Why the Congressional Hearings on Facebook's Libra Were Good for Bitcoin - Ep.82

Transcript

Hi everyone, welcome to Unconfirmed, the podcast that reveals how the marquee names in crypto are reacting to the week's top headlines and gets the inside scoop on what they see on the horizon. I'm your host, Laura Shin. Thanks to everyone who participated in our survey. We got lots of great and helpful responses and many of you said really nice things about the show, so thank you for that. We have five winners of the free Kasa Bitcoin Lightning nodes, plus a free year of Kasa's Gold membership, including a multi-sig security app for iPhone and Android, a Trezor hardware wallet, a Kasa Faraday bag, and 24-7 support. The winners are Andy from Denver, Gabby Sibils, Henry Elder, Julian Gall, and Rosemary Heather. Congratulations and thanks to everyone who participated in the survey. And thanks also to Kasa for this donation. If you're making

vacation plans, please consider the Crypto Weekend Retreat I'm teaching with Meltem Demers of CoinShares and also Senate hearing, not Senate, House hearing fame and Jalak Joban Prutra of Future Perfect Ventures. It'll be at the beautiful Omega Institute in Ryanbeck, New York from September 20th to the 22nd. Be sure to check out the show notes for the link to sign up. Also, if you're not yet signed up for my weekly newsletter, go to unchainedpodcast.com. and you can sign up right on the homepage. Don't forget that Unchained and Unconfirmed are also on YouTube, and you can go there to subscribe to be alerted to all the latest episodes of both podcasts. CypherTrace cutting edge cryptocurrency intelligence powers anti-money laundering, blockchain analytics, and threat intel.

Leading exchanges, virtual currency businesses, banks, and regulators themselves use CypherTrace to comply with regulation and to monitor compliance. Crypto.com is the place you can buy crypto at true cost. Earn up to 8% per year on your BTC, ETH, XRP and more. Install the Crypto.com app now. Today's guest is Peter Van Valkenburgh, the Director of Research at CoinCenter. Welcome, Peter. Thanks for having me, Laura. This has been a huge week for cryptocurrency. In the span of a week, we've had the Federal Reserve Chair commenting on Bitcoin, the President tweeting about Bitcoin, cryptocurrencies and Libra, these House and Senate long hearings on Libra, which also touched on Bitcoin and other cryptocurrencies. What would you

say is the significance of all this government activity regarding crypto? Well, so far, nothing. But, you know, a lot has yet to be seen. So Coin Center, where I work, was started five years ago with the explicit goal of educating people about the technology so that if one day something big happened, the response would be reasonable. And what did we mean by big whenever we thought about that? We thought, this is money, so it's always possible that someone will use it to do something terrible, like fund terrorism or something like that. if Bitcoin or some cryptocurrency was used in an attack or something, would people react too strongly?

Or would they say, look, this is a tragedy, but we can't blame the sort of purpose agnostic technologies that people use to maybe support these acts. And there are reasonable good regulations already in place. So we were always worried about that black swan event where we'd want educated people in Congress and in the agencies to sort of be level-headed. But it turns out that the Black Swan event that got everybody interested in cryptocurrency finally was Facebook, deciding that they would release what they've occasionally called a cryptocurrency, what I would argue, and Meltem in her excellent House testimony yesterday argued, is not a cryptocurrency, it's more of a digital currency, like World of Warcraft gold or something like

that. But that's the significance so far, is a lot of people who were sort of, you know, maybe we'd briefed a staff member of theirs, or maybe they'd never been briefed at all about it, because they just didn't see it as a big part of their basket of issues on the Hill or whatever. Suddenly those kinds of people are very interested in cryptocurrency. And the open question is, okay, now that they're interested, What are they going to do? Yeah. And I feel like if I were to write this in a book, you know, I think of the year 2017 as the year that crypto first hit the mainstream and and that after that year, it was, you know, kind of. a foregone conclusion within the industry that this would be

