this is why this is
really not a partisan topic, the

563
00:35:21.509 --> 00:35:25.529
token taxonomy Act, which we put
together in this collaborative

564
00:35:25.529 --> 00:35:31.229
way from a meeting back in
September of 18, in the Library

565
00:35:31.229 --> 00:35:35.939
of Congress, has, you know,
people as diverse as Scott

566
00:35:35.939 --> 00:35:41.729
Perry, and myself as
conservatives, to Tulsi, Gabbard

567
00:35:41.729 --> 00:35:46.559
and aerosol. Well, on the other
side, this is where women in

568
00:35:46.559 --> 00:35:49.709
color and blockchain have hosted
numerous events and invited me

569
00:35:49.709 --> 00:35:54.449
to speak. Darren Soto is now a
member of the Energy and

570
00:35:54.449 --> 00:35:58.379
Commerce Committee, and I
introduced this bill. And I

571
00:35:58.379 --> 00:36:03.119
think one of the key things that
we we need to do is to provide

572
00:36:03.119 --> 00:36:07.169
some legislative clarity, so
that the innovation continues to

573
00:36:07.169 --> 00:36:12.149
happen in the United States. So,
you know, Janelle, I would be

574
00:36:12.149 --> 00:36:14.819
curious if you could address
some of the barriers to raising

575
00:36:14.819 --> 00:36:20.429
capital in the United States,
where if you saw a unicorn just

576
00:36:20.579 --> 00:36:25.319
had a $6.1 million judgment,
because they did an Ico launched

577
00:36:25.319 --> 00:36:28.469
a coin. And they did it in a way
that frankly, even under our

578
00:36:28.469 --> 00:36:30.809
bill wouldn't qualify, they
would they couldn't skirt

579
00:36:30.809 --> 00:36:34.649
securities law. If our bill had
passed, that they did it in a

580
00:36:34.649 --> 00:36:38.489
speculative way to raise money
to create something that wasn't

581
00:36:38.489 --> 00:36:41.819
yet in existence, it would
inherently look a lot like an

582
00:36:41.819 --> 00:36:44.999
investment contract. And that's
what the SEC decided. So I think

583
00:36:44.999 --> 00:36:47.279
there's a fear that if we
provide any kind of legislative

584
00:36:47.279 --> 00:36:50.549
certainty, it's going to open
Pandora's box, and all this bad

585
00:36:50.549 --> 00:36:54.299
things happen in reality is the
fraud that's taken place, in

586
00:36:54.299 --> 00:36:58.169
some cases, could be made better
by legislative certainty. So

587
00:36:58.169 --> 00:36:59.159
could you speak to that?

588
00:37:00.870 --> 00:37:05.370
Denelle Dixon: Yeah, thank you
so much. I think that this is

589
00:37:05.370 --> 00:37:08.280
the issue with respect to
clarity on the securities

590
00:37:08.280 --> 00:37:11.520
classification. I think it only
helps with respect to this

591
00:37:11.520 --> 00:37:14.730
market. And it only helps with
respect to the new players that

592
00:37:14.730 --> 00:37:17.250
are coming to it. You know, we
didn't do that. That's not how

593
00:37:17.250 --> 00:37:20.790
stellar came to life. That's not
we don't we didn't have an Ico

594
00:37:20.790 --> 00:37:22.770
we don't have any of those
things. Again, the profit motive

595
00:37:22.770 --> 00:37:25.560
is very different with us. But
there are really exciting

596
00:37:25.560 --> 00:37:27.870
players that are coming onto the
market. And there's a lot of

597
00:37:27.870 --> 00:37:31.590
fear with respect to
classification issues. And so we

598
00:37:31.590 --> 00:37:34.530
are losing some innovation
because of that fear. And I

599
00:37:34.530 --> 00:37:38.100
think that creating some
stability around these issues

600
00:37:38.100 --> 00:37:41.160
within just clarifying the
issues would make it so that

601
00:37:41.160 --> 00:37:45.030
there are bright lines, and
there are rules that are that

602
00:37:45.030 --> 00:37:47.400
players can know that they need
to follow if they enter this

603
00:37:47.400 --> 00:37:50.190
environment. So I think in
general, this is just a really

604
00:37:50.190 --> 00:37:51.180
nice step to take.

605
00:37:51.660 --> 00:37:53.940
Warren Davidson: Yeah, thanks
for that. And kudos, you

606
00:37:53.940 --> 00:37:56.460
definitely have a clearly a
different organization

607
00:37:56.460 --> 00:37:59.970
structure. And I think it
bypassed all that. So it's

608
00:37:59.970 --> 00:38:03.030
really exciting. And it
highlights the ability to do

609
00:38:03.030 --> 00:38:06.840
things with blockchain and
payments. And the speed, I love

610
00:38:06.840 --> 00:38:09.720
that you highlighted how much
more efficient This is than our

611
00:38:09.720 --> 00:38:13.050
current architecture. And, you
know, as is recognized, we have

612
00:38:13.050 --> 00:38:17.670
large incumbents with huge
stakes in seeing the status quo

613
00:38:17.670 --> 00:38:22.080
preserved. But a key part of
this is, you know, technology

614
00:38:22.080 --> 00:38:24.900
does disrupt things. And a key
part of it is, are we going to

615
00:38:24.930 --> 00:38:30.030
use this financial system, and
whether it's the securities law,

616
00:38:30.030 --> 00:38:34.830
or, you know, Federal Reserve
regulation, or whole banking

617
00:38:34.830 --> 00:38:37.950
system, as a system of control
are we going to use it as a

618
00:38:37.950 --> 00:38:40.770
system of empowerment? Are we
going to use money as a tool or

619
00:38:40.770 --> 00:38:44.250
as a system of for trade and
commerce, we're gonna use a

620
00:38:44.250 --> 00:38:47.730
system of control. And so as
China moves forward, they're

621
00:38:47.730 --> 00:38:51.180
clearly using it as a system of
control. And the United States

622
00:38:51.180 --> 00:38:54.360
and our free and open society,
we really have the possibility

623
00:38:54.360 --> 00:38:58.020
to do this in a way that has
less central control, but

624
00:38:58.020 --> 00:39:01.380
actually more secure. So Nate, I
was just curious if you could

625
00:39:01.380 --> 00:39:06.300
talk about true distributed
ledger technology, and maybe how

626
00:39:06.570 --> 00:39:11.400
Bitcoin as an example, goes
about security versus something

627
00:39:11.400 --> 00:39:16.170
with a traditional, you know,
relational database or something

628
00:39:16.170 --> 00:39:19.470
like SQL database would go about
security, and how much more

629
00:39:19.470 --> 00:39:23.700
secure is that versus, you know,
a fixed point security system?

630
00:39:25.680 --> 00:39:30.000
Neha Narula: Thank you for the
question, Mr. Davidson. I want

631
00:39:30.000 --> 00:39:32.430
to stress that I've worked in
databases and distributed

632
00:39:32.430 --> 00:39:36.810
systems for over a decade now.
So this is an area that I'm

633
00:39:36.810 --> 00:39:39.690
pretty familiar with. And when I
first learned how Bitcoin

634
00:39:39.690 --> 00:39:41.850
worked, and I want to stress I'm
going to use Bitcoin as an

635
00:39:41.850 --> 00:39:44.430
example. But it's, you know,
we're talking about the

636
00:39:44.430 --> 00:39:48.120
technology more broadly than
Bitcoin So, but when I first

637
00:39:48.120 --> 00:39:51.030
learned how it worked, it was
really a revolution in the

638
00:39:51.030 --> 00:39:55.230
design of secure distributed
systems. It was a very different

639
00:39:55.230 --> 00:39:59.370
way of designing these systems
securely. So the way that

640
00:40:00.000 --> 00:40:02.700
blockchain based systems are
designed the ones that have a

641
00:40:02.700 --> 00:40:06.090
decentralized network is that
they are built so that almost

642
00:40:06.090 --> 00:40:10.320
anyone can join the network.
Normally, when securing a

643
00:40:10.320 --> 00:40:14.610
system, we put a fence around
it, we try to keep the bad guys

644
00:40:14.610 --> 00:40:19.320
out. These systems actually
expect that the bad guys might

645
00:40:19.320 --> 00:40:22.170
get in. They welcome it from the
beginning. But they're designed

646
00:40:22.170 --> 00:40:26.280
in such a way that using
cryptography, using digital

647
00:40:26.280 --> 00:40:31.080
signatures and hash functions,
and very important, Lee designed

648
00:40:31.080 --> 00:40:34.860
consensus algorithms, the bad
guys never can get a foothold,

649
00:40:34.860 --> 00:40:39.810
and they can't really affect the
users as much. So it's really a

650
00:40:39.810 --> 00:40:43.410
very novel way of designing a
distributed system. Now, I don't

651
00:40:43.410 --> 00:40:46.710
want to paint this technology
like magic. There are certainly

652
00:40:46.740 --> 00:40:50.580
assumptions, there are certainly
things that could go wrong. But

653
00:40:50.580 --> 00:40:53.700
I will say it, it is very much a
novel way to design these

654
00:40:53.700 --> 00:40:58.110
systems. I think that we can
learn a lot by what has and has

655
00:40:58.110 --> 00:41:01.920
not worked in what I call the
wild west of the cryptocurrency

656
00:41:01.920 --> 00:41:05.370
world, that has been a giant
laboratory, where we've been

657
00:41:05.370 --> 00:41:08.670
able to see a lot of these
designs play out. And so we have

658
00:41:08.670 --> 00:41:12.030
the opportunity now to pick and
choose the best of that to

659
00:41:12.030 --> 00:41:15.180
create secure open systems.

