Congress takes an interest in cryptocurrency — what could possibly go wrong?
Congress recently wrapped up long-awaited hearings about the future of cryptocurrency in America and around the world. Driven primarily by Facebook’s announcement of its Libra project, lawmakers in both the House and Senate heard testimony regarding the potential for federal regulation of digital payment systems. Although the sometimes contentious hearings were preliminary, and few if any conclusions were drawn, one thing is certain — the days of cryptocurrency flying under the radar are over and Congress is sure to continue to investigate its role in oversight into the burgeoning technology.
For most Americans, terms such as Bitcoin, cryptocurrency and blockchain are mysterious concepts. But over the past 10 years since Bitcoin’s creation in 2009, the worldwide market has grown exponentially, with hundreds of crypto assets currently trading in public markets. Bitcoin is the most prominent of these assets, but its growth has been more akin to a roller coaster ride than a moon shot. The price has fluctuated wildly, sometimes varying by thousands of dollars over a few days, and Bitcoin has been declared dead by analysts on more than one occasion.
President Trump certainly didn’t help Bitcoin’s cause when he tweeted on July 11 that he is “not a fan of Bitcoin and other Cryptocurrencies, which are not real money, and whose value is highly volatile and based on thin air.” Treasury Secretary Steve Mnuchin piled on, expressing concern about the potential for cryptocurrency to be used for nefarious activities, ranging from money laundering to financial transactions between terrorist organizations. Last month’s congressional hearings raised similar concerns, although many committee members instead focused their attention on an even bigger target — Facebook.
The social media behemoth has been in the crosshairs of international regulators and Congress since 2016, with major concerns about data privacy first among the long list of grievances. It is therefore no wonder that Congress and financial experts quickly jumped aboard the anti-Libra bandwagon when Facebook in June announced its plan to create its own cryptocurrency. Although many conflate the issues surrounding Libra and Bitcoin, the two actually are quite different.
While both Libra and Bitcoin operate on a secure blockchain ledger technology, Bitcoin transactions are anonymous and designed specifically to allow individuals to engage in peer-to-peer transactions free from banks, regulatory scrutiny and red tape. Libra, on the other hand, has partnered with corporate heavyweights such as Visa, PayPal and Uber to create a permission-based currency which will conduct business only with trusted parties. In many ways, this is the exact opposite of what the anti-establishment Bitcoin founders had in mind, as Facebook’s Libra will be governed by a centralized consortium of large institutions who have invested millions in the project.
To avoid the tumultuous market swings Bitcoin and other cryptocurrencies have experienced, Libra is designed to be used mostly for money transfers and international payments. The key distinction is that Bitcoin offers a fixed supply of 21 million coins, while Facebook will have the ability to adjust the supply of Libras to react to demand changes in the market. This emphasis on maintaining a stable value has led to Libra’s preferred terminology of “stablecoin.” This all sounds good, but it is safe to say Congress isn’t buying it.
With the misgivings many members of Congress have about Facebook’s sometimes ham-handed efforts to defend its data security policies, it comes as no surprise that some committee members used their time to lambaste the company, expressing skepticism that Facebook would use the technology in consumers’ best interest. Some of this likely was political grandstanding, and it was clear that some members of the committees didn’t fully grasp the intricacies of the issue.
Nevertheless, there can be no doubt that this is just the beginning of what promises to be a lengthy process of political oversight into what has been, up to this point, a relatively under-scrutinized issue. The combination of a corporate adversary, an issue with the potential to impact the pocketbook of every American, President Trump’s Twitter attention, and the bright lights of fawning media coverage surely will prove too much of a temptation for politicians to ignore.
In exploring the details of cryptocurrency and blockchain technology, Congress is bringing important issues to public attention. These issues are certain to grow outside the financial services industry. For example, West Virginia recently became the first state to utilize blockchain technology for absentee voting, allowing military personnel serving overseas to cast their ballots via smartphone. Predictably, there were a few glitches and some after-the-fact concerns were raised. Nevertheless, these types of experiments represent a new frontier as innovators explore new uses for the blockchain technology.
Although a little late to the party, Congress is asking the right questions and finally paying attention. If these efforts are to benefit the American people, politicians in Washington must use this opportunity to fairly investigate the multitude of issues surrounding this new technology, and most importantly, to avoid the temptation to turn the proceedings into a circus. To do otherwise will only add further uncertainty to an already complicated issue.
Former Congressman Jason Altmire (D-Pa.) served three terms in the U.S. House of Representatives from 2007-2013. He is senior adviser for Avalere Health, a health care consulting firm in Washington, D.C. Follow him on Twitter @jasonaltmire.