here to stay and wouldn't go away. But then you had this like period of this regulatory uncertainty and sort of holding pattern amongst a lot of players in the industry. And so I actually feel like this will be a catalyst to those questions finally being answered and perhaps the industry feeling more confident in how it can move forward. One of the things though that I noticed was that in the hearings, It just really struck me how much so many of the lawmakers dislike and distrust Facebook. So I just wonder, do you worry or do you think that that aspect could adversely influence the way lawmakers try to regulate the space overall? We do. That was Coin Center's chief concern because we're here to represent the underlying technology. We're not here

to support or, you know, or even specifically criticize any project that we think is either good or bad. And our concern with Facebook is one, the sort of reputational risk that it poses. It's kind of funny for someone who's worked in the Bitcoin space to talk about reputational risk from a giant corporation, but I think that's kind of what's going on. But more than the reputational risk, because I think there's plenty of, and we saw this in the hearing, there were plenty of people in Congress who said, I don't trust you right now because of Cambridge Analytica or things like that, but I think you're you know, part of a wave of technology in the US that's generally, you know, created jobs and brought prosperity.

So I'm not too concerned about people being down on Facebook. I think Facebook could very well reform its image maybe and be fine. What I'm really concerned about from a cryptocurrency standpoint is the sort of the strategy that we've seen unfold from Libra, which is this, you know, we are just like Bitcoin. We are just like any other cryptocurrency. And so the regulations that would apply to us are the same ones that have been sort of worked out within the Bitcoin Ethereum space over the last four years. So you see a lot of this, maybe not quite as explicitly as I just said, but when when Facebook says, you know, we're going to have Libra be fully compliant with anti money laundering laws. because the on

and off ramps of the network will be fully KYC'd and there'd be AML and things like that. That is the standard for how we do AML in the Bitcoin space. We don't need KYC information on the blockchain or for a transaction between, say, two software wallets, like a Casa HODL node and my bread wallet on my iPhone. We don't do KYC there. We do KYC when you buy Bitcoin to basically get onto the network through Coinbase, or when you sell Bitcoin to get off of the network through, say, I don't know, Kraken. Now, Libra is not like Bitcoin in the sense that Bitcoin has no one in the middle who

could be relied upon to do the KYC. And so it makes sense that there's no regulation of the transactions in the middle from an AML standpoint. There's just miners in between and they don't have customer relationships. They're not even like, you know, they're not a unified legal entity. They're just people all over the world. Libra has this association in the middle, which at the moment, you know, might be 28 companies who've signed letters of intent and they plan to have about a hundred companies like big corporations like Visa and MasterCard when they launch. That association is something that you could regulate for anti-money laundering purposes. And so this claim that, you know, oh, we'll just do AML KYC at the edges is to a certain extent a claim

that we're just like Bitcoin. You know, we have to do it at the edges because there's no one in the middle. But that's simply not true. The way Libra has been described, there's somebody in the middle, somebody really notable, a big group of big companies. you know, legal entities of corporations who are going to keep the blockchain, validate transactions, decide what the Libra software should look like, all the things that we do in a decentralized way with Bitcoin miners and open source software development in the Bitcoin space. Yeah, I actually noticed this tension in a few different ways where it seemed like Facebook was trying to say hey, this is one thing but then later when answering a different question the way they would answer that would sort of contradict what they had said earlier and Nathaniel Popper released a couple tweets pointing this

out as well I don't remember all of them, but I remember one of them Which we'll actually talk a little bit more about in a second, but or actually no, I remember the first one it was saying, I guess at one point David Marcus said, yeah, we won't compete with the dollar. That's not our intention. But then, you know, at different points he was saying, well, we plan to be a global currency. So in that regard, those are slightly contradictory. And then another one was him saying, you know, we don't intend to be a bank, but then also later on admitting that some of the services they plan to offer in Collibra are, maybe lending or investing that type of thing which obviously would make them competitive with financial institutions but one thing that i