660
00:41:16.110 --> 00:41:18.210
Warren Davidson: Thanks so much
I could talk to you talk to you

661
00:41:18.210 --> 00:41:21.090
the whole panel for you know,
probably an unlimited amount of

662
00:41:21.090 --> 00:41:24.480
time, my time is not unlimited.
And thanks for the generosity,

663
00:41:24.480 --> 00:41:27.900
it's gone over a bit. So thanks
a lot. Really appreciate the

664
00:41:27.900 --> 00:41:30.720
committee again, and the
expertise of our western

665
00:41:30.750 --> 00:41:32.760
witnesses and guests. Thanks
very much.

666
00:41:32.760 --> 00:41:37.130
Denelle Dixon: Thank you, Mr.
Davidson. I'll now go to miss

667
00:41:37.130 --> 00:41:38.600
Waters for her question.

668
00:41:42.200 --> 00:41:46.010
Stephen F. Lynch: Thank you very
much. I had not anticipated, you

669
00:41:46.010 --> 00:41:51.260
know, raising many questions but
basically listening, but since

670
00:41:51.260 --> 00:41:57.950
I've been listening at big, I
have been motivated to find out

671
00:41:57.950 --> 00:42:02.900
a little bit more. So for Miss
Narula. Some experts claim

672
00:42:03.110 --> 00:42:08.930
blockchain technology used for
distributed, Ledger's is

673
00:42:08.930 --> 00:42:14.780
revolutionary. Others claim its
application is only muted and

674
00:42:14.780 --> 00:42:17.960
most successes will be
incremental over a number of

675
00:42:17.960 --> 00:42:21.860
years. Given that what's your
assessment of the current legal

676
00:42:21.860 --> 00:42:25.580
and regulatory framework with
respect to the use of blockchain

677
00:42:25.940 --> 00:42:30.710
in securities trading? What
should Congress be focused on in

678
00:42:30.710 --> 00:42:35.480
terms of improving that
framework to ensure appropriate

679
00:42:35.510 --> 00:42:37.310
safeguards are in place?

680
00:42:39.830 --> 00:42:42.620
Neha Narula: Thank you for the
question, Chairwoman. Waters.

681
00:42:44.000 --> 00:42:47.510
I'm a computer scientist. I'm
not a lawyer. But so please take

682
00:42:47.510 --> 00:42:51.110
my comments in that context. I
think that it's important to

683
00:42:51.110 --> 00:42:54.830
consider what should be done in
the short term versus the long

684
00:42:54.830 --> 00:42:58.790
term. And again, I'll stress
this technology still has quite

685
00:42:58.790 --> 00:43:02.570
a while to play out. I think in
the short term, probably my

686
00:43:02.570 --> 00:43:07.190
fellow panelists could give more
insight into the issues that the

687
00:43:07.190 --> 00:43:10.250
private sector and businesses
are struggling with with respect

688
00:43:10.250 --> 00:43:14.540
to clarity, I will say that it
is very important to enforce our

689
00:43:14.540 --> 00:43:19.370
existing securities laws, and
that they are still applicable

690
00:43:19.370 --> 00:43:22.550
and that there are reasons why
they exist. And this technology

691
00:43:22.550 --> 00:43:26.450
does not circumvent the need for
those laws. So I'm a firm

692
00:43:26.450 --> 00:43:29.420
believer that we should, we
should enforce our existing

693
00:43:29.420 --> 00:43:34.430
securities laws. In terms of the
long term, I think that there

694
00:43:34.430 --> 00:43:38.330
really is an opportunity to
rethink quite a swath of our

695
00:43:38.330 --> 00:43:42.140
financial regulation, which is a
daunting, daunting task and must

696
00:43:42.140 --> 00:43:46.340
be broken down appropriately. In
particular, quite a bit of our

697
00:43:46.340 --> 00:43:49.070
financial regulation is based on
the idea that there is an

698
00:43:49.070 --> 00:43:53.390
intermediary, there is an
institution which sits between

699
00:43:53.390 --> 00:43:57.830
two consumers are in a consumer
and a business, who mediates

700
00:43:57.830 --> 00:44:02.060
those actions, whether it is by
holding funds in escrow or by

701
00:44:02.060 --> 00:44:05.690
facilitating an exchange or some
other sort of financial

702
00:44:05.690 --> 00:44:09.830
transaction. This technology
enables us to build these types

703
00:44:09.830 --> 00:44:13.820
of transactions without an
intermediary. Given that that's

704
00:44:13.820 --> 00:44:18.140
the case, we will end up having
to rethink how some of our

705
00:44:18.140 --> 00:44:22.730
financial regulations operate in
order to work in this new

706
00:44:22.730 --> 00:44:26.810
context. I think there's really
an opportunity here to step back

707
00:44:26.840 --> 00:44:29.810
and take a look at our public
policy goals, what we're trying

708
00:44:29.810 --> 00:44:33.200
to achieve, and considering the
new technology, which honestly

709
00:44:33.200 --> 00:44:35.420
isn't just blockchain
technology, there has been

710
00:44:35.420 --> 00:44:38.900
digitization in the financial
industry happening for the last

711
00:44:38.900 --> 00:44:42.740
few decades. Previously, it
would have been impossible to do

712
00:44:43.220 --> 00:44:46.370
for a bank to store millions of
transactions on paper, but now

713
00:44:46.370 --> 00:44:49.430
it's quite fast on a computer
system. So there really is an

714
00:44:49.430 --> 00:44:52.190
opportunity here to rethink some
of that. Thank you.

715
00:44:53.030 --> 00:44:53.900
Stephen F. Lynch: Thank you.

716
00:44:58.700 --> 00:45:01.550
Denelle Dixon: Thank you Miss
Waters. Next, I'll go to Mr.

717
00:45:01.550 --> 00:45:03.440
Foster for his questions.

718
00:45:10.860 --> 00:45:12.300
Stephen F. Lynch: Katrina, we
might have to go to the next

719
00:45:12.300 --> 00:45:15.300
person and we'll try to figure
out bills and go back to back

720
00:45:15.300 --> 00:45:17.640
back to Mr. Foster. Okay. Thank
you.

721
00:45:18.270 --> 00:45:22.890
Denelle Dixon: Yes. Mr. Lynch.
If you had any additional

722
00:45:22.890 --> 00:45:30.150
questions he could we could go
back with you. Okay.

723
00:45:31.230 --> 00:45:34.140
Stephen F. Lynch: Actually, I
know that is Mr. Perlmutter, he

724
00:45:34.140 --> 00:45:36.180
was supposed to have another
appointment? Did he have to

725
00:45:36.180 --> 00:45:36.540
leave?

726
00:45:37.830 --> 00:45:38.610
Denelle Dixon: Yes, sir.

727
00:45:38.880 --> 00:45:40.290
Stephen F. Lynch: He did. Okay.
Alright.

728
00:45:41.440 --> 00:45:43.600
Bill Foster: Got Stephen am I
audible at this point?

729
00:45:43.600 --> 00:45:46.390
Stephen F. Lynch: Yeah, you are
alright. I yield.

