Capitol Hill: ‘Crypto Innovation Should Be Fostered, Not Smothered’
Until U.S. lawmakers have a clear handle on the mechanics of cryptocurrencies and the decentralized ledger, it appears that regulation has to wait. The good news is that Congress is earmarking the time for these discussions, most recently at a hearing on Capitol Hill where lawmakers and cryptocurrency authorities alike convened to delve into the topic. The hearing, which was entitled: “The Future of Money: Digital Currency,” delivered a surprisingly accepting and curious response to cryptocurrencies, the theme of volatility and investor protection notwithstanding.
One of the rock stars of the hearing was Norbert J. Michel, director at The Heritage Foundation’s Center for Data Analysis. He said that cryptocurrencies and the underlying technology “hold the potential to transform the financial industry,” adding: “This innovation should be fostered, not smothered.” Dr. Michel identified four themes that are paramount to the regulatory response to cryptocurrencies.
- Despite the rise of electronic payments, many consumers still prefer to transact in cash, for items such as micro-transactions, for instance. Retailers that don’t accept cash could be shooting themselves in the foot. “This danger, this threat of consumers using an alternative form of payment possibly at an alternative place of business is exactly as it should be. The competitive process should take place so businesses and consumers can discover the best means of payment. … Though it is in its infant stages, [cryptocurrencies] should be embraced,” Michel said.
- The government should not come in and “tilt the playing field” to favor one currency over another. Instead, they should treat all money including digital currencies “neutrally.” Any capital gains tax associated with using cryptocurrencies as a form of payment should be removed “to level the playing field.” Michel went on to suggest that the U.S. Post Office add cryptocurrencies to their accepted payment methods.
- The very motivation entrepreneurs have for innovation to create better products is competitive forces. These “competitive forces should be used to improve money,” Michel said, pointing to the “partial monopoly that the federal government has” on the financial system.
- The very promise of cryptocurrencies lies in their “decentralized nature.” Therefore, centralizing digital currencies is useless.
There seemed to be a consensus that a central-bank issued cryptocurrency is a bad “financial idea,” despite the fact that it’s doable. Chair Andy Barr wanted to know if demand for fiat notes would wane in response to the rise of digital currencies, the response to which was it doesn’t have to. “The U.S. has a competitive advantage in wealth storage services, and that’s an advantage that arises out of social infrastructure and a powerful government… and I think that will continue,” said Alex Pollock of the R. Street Institute.
Chair Barr pressed for an answer on whether cryptocurrencies are money, in response to which panelists suggested that we wouldn’t want it to be for regulatory/IRS reasons but conceptually yes, crypto is money despite issues such as volatility. Wider adoption of bitcoin could lessen the volatility, which would then improve the argument for cryptocurrencies as money.
Congressman Brad Sherman (D-Calif.) made the case against cryptocurrencies, bemoaning the power consumption that the bitcoin-mining process commands and pointing to instances of tax evasion, fraud and narcotics in which cryptocurrencies fueled the activity.
But overall, it was a collaborative session, one in which Congress appeared satisfied with the thought leadership and seemed to come away with more answers than questions this time around.
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