actually also just wanted to ask you was this point you were making about how it is not like bitcoin it is permissioned it is centralized so as i was listening to that kind of line of questioning and it kind of was remarkable because I could not help but think, oh, wow, Libra is what's making some of these lawmakers understand the benefits of something like Bitcoin and other decentralized cryptocurrencies. So that was kind of interesting to watch in action. But then I thought, well, if the wind trends in that direction, could we launch something more decentralized, which I realized was more just like a just kind of an imaginative thought. But, you know, even like

disregarding all the issues that raises, I was like, whoa, just even on a pure technical level, like a lot of these chains that do have high throughput and scalability are ones that also are more centralized and have few validators, you know, like you couldn't do something like this with Ethereum. Or, um, and then the fact of the matter is to just the fact that they want it to be backed somehow by some fiat or, or other stable currencies, like that's basically like tether, which, you know, has a lot of issues. So, um, so then I started thinking, well, frankly, it just feels to me like the way to make this technology go mainstream is that we have to start with a centralized version. Would you agree with that? Um, I

mean, I think the, the, the moment when, you know, you're, your grandmother will be using this thing will be the moment when it is super scalable, super easy. The interface doesn't have all this weird crypto jargon inherent in it, like private keys and all that. And it really is baked into common sense messaging platforms like WhatsApp or Facebook or Signal or whatever. But that's a ways away. And I don't think you need centralized messaging cryptocurrencies or digital currencies to ultimately achieve that. If you're willing to be centralized, then you already have those things.

They're called PayPal. If you're unwilling to be centralized and you want mainstream adoption, you have to build things like the Lightning Network or Plasma on Ethereum. You have to think about sharding. You have to think maybe about proof of stake or alternative consensus mechanisms. But these are not necessarily things that would end up creating a sort of counterparty or intermediary risk that you get in a normal centralized payment system. So Facebook, I think, with Libra recognized that the decentralized stuff was not ready to suddenly be baked into WhatsApp and thereby allow millions of transactions per day or per hour or even per second.

And yet they didn't come up with a technological solution that was really capable of maintaining decentralization while providing scalability. And we should forgive them for that because that's really hard. But there are some really exciting projects like Lightning that are starting to actually achieve those results. And it's still gonna be a number of years until your grandma with a Signal app can send Bitcoin seamlessly and without delays or counterparty risk or things like that. I think we're getting there and I don't think there's a sort of irreconcilable contradiction between decentralization and scalability. It's just harder tech to build. And the other thing that you were saying about this hearing finally helping some members

of Congress understand Bitcoin and the decentralized technology, I think you're totally right. I was a bit nervous about these hearings because of the potential collateral consequences that distrust of Facebook could give the decentralized space, the Bitcoin space. But these hearings ended up being, just like you suggested, a huge win for explaining exactly what the benefits of these decentralized technologies are to folks in Congress. Because it was something that, and this was also amazing, I don't know if your listeners follow politics much, but these hearings were happening in the backdrop of a really ugly partisan fight that was primarily, you know, initiated because of Trump's tweets about, you know,

whether certain people in Congress should go back to their home countries, which is I'm not even going to wade into any of that. It was all very ugly. And also, let's point out. They're all from the US. Yeah. Well, they're all, you know, they're all citizens. Yeah. So, so a mess and ugly and on both sides, you know, really aggressive partisan rhetoric. And yet, despite that happening in the background, during these hearings about Libra and cryptocurrency, there was actually a shocking amount of bipartisanism. You know, people who were just fighting about this other thing were both agreeing sometimes for slightly different reasons, that a centralized digital currency like Libra presents some somewhat alarming risks. But decentralized cryptocurrencies actually present great

opportunities to remove those risks. So I just wanted to point out a couple examples. So from the Democrat side, you had Representative Katie Porter, who said, and this is a direct quote, A lot of the concerns I have about Libra, I do not have about cryptocurrencies." And then she went on a really great line of questioning about, Libra says it's backed by dollars. What does backed mean? Does that mean you still own the dollars you gave Libra in order to get Libra? Or does that mean that they're just always going to have one that matches your Libra? What does that even mean when it's a basket of dollars and other currencies versus just a dollar for every Libra token? It was a great line of questioning focused on this reserve function, which is something that Bitcoin doesn't have because a Bitcoin is just a Bitcoin.