730
00:45:47.020 --> 00:45:50.380
Bill Foster: They just have so
many of these volume controls in

731
00:45:50.380 --> 00:45:53.500
series, they keep adding one per
month, and then all these

732
00:45:53.710 --> 00:45:57.490
things. Alright, first off, I'm
just in so you know who you're

733
00:45:57.490 --> 00:46:00.040
talking to. I'm probably the
only member of Congress who's

734
00:46:00.550 --> 00:46:05.380
designed and programmed a Python
blockchain client. Okay. But

735
00:46:05.380 --> 00:46:08.380
after having thought about this
for a long time, it's my belief

736
00:46:08.380 --> 00:46:11.140
that for high value
transactions, you know, whether

737
00:46:11.140 --> 00:46:14.440
you're talking digital contracts
or currency transactions, we

738
00:46:14.440 --> 00:46:17.710
will inevitably need a trusted
third party, you know,

739
00:46:17.710 --> 00:46:21.730
ultimately relying on a trusted
court system, which I believe

740
00:46:21.730 --> 00:46:24.820
will be a competitive advantage
to the US and the free world.

741
00:46:25.570 --> 00:46:28.780
For example, trusted third
parties will absolutely be

742
00:46:28.780 --> 00:46:32.080
needed. First off to reverse
mistaken or fraudulent

743
00:46:32.080 --> 00:46:35.740
transactions. And an example of
this is someone drags you into

744
00:46:35.740 --> 00:46:38.380
an alley puts a gun to your
head, and tells you to get out

745
00:46:38.380 --> 00:46:41.740
your cell phone and transfer a
bunch of digital currency to an

746
00:46:41.740 --> 00:46:46.390
anonymous account. You know, do
you have recourse to some

747
00:46:46.390 --> 00:46:49.930
trusted court system to
authenticate yourself show that

748
00:46:50.140 --> 00:46:53.080
this was a fraudulent
transaction, authenticate and

749
00:46:53.080 --> 00:46:56.440
have them unmask that
participant in a legally

750
00:46:56.440 --> 00:47:00.790
traceable manner and, and let
the justice system work? You

751
00:47:00.790 --> 00:47:04.210
know, I think that will be an
absolute requirement, it will

752
00:47:04.210 --> 00:47:07.690
also be needed to detect and
prevent fraudulent trading. And

753
00:47:07.690 --> 00:47:11.080
a simple example of that is wash
trades. This is where you set a

754
00:47:11.080 --> 00:47:14.770
fake price for Bitcoin by a
transaction to yourself under

755
00:47:14.770 --> 00:47:18.250
two anonymous names. That seems
as though you're going to have

756
00:47:18.250 --> 00:47:21.730
to have the trusted third party
access to the D anonymize

757
00:47:21.730 --> 00:47:26.470
transactions under some legal
trusted legal thing. And as I

758
00:47:26.470 --> 00:47:30.940
mentioned, the trusted court
system has to be able to unmask

759
00:47:30.940 --> 00:47:34.450
participants, when a fraud or
criminal activity is

760
00:47:34.450 --> 00:47:39.280
demonstrated, not just
suspected, but demonstrated. And

761
00:47:39.280 --> 00:47:43.390
finally that means that it has
to be able to provision secure

762
00:47:43.390 --> 00:47:47.050
digital identities and a legally
traceable manner, which seems to

763
00:47:47.050 --> 00:47:49.480
me an essential government
function. I've actually

764
00:47:49.480 --> 00:47:53.860
introduced legislation to
actually start the US in that in

765
00:47:53.860 --> 00:47:59.020
that, you know, the real ID
ecosystem that that is being set

766
00:47:59.020 --> 00:48:03.100
up in the US is probably the
first mechanism where you have

767
00:48:03.100 --> 00:48:07.450
biometric li d do, people.
Anyway, so my first question,

768
00:48:07.570 --> 00:48:11.260
you know, first off, is there a
clean technical implementation

769
00:48:11.290 --> 00:48:14.500
of a trusted third party, you
know, that has all of those

770
00:48:14.500 --> 00:48:17.110
abilities that I just want to
have someone just bid that off

771
00:48:17.110 --> 00:48:19.780
and say, here's what the court
system would look like, here's

772
00:48:19.780 --> 00:48:24.010
how you control the digital key
that the court has access is

773
00:48:24.010 --> 00:48:28.120
control over that allows it to
reverse transactions? And are

774
00:48:28.120 --> 00:48:32.260
the reference implementations
that have that are about is this

775
00:48:32.260 --> 00:48:35.890
just too much of an anathema to
all of the Bitcoin crowd that

776
00:48:35.890 --> 00:48:39.580
they just they haven't really
conceived of this?

777
00:48:40.960 --> 00:48:44.080
Denelle Dixon: So thank you for
the question. I don't know that

778
00:48:44.080 --> 00:48:46.840
there is anyone out there that
is that triggered this out, and

779
00:48:46.840 --> 00:48:49.630
that the particular issue that
you have identified there, I

780
00:48:49.630 --> 00:48:53.620
will say that if we look at just
I'll raise two issues, first of

781
00:48:53.620 --> 00:48:56.740
all, with respect to assets, and
specific there are compliance

782
00:48:56.740 --> 00:49:00.070
controls that an issuer of an
asset, for example, on Stellar

783
00:49:00.070 --> 00:49:03.220
could put in play with respect
to the digital asset once it's

784
00:49:03.220 --> 00:49:07.180
sent. So if you could put
controls around not only which

785
00:49:07.180 --> 00:49:10.030
type of entities that it could
get sent to if they've already

786
00:49:10.030 --> 00:49:14.260
been KYC, and had their AML put
in play a when they have to go

787
00:49:14.260 --> 00:49:17.890
through that process, for
example. And then you could that

788
00:49:17.890 --> 00:49:20.530
asset holder could reverse
transaction should they keep

789
00:49:20.530 --> 00:49:23.530
that as part of their compliance
space, that doesn't get to the

790
00:49:23.530 --> 00:49:25.990
point about a trusted third
party, but it does offer the

791
00:49:25.990 --> 00:49:29.980
ability for asset issuers, for
example, in a CB DC situation to

792
00:49:29.980 --> 00:49:33.700
be able to do that. And then the
other thing I want to point out

793
00:49:33.730 --> 00:49:36.910
is that the immutability of the
blockchain itself, and the fact

794
00:49:36.910 --> 00:49:39.760
that the financial institutions
that actually hold the assets on

795
00:49:39.760 --> 00:49:43.900
the edges, they are regulated,
they have to do KYC. And if you

796
00:49:43.900 --> 00:49:46.810
just take that Twitter example
from recent where there was the

797
00:49:46.810 --> 00:49:50.440
fraud on Twitter, where they
were able to trace within some

798
00:49:50.440 --> 00:49:54.370
certain small number of days,
who the asset who held the

799
00:49:54.370 --> 00:49:58.870
assets and who who committed
that fraud, it was 17 days. That

800
00:49:58.870 --> 00:50:01.540
was a pretty remarkable thing.
and only allowed because of the

801
00:50:01.540 --> 00:50:03.220
immutable nature of blockchain
generally.

802
00:50:04.120 --> 00:50:08.470
Bill Foster: That's right. But a
competently executed currency

803
00:50:08.470 --> 00:50:12.430
can be made functionally
anonymous. And I believe they're

804
00:50:12.460 --> 00:50:15.250
they're widely regarded as
anonymous currencies out there.

805
00:50:15.460 --> 00:50:18.910
And I just don't see how you're
going to how you're going to be

806
00:50:18.910 --> 00:50:22.210
able to allow those four high
value transactions because of

807
00:50:22.210 --> 00:50:27.070
the problems that I outlined. I
think all four of those things

808
00:50:27.070 --> 00:50:29.800
that I outlined are an absolute
requirement for high value

809
00:50:29.830 --> 00:50:34.270
transactions. And you have to
pay his face that. And secondly,

810
00:50:34.780 --> 00:50:38.590
first, well, as I mentioned, I
think all of this depends on the

811
00:50:38.590 --> 00:50:42.700
starting point has to be a
secure digital identity, which

812
00:50:42.730 --> 00:50:45.610
allows someone to digitally
authenticate as a unique

813
00:50:45.610 --> 00:50:49.870
specific human being that has
been digitally D duped, you

814
00:50:49.870 --> 00:50:53.500
know, biometric li D duped, so
you can't get identities in five

815
00:50:53.500 --> 00:50:56.980
different states, and then start
playing games with that. And so

816
00:50:56.980 --> 00:50:59.590
that prevents identity fraud, it
seems like that's an essential

817
00:50:59.590 --> 00:51:02.440
government function. And, like I
say, there's legislation I

818
00:51:02.440 --> 00:51:05.560
recently introduced to start
getting the US to catch up the

819
00:51:05.560 --> 00:51:09.250
world. And finally, if you
accept the need for trusted

820
00:51:09.250 --> 00:51:12.250
third parties, what are the
advantages of blockchain versus

821
00:51:12.250 --> 00:51:15.760
simply account based central
bank digital currencies, which

822
00:51:15.760 --> 00:51:19.810
will have higher performance,
lower cost more simplicity? And

823
00:51:19.900 --> 00:51:23.260
the same number of trusted third
parties, namely, the court

824
00:51:23.260 --> 00:51:31.540
system and the central bank?
Does anyone want to grab that?

