Senate hearing: Is crypto ‘our greatest hope’ or ‘nonsense’?

Two experts gave conflicting accounts of cryptocurrencies before a Senate committee on Thursday morning. One witness called them “our greatest hope” and suggested they should be regulated like other securities.

The other witness called cryptocurrencies “nonsense.”

The Senate Committee on Banking, Housing, and Urban Affairs questioned the two men on Oct. 11. Lawmakers are gathering facts as they consider regulating relatively unfettered cryptocurrency markets.

Peter Van Valkenburgh, director of research for Coin Center, a cryptocurrency advocacy group, advised that Congress take a “light touch” in regulating cryptocurrency similar to lawmakers’ approach to the internet in the 1990s.

Sen. Elizabeth Warren, D-Mass., questioned Van Valkenburgh about the dangers of cryptocurrency fraud and theft, noting that $1.1 billion of cryptocurrency was stolen in the first half of 2018.

Van Valkenburgh said the majority those thefts involved relatively new cryptocurrencies. He acknowledged that the majority of “Initial Coin Offerings” (cryptocurrency crowdfunding) have been scams, while also asserting that coin offerings can be done in compliance with current securities laws.

“What I hear you saying,” Warren said, “…is that an unregulated market puts consumers at risk and what’s critical is to get the right regulations in place.”

“Often our current regulations,” Van Valkenburgh replied. “Securities laws have worked well for [almost] the last 100 years…and I think they will continue to.”

The committee’s other witness was Nouriel Roubini, a professor of economics and international business at New York University’s Stern School of Business. Prior to the hearing, Roubini submitted testimony to the committee titled, “Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database.”

Roubini characterized the aspirations of blockchain advocates for a decentralized financial system as a utopian, “libertarian dream.”

“It’s total, utter nonsense,” Roubini said.

Van Valkenburgh criticized current financial transaction practices. He offered blockchain networks as a fix for liabilities associated with centralized data at banks and other financial institutions.

While noting the technology was not yet ready to take a leading role in shoring up the security and privacy of global financial transactions, Van Valkenburgh said, “It is our best hope.”

Roubini repeatedly made reference to “FinTech,” the blanket term for recent financial technology innovations that have made possible consumer transaction companies like PayPal and Venmo. FinTech has driven a financial revolution, Roubini said, and is used by millions around the world, including people underserved by traditional financial institutions.

He dismissed cryptocurrency as a market involving relatively few people that is rife with fraud.

“Crypto-land is an eco-system of con artists, self-serving peddlers, scammers, carnival barkers charlatans, and outright criminals,” Roubini said in his written testimony submitted to the committee before Thursday’s hearing.

Contrasting cryptocurrencies to other technological innovations, such as the internet, he continued: “[T]he criminal and scamming element in real technological revolutions is the exception, not the systemic rule that is in crypto land.”

Van Valkenburgh contradicted Roubini’s characterization of the use of FinTech innovations in China. FinTech transactions, Van Valkenburgh said, have created a massive, centralized database by which the Chinese government can monitor the financial activities of its people.

“It’s a tool for totalitarians,” Van Valkenburgh said.

Blockchain networks, he said, allow consumers to transmit currency without the need for a middleman — and without the need for storing financial data on a centralized database vulnerable to bad actors.

Sen. John Kennedy, R-La., asked how cryptocurrency and blockchain have benefited the world over the past 10 years. Van Valkenburgh said the benefits are “admittedly anecdotal,” comparing blockchain now to the developing internet of the 1960s and 70s.

“We have a lot of runway,” he said.

He did, however, relate a story of an Afghan woman who was able to pay her female employees through bitcoin. Whatever accounts those female employees had in traditional banks, Van Valkenburgh implied, were dominated by their husbands.

Van Valkenburgh concluded his written testimony acknowledging the “easily apprehended risks” of cryptocurrency-related technology while asserting the “significant and otherwise unattainable benefits.”

“All new approaches to decentralized computing—whether private or public,” Van Valkenburgh said, “should be celebrated and allowed to develop relatively unfettered by regulatory or government policy choices.”

A recording of the hearing can be seen here.

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