It's just a scarce number of items described by the Bitcoin blockchain. And then the demand sets the price. And then Representative Sean Duffy, a Republican, said it was this great moment in the House hearing where he held up a $20 bill. And he said, what's so good about this, Mr. Marcus, is that No one chooses who is allowed to use this dollar, this $20 bill and who isn't. Whereas with a Libra, and he's at this point referencing the power of the association in the middle, just like you censor people on Facebook whose views you don't agree with, you could censor people from using your Libra. You are judge and you are jury. And that's fascinating because that brings up the sort of rule of law

issues that come up with the fact that there's this middleman, this person that is always going to be the arbiter of whether someone's allowed to transact or buy something or sell something or donate to a political campaign. It's just too much risk to put in one person's hands. And Bitcoin, of course, doesn't have that because while miners could, you know, one-off decide not to put a transaction in the block, there's enough of them and they compete with each other with enough, you know, vibrancy that you're gonna get a transaction in the block eventually. It's gonna happen. None of them have the power to fully and permanently stop you from transacting the way the Lieber Association as the essential middleman in keeping the blockchain would have that power. Yeah,

we're going to continue this line of discussion. But first, a quick word from the sponsors who make this show possible. Crypto.com is the place you can buy crypto at true cost. You can buy over 40 coins at the lowest possible prices with no fees and no markups. At Crypto.com, we grow your crypto for you too. You can earn up to 8% per year on BTC, ETH, XRP and more when you deposit in any of the one month, three month or flexible terms. Download the crypto.com app on iOS or Android now. Will the world follow France and advocate banning privacy coins? Will government backed stable coins become the new fiat? Are distributed and peer-to-peer exchanges just a flash in the pan? The answer is maybe.

Virtual currencies can flourish and create a new, private and more versatile economy. But that grand vision can't happen without keeping crypto clean. And that requires support of governments and accountability for bad actors. Privacy-enhanced compliance using cryptographic controls has the potential to preserve anonymity without compromising legitimate investigations. Cyphertrace is working on this vision of the future. Sign up to stay up to date on the privacy enhanced compliance initiative and receive authoritative crypto AML reports quarterly. www.cyphertrace.com slash keep crypto clean.

Back to my conversation with Peter van Valkenburg of Coin Center. Yeah, I love what you just said and actually it kind of brings us back to one of the points I made earlier, which is actually in a roundabout way, even though the lawmakers really, really distrust Facebook, and my initial question was, oh, could this harm the regulation of the industry? Actually, weirdly, it might give a boost to the industry in the sense that now the lawmakers are kind of understand the risks of centralization because they clearly see, oh, we wouldn't want Facebook in charge of, you know, I can't remember who it was, but there were others who were saying like money is a public good. It shouldn't be something that all of these multinational corporations control. So, yeah. So actually, I think that might have been I

think that I'm not positive if the public good line exactly came from Ocasio-Cortez. It might have. Or Representative Cortez or Representative Taleb. I think it was Ocasio- I think it was Alexandria Ocasio-Cortez. People in Congress. Yeah, yeah, yeah. And I loved her line of questioning too, because both Representative Ocasio-Cortez and Representative Taleb brought up this other big problem of like, okay, Who chose who's in the Liber Association? And David Marcus came back and said, well, it's an open criteria. You just have to meet the criteria. Of course, that then leads you to ask, like, okay, who set the criteria and is it really open? At some point, somebody else asked, could a Chinese state-owned a company that matches the criteria,

you know, a billion dollar in assets and a $10 million entry fee, could they join? And there was no clear answer as to whether that was the case. But this line of questioning, like, who is allowed to join the Libra Association? And why were the initial 28 sort of picked the way they were, is really great for explaining Bitcoin as well. Because, you know, a lot of people have struggled with proof of work as this sort of, costly, potentially bad for the environment, weird, arbitrary game that people are playing on their computers in order to mine Bitcoin.