825
00:51:31.540 --> 00:51:35.080
What are the advantages at that
point? Once you accept, you need

826
00:51:35.080 --> 00:51:38.920
a court system you trust and a
central bank regulator your

827
00:51:38.920 --> 00:51:42.520
trust? Then why what are the
advantages of blockchain?

828
00:51:43.740 --> 00:51:46.920
Aaron Wright: So Representative
Foster? I think that's a great

829
00:51:46.920 --> 00:51:52.260
question. And I think that that
is one direction in which

830
00:51:52.860 --> 00:51:57.210
blockchain technology or as we
described previously, just the

831
00:51:57.210 --> 00:52:01.920
digitization of financial
services could evolve, you could

832
00:52:01.920 --> 00:52:06.120
see something like a central
bank digital currency being

833
00:52:06.120 --> 00:52:09.810
deployed, assuming that it
achieves the policy objectives

834
00:52:09.840 --> 00:52:14.400
that it is intended to achieve.
And then other computing systems

835
00:52:14.430 --> 00:52:17.790
mimicking or replicating things
like smart contracts, where the

836
00:52:17.790 --> 00:52:21.090
ability to move those assets in
a more efficient way, structure

837
00:52:21.090 --> 00:52:25.590
the flow of those assets. And
you. And you can also see that

838
00:52:25.620 --> 00:52:29.940
evolving in an ecosystem that
isn't maintained by a public,

839
00:52:30.420 --> 00:52:35.100
open permissionless blockchain,
I think that and I'm sure they

840
00:52:35.190 --> 00:52:38.940
can speak about this, I think
there may be some security trade

841
00:52:38.940 --> 00:52:42.720
offs that need to be evaluated
there. But I do agree with you

842
00:52:42.720 --> 00:52:46.560
that decentralized identity or
some digital based identity

843
00:52:46.560 --> 00:52:52.170
system, will at some point be an
essential piece of this emerging

844
00:52:52.620 --> 00:52:56.280
technology stack. There are many
technologists today that are

845
00:52:56.280 --> 00:52:59.430
exploring implementations of
this, they're hoping to do it in

846
00:52:59.430 --> 00:53:02.370
a way that's not maintained by a
central party like a government,

847
00:53:02.820 --> 00:53:07.770
but is instead maintained by an
open source Protocol, or system

848
00:53:07.770 --> 00:53:11.310
or service that can maintain
this information, validate it,

849
00:53:11.490 --> 00:53:13.950
and plug that into other parts
of the blockchain based

850
00:53:13.950 --> 00:53:17.910
ecosystem. But the basic fact
that parties need to know who

851
00:53:17.910 --> 00:53:21.270
they're transacting with, and
should be able to rely on that,

852
00:53:21.270 --> 00:53:25.980
in some capacity, I do believe
is a central part of what we

853
00:53:25.980 --> 00:53:29.610
will see. And they also do agree
that governments historically

854
00:53:29.640 --> 00:53:32.910
have served in that role, you
know, administering identity

855
00:53:32.940 --> 00:53:36.210
identification systems in
different capacities. So it does

856
00:53:36.240 --> 00:53:38.700
make sense for the government to
explore whether or not they can

857
00:53:38.910 --> 00:53:41.580
play a role here, whether that's
the federal government or a

858
00:53:41.580 --> 00:53:45.000
state government, I think, is
obviously a complex question

859
00:53:45.000 --> 00:53:46.350
that would need to get examined.

860
00:53:47.700 --> 00:53:50.370
Bill Foster: What it's also
internationally anyway, so I'm

861
00:53:50.370 --> 00:53:53.040
over time here. If we get a
second round of questions, I'd

862
00:53:53.040 --> 00:53:55.110
be happy to do that.

863
00:53:58.170 --> 00:54:00.810
Neha Narula: I also was happy
would be happy to address the

864
00:54:00.810 --> 00:54:03.990
Congressman's question whenever
it's appropriate about why a

865
00:54:03.990 --> 00:54:06.180
blockchain technology when
there's a trusted third party

866
00:54:07.860 --> 00:54:09.450
Stephen F. Lynch: Why don't you
have a crack at it right now

867
00:54:09.450 --> 00:54:09.870
Neha?

868
00:54:10.410 --> 00:54:10.800
Neha Narula: Okay.

869
00:54:12.000 --> 00:54:12.480
Stephen F. Lynch: Thank you.

870
00:54:13.560 --> 00:54:16.710
Neha Narula: Yes, Congressman
Foster. That's the that is a

871
00:54:16.710 --> 00:54:21.030
question that we think about
quite often at MIT, especially

872
00:54:21.030 --> 00:54:23.550
with the central bank, where
there obviously is a trusted

873
00:54:23.550 --> 00:54:26.550
third party. What is the benefit
of blockchain technology in that

874
00:54:26.550 --> 00:54:29.400
environment? I want to stress
blockchain technology does not

875
00:54:29.400 --> 00:54:32.250
eliminate the need for
intermediaries. However,

876
00:54:32.460 --> 00:54:35.850
sometimes the technology or the
protocol can take over some of

877
00:54:35.850 --> 00:54:39.120
the functions that the
intermediary was providing. I do

878
00:54:39.120 --> 00:54:41.910
not believe that it can take
over all of the functions that

879
00:54:41.910 --> 00:54:45.240
some intermediaries are
providing. So what we'll see is

880
00:54:45.240 --> 00:54:47.820
that will, things will evolve
with a slightly different

881
00:54:47.820 --> 00:54:51.300
structure. Now with Central Bank
digital currencies specifically,

882
00:54:51.600 --> 00:54:54.480
I think it's helpful to think of
blockchain technology as an

883
00:54:54.480 --> 00:54:57.960
umbrella under which there are
many different smaller pieces of

884
00:54:57.960 --> 00:55:01.830
technology. One of them is Is
the consensus that might make it

885
00:55:01.830 --> 00:55:04.860
a decentralized protocol. I
don't think that's necessarily

886
00:55:04.860 --> 00:55:08.130
appropriate for central bank
technology. However, what might

887
00:55:08.130 --> 00:55:12.270
be appropriate is some of the
cryptography that is used in

888
00:55:12.330 --> 00:55:15.420
blockchain technology, for
example, digital signatures to

889
00:55:15.420 --> 00:55:21.420
help authorize a user's payment,
and things that could help us do

890
00:55:21.420 --> 00:55:25.170
better validation and
verification. So we're actively

891
00:55:25.200 --> 00:55:28.860
actively exploring the spectrum
of different technologies and to

892
00:55:28.860 --> 00:55:32.340
see how they'll affect cbdc.
Once specific area we have

893
00:55:32.340 --> 00:55:35.340
identified where I think we will
require something different is

894
00:55:35.340 --> 00:55:39.480
to enable offline payments. We
believe a central bank digital

895
00:55:39.480 --> 00:55:43.500
currency should support offline
payments in times of crises, and

896
00:55:43.500 --> 00:55:46.590
cryptography can be very helpful
to secure those.

897
00:55:49.200 --> 00:55:51.660
Bill Foster: Are there actually
implementations of offline

898
00:55:51.660 --> 00:55:54.120
payments that avoid the double
spending problem?

899
00:55:55.650 --> 00:55:57.930
Neha Narula: Usually, they do
not completely avoid the double

900
00:55:57.930 --> 00:56:02.820
spending problem, but they can.
They can help box it in limit

901
00:56:02.850 --> 00:56:05.070
the effects of the double
spending problem.

902
00:56:06.240 --> 00:56:08.250
Bill Foster: Just limiting the
size of the transaction.

903
00:56:09.000 --> 00:56:12.660
Neha Narula: Yes, and requiring
some verification? Yes.

904
00:56:12.660 --> 00:56:14.910
Bill Foster: Yeah, so you just
say I'm going to allow fraud for

905
00:56:14.940 --> 00:56:18.780
payments under 50 bucks, and
that's fine. Or you know someone

906
00:56:18.780 --> 00:56:21.240
to drop someone drags you into
an alley out of internet

907
00:56:21.240 --> 00:56:25.410
connection, puts a gun to your
head does the transaction if

908
00:56:25.410 --> 00:56:28.350
it's if it's less than 50 bucks,
it'll go ahead and you're out of

909
00:56:28.350 --> 00:56:32.370
luck. And that's maybe an
acceptable regime to live in for

910
00:56:32.370 --> 00:56:36.210
offline transaction. But you
can't irrevocably transfer the

911
00:56:36.210 --> 00:56:40.530
deed to your house, in an
offline manner. So it's a matter

912
00:56:40.530 --> 00:56:44.790
of small transactions, you can
have small transactions, you can

913
00:56:44.790 --> 00:56:49.350
have 99.9% of all transactions
go through digitally. But for

914
00:56:49.350 --> 00:56:52.530
that point, 1%, where there's
trouble, you have to have

915
00:56:52.530 --> 00:56:56.190
recourse to a to a court system.
And then you have to have, you

916
00:56:56.190 --> 00:56:59.370
know, the digital key that that
court will possess that allows

917
00:56:59.370 --> 00:57:02.550
it to reverse transactions is
something that's going to be as

918
00:57:02.550 --> 00:57:05.940
heavily guarded as the
encryption key that allows Apple

919
00:57:05.940 --> 00:57:09.360
to sign a new release of the
iPhone software, you know,

920
00:57:09.360 --> 00:57:11.790
there's going to be, you know,
that whole business with

921
00:57:12.000 --> 00:57:16.500
protected digital key. And it
seemed, that seems like that's

922
00:57:16.500 --> 00:57:19.350
an acceptable future, but we
just have to start designing for

923
00:57:19.350 --> 00:57:22.650
it. And so so all of your
technical people, I urge you to

924
00:57:22.650 --> 00:57:24.600
actually take that on and come
up with a reference

925
00:57:24.600 --> 00:57:28.710
implementation of that. Because
I think that's eventually what

926
00:57:28.710 --> 00:57:29.370
will have to go.

927
00:57:35.850 --> 00:57:38.130
Denelle Dixon: Thank you, Mr.
Foster, we'll now go into our

928
00:57:38.130 --> 00:57:41.430
second round of questions. So
we'll start back with Mr. Lynch.

929
00:57:44.010 --> 00:57:45.870
Stephen F. Lynch: Thank you very
much. I know some of the members

930
00:57:45.930 --> 00:57:50.130
have hearings at 10. So anybody
has to log out, we understand

931
00:57:50.130 --> 00:57:56.250
that. So, So Aaron, I, you know,
in your book, you really, you

932
00:57:56.250 --> 00:57:59.610
know, blockchain and a lot, you
did a great job in terms of

933
00:57:59.910 --> 00:58:05.460
causing people to think about
what you refer to as Lex Krypto

934
00:58:05.460 --> 00:58:11.730
grafica, how, how the
progression of blockchain and

935
00:58:11.880 --> 00:58:17.490
and, you know, the decentralized
nature of it, the, you know,

936
00:58:17.490 --> 00:58:21.630
cross border, international
nature of it could actually

937
00:58:21.660 --> 00:58:26.670
undermine what we do in Congress
in terms of representative

938
00:58:26.670 --> 00:58:32.520
democracy and, and, you know,
being somewhat of a trusted

939
00:58:32.520 --> 00:58:37.350
third party, if you will, not
only for the regular regulatory

940
00:58:37.530 --> 00:58:41.730
function within our financial
services industry, but law in

941
00:58:41.730 --> 00:58:47.100
general. And you talk about how
that could be, you know, these

942
00:58:47.100 --> 00:58:50.700
these very fundamental
institutions within our society

943
00:58:50.970 --> 00:58:58.620
could be disrupted. Or I forget
the word you used. But I would,

944
00:58:58.650 --> 00:59:06.420
I would say, circumvented or
eliminated. Perhaps, if this

945
00:59:06.420 --> 00:59:09.480
wet, this development went
unchecked. I wonder if you could

946
00:59:09.480 --> 00:59:14.160
talk about that in terms of, you
know, democracy, not necessarily

947
00:59:14.160 --> 00:59:17.520
just financial services, but
democracy writ large.

948
00:59:19.560 --> 00:59:22.500
Aaron Wright: Thank you very
much, Representative Lynch.

949
00:59:22.500 --> 00:59:25.980
That's a great question. And
this is thinking about it

950
00:59:26.010 --> 00:59:29.370
theoretically, and in the long
run. But one way to think about

951
00:59:29.580 --> 00:59:32.280
open permissionless blockchain
based systems is that they

952
00:59:32.280 --> 00:59:35.520
create a set of rules that
participants on these networks

953
00:59:35.550 --> 00:59:38.160
where participants with the
underlying smart contracts are

954
00:59:38.160 --> 00:59:42.120
agreeing to. So it structures
the behavior between different

955
00:59:42.120 --> 00:59:45.630
parties. So Bitcoin is a great
example here. There aren't

956
00:59:45.660 --> 00:59:49.920
bureaucratic rules that are
sitting behind bitcoin, all the

957
00:59:49.920 --> 00:59:54.540
laws that support today, the
central bank in the US or in

958
00:59:54.540 --> 00:59:58.590
another jurisdiction, they don't
exist with Bitcoin instead. It's

959
00:59:58.590 --> 01:00:02.490
primarily a Data exclusively
governed by these code base

960
01:00:02.490 --> 01:00:06.060
rules. Now, humans and people
are involved in that process,

961
01:00:06.060 --> 01:00:08.820
and there's certain decisions
that they get to make. But

962
01:00:08.850 --> 01:00:12.930
fundamentally, at its core,
these code base rules are

963
01:00:12.930 --> 01:00:16.890
governing the day as it comes to
Bitcoin. So that means that

964
01:00:16.890 --> 01:00:19.530
transactions are not reversible,
because that's what the protocol

965
01:00:19.530 --> 01:00:23.760
dictates. That means that it's
going to be very difficult to,

966
01:00:24.510 --> 01:00:27.150
to potentially implement certain
changes, because you have a

967
01:00:27.150 --> 01:00:29.820
whole bunch of different people
that are that are operating and

968
01:00:29.820 --> 01:00:34.590
running. On this network, we're
seeing the same kind of

969
01:00:34.830 --> 01:00:39.060
implementation of these code
base rules emerged, not just for

970
01:00:39.060 --> 01:00:43.140
base digital currencies, or
crypto currencies, however, we

971
01:00:43.140 --> 01:00:47.220
want to classify them, but also
in other financial services

972
01:00:47.220 --> 01:00:50.310
products, where people are
interacting with code base

973
01:00:50.310 --> 01:00:53.460
systems to perform a financial
service. That could be an

974
01:00:53.460 --> 01:00:57.240
exchange, an exchange that isn't
run by a centralized company,

975
01:00:57.360 --> 01:01:00.780
like we have in the US or other
parts of the globe. But instead,

976
01:01:00.780 --> 01:01:04.470
it's an exchange that's run just
by software. And people decide

977
01:01:04.470 --> 01:01:06.510
whether or not they want to
interact with that software or

978
01:01:06.510 --> 01:01:10.260
not. And due to the nature of a
blockchain, because once the

979
01:01:10.260 --> 01:01:14.460
software is deployed, it's very
difficult to take that software

980
01:01:14.460 --> 01:01:17.850
down, preclude people from
interacting with that software.

981
01:01:18.210 --> 01:01:21.840
If people decide that they want
to use this software, it's going

982
01:01:21.840 --> 01:01:25.590
to be hard to preclude them from
doing that. Except by taking

983
01:01:25.590 --> 01:01:28.260
steps that I think many
policymakers would consider to

984
01:01:28.260 --> 01:01:31.650
be highly, highly draconian in
nature, you're going after

985
01:01:31.650 --> 01:01:35.460
individual consumers,
potentially banning technology

986
01:01:35.460 --> 01:01:37.890
off the bat, which is not
something at least here in the

987
01:01:37.890 --> 01:01:41.850
US that we've tended to do. And
that creates certain challenges

988
01:01:41.850 --> 01:01:45.780
and complications, if many
people choose to use these

989
01:01:45.780 --> 01:01:49.380
services over the long run. So
right now, it's, you know, 10s,

990
01:01:49.380 --> 01:01:51.750
if not hundreds of 1000s of
people that are using these

991
01:01:51.750 --> 01:01:54.630
things. But in the future, if
that becomes millions, 10s of

992
01:01:54.630 --> 01:01:56.850
millions, hundreds of millions
or billions, like we've seen

993
01:01:56.850 --> 01:02:00.180
with other technology platforms,
then that can create a challenge

994
01:02:00.180 --> 01:02:03.750
to the existing financial
system. And that I think, is a

995
01:02:03.750 --> 01:02:06.900
concern, to the extent that the
systems are not designed to have

996
01:02:06.900 --> 01:02:11.700
compliance baked in at their
core. So issues related to, you

997
01:02:11.700 --> 01:02:16.860
know, fraudulent transactions,
terrorist financing, etc, are

998
01:02:16.860 --> 01:02:21.870
not accounted for in many of
these systems. And that's just

999
01:02:21.870 --> 01:02:24.300
going to require pushing, as I
think folks mentioned in the

1000
01:02:24.300 --> 01:02:26.520
past, pushing some of that
compliance to the endpoints,

1001
01:02:27.180 --> 01:02:30.900
which which may be a sufficient
solution. But it's not going to

1002
01:02:30.900 --> 01:02:33.240
ensure complete compliance,
particularly if there's

1003
01:02:33.240 --> 01:02:36.510
individual consumers that that
are involved. And I think with

1004
01:02:36.510 --> 01:02:40.980
Bitcoin, and other
cryptocurrencies, like ether, we

1005
01:02:40.980 --> 01:02:44.460
saw this applied to just payment
systems are things that, uh, try

1006
01:02:44.460 --> 01:02:46.950
to mimic or replicate payment
systems. And I know that that's

1007
01:02:46.950 --> 01:02:50.190
not a perfect analogy. But what
we're seeing over the past

1008
01:02:50.190 --> 01:02:53.130
couple years is that the
sophistication of the financial

1009
01:02:53.130 --> 01:02:55.890
products that are being provided
are just increasing

1010
01:02:55.890 --> 01:02:58.800
dramatically. It's no longer
payments, it's also exchanges.

1011
01:02:58.830 --> 01:03:01.410
It's also lending platforms,
it's also insurance platforms,

1012
01:03:01.620 --> 01:03:07.080
its derivatives, and options,
related contracts that people

1013
01:03:07.080 --> 01:03:10.410
are interacting with. And that's
just, that's just a

1014
01:03:10.440 --> 01:03:13.620
reimagination of it. And there's
lots of benefits to it. But

1015
01:03:13.620 --> 01:03:15.690
there's also significant
challenges.

1016
01:03:18.300 --> 01:03:20.970
Stephen F. Lynch: In the end, it
would it would create a for me,

1017
01:03:20.970 --> 01:03:25.110
it's a rule of law. problem.
Now, would you agree?

1018
01:03:26.010 --> 01:03:28.320
Aaron Wright: Yeah so it could,
right, in many ways these

1019
01:03:28.320 --> 01:03:31.260
systems could be complementary,
right? Maybe we learn new

1020
01:03:31.260 --> 01:03:35.400
mechanics that actually improve
how consumers perceive financial

1021
01:03:35.400 --> 01:03:41.040
services, maybe we see increased
speed, lower fees, less reliance

1022
01:03:41.040 --> 01:03:44.580
on centralized parties that are
making decisions, let's say, as

1023
01:03:44.610 --> 01:03:47.400
a good example, here will be
lending decisions, which many

1024
01:03:47.400 --> 01:03:50.970
people have raised a number of
issues related to, you know, in

1025
01:03:50.970 --> 01:03:53.160
the past, you know, how are
loans administered, if it's

1026
01:03:53.160 --> 01:03:56.070
entirely algorithmic, maybe
that's superior. But at the same

1027
01:03:56.070 --> 01:03:59.880
time, if this technology
continues to get adopted by

1028
01:03:59.910 --> 01:04:02.370
everyday consumers, not just
here in the US, but across the

1029
01:04:02.370 --> 01:04:06.150
globe, the mass of people that
are opting into these systems

1030
01:04:06.150 --> 01:04:08.820
can grow large enough that it
can be competitive to some of

1031
01:04:08.820 --> 01:04:11.190
the more highly regulated
systems. And that's the

1032
01:04:11.190 --> 01:04:14.040
challenge, right? How do we
capture all the benefit that

1033
01:04:14.040 --> 01:04:16.680
this technology may provide,
while at the same time

1034
01:04:16.680 --> 01:04:20.820
preserving the rule of law, and
also certain policies that we

1035
01:04:20.820 --> 01:04:24.300
think are beneficial, either for
the US as interest or because we

1036
01:04:24.300 --> 01:04:27.360
want to protect consumers? And
that is a difficult problem,

1037
01:04:27.390 --> 01:04:32.280
particularly as Neha mentioned,
and I agree with, it's not clear

1038
01:04:32.370 --> 01:04:34.920
what intermediaries are going to
be involved in this process

1039
01:04:35.070 --> 01:04:37.770
process at this point in time. I
also agree that there will be

1040
01:04:37.770 --> 01:04:40.560
some intermediaries. Maybe it's
a trusted third parties that

1041
01:04:40.560 --> 01:04:44.370
emerged in different capacities.
But it's not clear yet who those

1042
01:04:44.370 --> 01:04:48.510
are. So it's not clear who
should be the one bearing the

1043
01:04:48.510 --> 01:04:49.800
regulatory responsibility.

1044
01:04:51.630 --> 01:04:53.850
Stephen F. Lynch: Thank you very
much. I yield back. Thank you.

1045
01:04:55.770 --> 01:04:58.470
Denelle Dixon: Thank you, Mr.
Lynch. We'll go to Mr Davidson

1046
01:04:58.470 --> 01:04:59.610
for his questions.

1047
01:05:00.480 --> 01:05:03.840
Warren Davidson: Yeah, thank
you. Just a great discussion.

1048
01:05:03.870 --> 01:05:07.500
And hopefully we'll continue
this kind of dialogue, and then

1049
01:05:07.500 --> 01:05:10.230
maybe do it in the context of
some of the bills that we have

1050
01:05:10.230 --> 01:05:15.750
in committee in an official
hearing. So, so thanks again, to

1051
01:05:15.750 --> 01:05:18.690
the committee and for Mr. Lynch,
for getting this down the road.

1052
01:05:18.780 --> 01:05:22.680
And of course, you know, for Mr.
Emmer, on the Republican side of

1053
01:05:22.680 --> 01:05:26.460
the FinTech task force. So, you
know, Aaron, you highlighted

1054
01:05:26.460 --> 01:05:30.870
about, you know, the structure
and then earlier, really, in the

1055
01:05:30.870 --> 01:05:33.360
dialogue, just the whole
architecture, we're, you know,

1056
01:05:33.360 --> 01:05:36.330
from a cyber perspective, is
kind of a different way,

1057
01:05:36.360 --> 01:05:38.670
cybersecurity prospective is
kind of a different way to think

1058
01:05:38.670 --> 01:05:43.440
about it. And so in some ways,
the entire architecture, it runs

1059
01:05:43.470 --> 01:05:47.790
kind of parallel to the current
financial system, where there is

1060
01:05:47.790 --> 01:05:49.770
a third party. And I think
that's one of the hard things

1061
01:05:49.770 --> 01:05:54.060
for my colleagues to kind of,
think about in in so you see

1062
01:05:54.060 --> 01:05:57.990
this idea of the trusted third
party, and often the recourse is

1063
01:05:57.990 --> 01:06:00.810
a trusted government, a
government entity that sits in

1064
01:06:00.810 --> 01:06:03.960
the middle. And, you know,
unfortunately, our government

1065
01:06:03.960 --> 01:06:07.800
hasn't perfectly been this
neutral third party, and we're

1066
01:06:07.800 --> 01:06:12.300
still dealing with sins of our
past for having not done that

1067
01:06:12.300 --> 01:06:17.160
well legacy. Even in in, say,
our housing programs or things

1068
01:06:17.160 --> 01:06:20.880
like that, where our government
really facilitated, you know,

1069
01:06:21.630 --> 01:06:26.700
unjust systems. And so you have
a true distributed ledger that

1070
01:06:26.700 --> 01:06:29.730
runs differently. You know,
Aaron, you alluded to it. And in

1071
01:06:29.730 --> 01:06:33.840
America, we have been reluctant
to go after the people that use

1072
01:06:33.840 --> 01:06:37.590
this, but I'll just highlight as
an example. You know, the

1073
01:06:38.220 --> 01:06:41.700
founder, Ross Ulbricht is
serving a double life sentence

1074
01:06:41.700 --> 01:06:44.190
plus 40 years for creating
something the government

1075
01:06:44.190 --> 01:06:48.570
considered to private, right.
And he was ahead of his time in

1076
01:06:48.570 --> 01:06:53.220
terms of the idea of creating a
private network. It was an

1077
01:06:53.250 --> 01:06:58.980
ideological problem, and,
frankly, facilitated completely

1078
01:06:58.980 --> 01:07:04.260
illicit activities. And so, you
know, you paint otherwise good

1079
01:07:04.260 --> 01:07:07.500
technology with these bad
actors. And I think that's the

1080
01:07:07.500 --> 01:07:10.050
fear when we don't provide
legislative certainty. We don't

1081
01:07:10.050 --> 01:07:14.160
provide legislative clarity,
innovators can step outside the

1082
01:07:14.160 --> 01:07:18.000
bounds of accepted norms, and
frankly, do bad things. And

1083
01:07:18.000 --> 01:07:22.500
they're held up as, as examples
of the technology. We don't do

1084
01:07:22.500 --> 01:07:26.310
that with the US dollar. I mean,
the clearly the most

1085
01:07:26.340 --> 01:07:31.530
fraudulently used black market
thing is the US dollar. And

1086
01:07:31.530 --> 01:07:34.620
that's the benefit of being the
world's reserve currency. But I

1087
01:07:34.620 --> 01:07:37.500
guess, when you think about just
this last question, just

1088
01:07:37.500 --> 01:07:42.900
cryptographically. You think
about the, the distributed

1089
01:07:42.900 --> 01:07:46.290
ledger, it really is an open
ledger. So while you can do it

1090
01:07:46.290 --> 01:07:49.860
with some level of privacy, it's
not true secrecy, so you can

1091
01:07:49.860 --> 01:07:54.900
follow the moves. And we've seen
how, for example, the mount Gox

1092
01:07:54.900 --> 01:07:59.220
theft was ultimately solved by
following all the moves,

1093
01:07:59.280 --> 01:08:03.870
something that couldn't easily
be done with cash. So I'm not

1094
01:08:03.870 --> 01:08:07.200
positive, who would be the best
person to answer that. But maybe

1095
01:08:07.200 --> 01:08:08.250
you missed a ruling.

1096
01:08:12.540 --> 01:08:15.450
Neha Narula: Yes, thank you for
the question. Mr. Davidson. I

1097
01:08:15.450 --> 01:08:20.460
think in practice, it has turned
out that it is quite quite

1098
01:08:20.460 --> 01:08:24.090
helpful that these Ledger's are
public and that we are able to

1099
01:08:24.090 --> 01:08:26.730
track transactions, there's a
there's a huge amount of

1100
01:08:26.730 --> 01:08:31.530
transparency that's happening.
And I know that gentleman from

1101
01:08:31.530 --> 01:08:33.960
one of the preeminent companies
that does this type of work

1102
01:08:33.960 --> 01:08:37.590
chain analysis, has joined
FinCEN. So presumably to help

1103
01:08:37.590 --> 01:08:40.260
bolster their their ability to
do this type of tracking as

1104
01:08:40.260 --> 01:08:44.970
well. There are some
cryptocurrencies that attempt to

1105
01:08:44.970 --> 01:08:50.790
obfuscate the entirety of the
ledger. And so I think it's a

1106
01:08:50.820 --> 01:08:54.870
while while we can rely on the
transparency now, the question

1107
01:08:54.870 --> 01:08:58.200
becomes, what will that look
like in the future? These

1108
01:08:58.200 --> 01:09:00.900
cryptocurrencies which do
obfuscate the entirety of the

1109
01:09:00.900 --> 01:09:03.810
ledger have not really caught
on? I would say, they are not a

1110
01:09:03.810 --> 01:09:07.830
majority of the usage by any
means. And there are still many

1111
01:09:07.830 --> 01:09:11.970
cryptocurrencies which do not do
this. So, I think it's an

1112
01:09:11.970 --> 01:09:15.150
interesting question to see how
this will evolve in the future.

1113
01:09:16.590 --> 01:09:18.570
Warren Davidson: Yeah, and so
thanks, if you think about use

1114
01:09:18.570 --> 01:09:22.260
cases, beyond currency, and
beyond moving beyond payment

1115
01:09:22.260 --> 01:09:24.390
systems, you know, the whole
point is that they're

1116
01:09:24.390 --> 01:09:28.320
transparent, like title or deed
to a property, representation,

1117
01:09:28.320 --> 01:09:32.580
access to a good or service. And
so it, frankly, that it's way

1118
01:09:32.580 --> 01:09:36.240
more easily audited. And I think
the last thing, though, is to

1119
01:09:36.240 --> 01:09:39.420
the greatest extent possible,
and I hope that we can get to

1120
01:09:39.420 --> 01:09:42.450
the point where you get the
structure in the right way.

1121
01:09:42.600 --> 01:09:45.300
Without that third party, it
really is an entirely different

1122
01:09:45.390 --> 01:09:48.150
architecture. Should I could go
into that, you know, maybe,

1123
01:09:48.180 --> 01:09:51.660
maybe, maybe easily with the way
stellar works is if you have to

1124
01:09:51.660 --> 01:09:55.320
wait in a queue for a third
party. That's how swift works.

1125
01:09:55.410 --> 01:09:59.370
And that's why stellar is in
second since Swift is in days,

1126
01:09:59.670 --> 01:10:03.600
right? So the the ability to and
friction cost money, people want

1127
01:10:03.600 --> 01:10:06.810
paid and everything else. It's
just a much more efficient

1128
01:10:06.810 --> 01:10:10.470
architecture. And in some ways,
there's some inherent

1129
01:10:10.800 --> 01:10:13.950
incompatibility with third
parties that basically act as a

1130
01:10:13.950 --> 01:10:17.670
buffer, and also creates
security vulnerabilities. So

1131
01:10:17.700 --> 01:10:20.520
I'll look forward to some follow
up discussions with colleagues

1132
01:10:20.520 --> 01:10:23.850
and with our meeting, meeting
with our staff. But just thanks

1133
01:10:23.850 --> 01:10:29.370
again. I, you know, I'm just so
encouraged that our committee is

1134
01:10:29.370 --> 01:10:32.430
taking time to spend on this
topic. Thanks, again.

1135
01:10:34.940 --> 01:10:37.460
Denelle Dixon: Thank you, Mr.
Davidson. We'll now go to Mr.

1136
01:10:37.460 --> 01:10:45.080
Foster for his questions. Mr.
Foster, I believe you are still

1137
01:10:45.080 --> 01:10:45.680
muted.

1138
01:10:48.650 --> 01:10:52.280
Bill Foster: Yeah, so I'm the AI
taskforce that I'm chairing we

1139
01:10:52.280 --> 01:10:55.970
had a very interesting hearing,
having to do with techniques

1140
01:10:56.150 --> 01:10:59.480
that go by the name of
homomorphic encryption, which

1141
01:10:59.510 --> 01:11:04.430
allow you to actually do
database queries on a database,

1142
01:11:04.430 --> 01:11:08.540
you cannot see because it's
cryptographically protected. And

1143
01:11:08.540 --> 01:11:12.740
that has the potential to allow
you for in one of the most

1144
01:11:12.740 --> 01:11:17.240
sensitive design questions is
whether some, the entity who's

1145
01:11:17.240 --> 01:11:21.800
responsible for preventing
fraudulent trading has direct

1146
01:11:21.800 --> 01:11:25.010
access to the D anonymized
trades that are happening and

1147
01:11:25.040 --> 01:11:29.240
whatever. Because without being
able to do that things like wash

1148
01:11:29.240 --> 01:11:34.610
trades are nearly undetectable.
Okay, there is potentially a

1149
01:11:34.610 --> 01:11:40.130
solution out there with with
limitations, that allows you to

1150
01:11:40.130 --> 01:11:43.700
query this to look at the
encrypted traffic, but ask

1151
01:11:43.700 --> 01:11:46.970
questions. You know, is there
anyone, for example, who's

1152
01:11:46.970 --> 01:11:50.510
trying to, you know, if you
think about the $10,000 limit

1153
01:11:50.510 --> 01:11:55.160
for suspicious activity reports,
if someone's breaking it up

1154
01:11:55.190 --> 01:11:59.240
routinely into bazillions of
small transactions, you can ask

1155
01:11:59.240 --> 01:12:02.600
that question, and
cryptographically without seeing

1156
01:12:02.600 --> 01:12:06.350
all those transactions until you
determine, you know, that there

1157
01:12:06.350 --> 01:12:09.620
is one entity who's doing
bazillions of small transactions

1158
01:12:09.620 --> 01:12:14.240
to avoid triggering a threshold
requirement. And so, you know, I

1159
01:12:14.240 --> 01:12:17.660
was just wondering, is there a
lot of technical effort going

1160
01:12:17.660 --> 01:12:22.130
into things like that, that
allow you to sort of, you know,

1161
01:12:22.160 --> 01:12:27.980
split the babies between having
one one entity, a regulator with

1162
01:12:27.980 --> 01:12:32.480
complete access, versus a
regulator that has limited

1163
01:12:32.480 --> 01:12:36.260
access with a cryptographic
barrier, so that they can't sit

1164
01:12:36.260 --> 01:12:39.350
there and ask, you know, how
much did you spend at that store

1165
01:12:39.350 --> 01:12:44.090
at this time? Anything happening
in that in that?

1166
01:12:44.480 --> 01:12:47.600
Denelle Dixon: Thank you so much
for the question. Representative

1167
01:12:47.600 --> 01:12:51.560
Foster, we, we see a lot of
great innovation and competition

1168
01:12:51.560 --> 01:12:54.140
with respect to this. We're
already seeing what we call

1169
01:12:54.140 --> 01:12:57.380
those who analyze the chain. So
chain analysis is one of them.

1170
01:12:57.380 --> 01:13:00.200
Elliptic, is another one
elliptic is does that for

1171
01:13:00.200 --> 01:13:03.710
stellar. And they can actually
pull out this kind of

1172
01:13:03.710 --> 01:13:07.550
information from the chain as
the transactions are going. And

1173
01:13:07.580 --> 01:13:11.090
and I just have to say one other
thing. I think wash trading not

1174
01:13:11.120 --> 01:13:15.200
is not always detectable. But
there's definitely litigation

1175
01:13:15.200 --> 01:13:18.380
around this already in
blockchain, when you do have

1176
01:13:18.380 --> 01:13:20.600
washed trading, that happens,
because you can watch the

1177
01:13:20.600 --> 01:13:23.060
transactions and see what's
happening and why the

1178
01:13:23.210 --> 01:13:26.210
transactions may have taken
place. So yes, there's a lot of

1179
01:13:26.210 --> 01:13:28.400
innovation here. And I think
they'll continue to be the

1180
01:13:28.400 --> 01:13:31.430
beauty of that having in
happening in the private sector

1181
01:13:31.520 --> 01:13:33.620
is that there's going to be
competition and competition

1182
01:13:33.620 --> 01:13:36.800
breeds even better innovation
and creativity with respect to

1183
01:13:36.800 --> 01:13:39.350
these issues. And so I'd love to
see these third parties out

1184
01:13:39.350 --> 01:13:41.330
there doing this in a private
sector.

1185
01:13:42.770 --> 01:13:45.440
Stephen F. Lynch: Have they any
of these succeeded at doing that

1186
01:13:45.440 --> 01:13:46.760
on an encrypted ledger?

1187
01:13:47.840 --> 01:13:50.480
Unknown: For home amid
representative Foster on for

1188
01:13:50.480 --> 01:13:54.170
home, morphic encryption, there
has been some teams that are

1189
01:13:54.170 --> 01:13:59.510
exploring that, my understanding
is that the proofs that are

1190
01:13:59.510 --> 01:14:02.930
required are very slow still. So
the performance is not there

1191
01:14:02.930 --> 01:14:07.280
yet, although at least at a
theoretical level. And also at

1192
01:14:07.280 --> 01:14:10.040
the implementation level, it's
possible at this point in time,

1193
01:14:10.610 --> 01:14:13.070
it runs into some of the same
issues that some of the more

1194
01:14:13.100 --> 01:14:17.030
advanced blockchains employ more
advanced cryptography, round

1195
01:14:17.030 --> 01:14:20.000
two, which is the proofs
themselves that are necessary to

1196
01:14:20.000 --> 01:14:24.800
provide privacy or not yet
performance. And so there's a

1197
01:14:24.800 --> 01:14:27.440
number of teams in the
blockchain ecosystem that are

1198
01:14:27.440 --> 01:14:30.710
exploring that, and I'm sure
other cryptographers, both in

1199
01:14:30.710 --> 01:14:33.500
the US and in other parts of the
globe are also looking at these

1200
01:14:33.500 --> 01:14:36.890
types of questions too, in many
ways, like blockchains are just

1201
01:14:36.890 --> 01:14:42.050
a great a great petri dish,
place for experimenting with

1202
01:14:42.050 --> 01:14:44.450
some of these more advanced
forms of cryptography, including

1203
01:14:44.450 --> 01:14:48.110
to solve some of the issues that
that you you referenced before.

1204
01:14:48.629 --> 01:14:50.519
Stephen F. Lynch: And generally
there's a what they call a

1205
01:14:50.519 --> 01:14:53.579
privacy budget associated with
these when you can't sit there

1206
01:14:53.579 --> 01:14:56.189
and ask questions of the
database in unlimited

1207
01:14:56.189 --> 01:14:58.529
quantities, or eventually you
can figure out the exact

1208
01:14:58.529 --> 01:15:01.979
quantity of everything In the
database, and so then you have

1209
01:15:02.159 --> 01:15:06.149
an issue of enforcing that
privacy budget, where I think

1210
01:15:06.179 --> 01:15:08.579
you need something like a
trusted third party and the

1211
01:15:08.579 --> 01:15:11.789
commercial entities that are
getting into homomorphic

1212
01:15:11.789 --> 01:15:14.999
encryption, they insert
themselves as the trusted third

1213
01:15:14.999 --> 01:15:19.259
party to enforce the privacy
budget. And so you're sort of

1214
01:15:19.259 --> 01:15:21.929
back where you were because if
you corrupt that trusted third

1215
01:15:21.929 --> 01:15:27.599
party, then you can get past the
encryption. Anyway, so over and

1216
01:15:27.599 --> 01:15:31.529
over, I went, I want to follow
down the rabbit holes here, I'm

1217
01:15:31.529 --> 01:15:35.399
dragged back to the need for a
trusted third party. And, you

1218
01:15:35.399 --> 01:15:38.039
know, maybe it's the party I'm
from, but I believe that the

1219
01:15:38.039 --> 01:15:40.169
solution is to improve
government rather than to

1220
01:15:40.169 --> 01:15:47.639
eliminate it. Anyway, so that's,
I just want to thank you for

1221
01:15:47.849 --> 01:15:50.579
helping out, you know,
communicating this to Congress.

1222
01:15:50.579 --> 01:15:54.689
It's, it's really important. And
we have to get it right. And

1223
01:15:54.689 --> 01:15:58.259
thank you. Thanks, Steve, for
signing up this, this briefing

1224
01:15:58.259 --> 01:15:59.699
here. It's been very useful.

1225
01:16:03.000 --> 01:16:05.850
Denelle Dixon: Thank you, Mr.
Foster. Mr. Lynch. I'll now go

1226
01:16:05.850 --> 01:16:07.530
to you for your closing remarks.

1227
01:16:08.530 --> 01:16:11.320
Stephen F. Lynch: Sure. Thank
you, Bill. Very insightful

1228
01:16:11.320 --> 01:16:15.070
questions. And Mr. Davidson as
well. Thank you. Thank you for

1229
01:16:15.070 --> 01:16:19.600
your help. I think this was
enormously beneficial. Thank

1230
01:16:19.600 --> 01:16:23.800
you, Erin. Thank you. Danelle,
thank you now for your your

1231
01:16:24.130 --> 01:16:28.540
remarks and your contributions
today. This was extremely

1232
01:16:28.540 --> 01:16:32.380
helpful, this is the best
interaction we've had on this

1233
01:16:32.380 --> 01:16:38.980
issue. So I would, I promise
we'll do this some more. We have

1234
01:16:38.980 --> 01:16:42.760
a lot of work to do. I want to
thank staff. Thank you very much

1235
01:16:42.760 --> 01:16:47.080
for setting this up technology
wise. And Kevin George from our

1236
01:16:47.080 --> 01:16:50.140
office and the whole team that
put the witnesses the witness

1237
01:16:50.140 --> 01:16:55.960
panel together here. It was, it
was terrific. Just just very,

1238
01:16:55.960 --> 01:17:02.290
very helpful, very informative.
And let's let's try to work

1239
01:17:02.530 --> 01:17:06.790
ourselves into a process where
we can actually think about some

1240
01:17:06.790 --> 01:17:12.130
legislation emerging from either
this task force or Bill Foster's

1241
01:17:12.130 --> 01:17:16.570
Task Force to try to, you know,
set some basic.