It doesn't immediately strike someone who's not a crypto native as something that sounds good. But this is exactly what solves the dilemma of who should play this role in the Bitcoin space. We don't want to give one corporation the chance to sort of weigh the dice and choose who's in the association of people validating the ledger. We don't want one corporation to do it just merely through fiat or through right. We want there to be a fair and open competition for who gets to do it. And so it needs to be some kind of a lottery. And the only way to make the lottery tickets expensive so that someone can't just buy billions of them and claim to be different people is to have computers do a proof of work calculation or maybe do proof of stake. I don't wanna suggest that proof of stake

is not a potential viable open solution to the consensus problem, but no matter what, we just want a fair game to sort of let people rotate playing this important role. And that's an amazing innovation. And it's an innovation that goes all the way back to 2008, 2009 with, you know, the Satoshi White Paper. And finally, we can go to someone like Representative Ocasio-Cortez and say, you're totally right. You're totally right that it shouldn't be some sort of, you know, this person just happened to be rich and powerful and said, therefore, the ledger will be validated by these people. That's lousy. Instead, it should just be a fair and transparent and open game that people play.

And when they play it fairly and honestly, they'll get a chance to be part of the network, you know, based on the rules that were set out in the software. So are you trying to set up a meeting with her? We've actually, you know, I haven't been on this meeting, but we've been in contact with some of her staff. So... Okay. Okay. Yeah. Because yeah, there were just a lot of a lot of these moments. But so back to Libra, I wanted to ask because you pointed out that it wasn't, you know, kind of a predictably partisan line of questioning from either side. So I just wondered, like, how do you think that aspect will affect the sorry, the I can't even speak the ability of Libra to go forward? Do you think that, you know, that will I don't know, will it, like, are both sides going to end

up against it or, yeah, what do you think is going to happen? So, you know, I honestly hope that there isn't some sort of, so obviously everybody knows that our big issue is we don't want a strong overreaction that would make it impossible to use or run Bitcoin software or something like that. And I'm not too worried about that now, although we still have to be vigilant. But I also just personally, hope that there isn't too strong of a reaction to Facebook. Like I'm not rooting for Facebook to fail or to be regulated into non-existence with its Libra product. I don't think that's good for competition or for innovation either. You know, there should be multiple approaches to solving things like financial inclusion and, you know, more private financial transactions. Do I think that the Libra project as designed is the

best way to achieve those results? No, but I do think they have a right to build it. as long as they comply with relevant laws. And I do think that, you know, their entering the field will just cause, you know, rival projects to take the challenge up and be serious about competing. And, you know, depending on which one you believe in, whether it's Bitcoin or Ethereum or Zcash, I think, you know, this is good. This is the right kind of competition that we want. I will say this, though, about Libra's chances for success. Because of the difference in architecture, because of the fact that there is a Libra association that is trusted to validate transactions and always is the gatekeeper between one person on the network paying another person, and also

because they are trusted to keep this reserve fund, which in theory will be balanced in order to keep the Libra units stable against the dollar or other international currencies, they're going to have more regulatory challenges than Bitcoin did. And so the two big things to watch out for, I think, are sanctions law, which a few people have talked about. But, you know, if anybody can generate a Libra address, and that's how it's currently specified in the protocol. And some Libra addresses end up on the SDN list, which is a list kept by OFAC, the part of the treasury that enforces sanctions law that says you can't pay someone in Iran, you can't pay someone in North Korea. If some of those Libra addresses end up on that

sanctions list, the association is going to have to comply with OFAC. And you might say, okay, well, that sounds fine. They'll just comply with OFAC. But it's going to be this sort of endless whack-a-mole where more people generate more addresses that are gonna end up on the sanctions list. And the association's just gonna have this massive duty to obey OFAC that I think ultimately will make the network and their functioning, their ability to create the functionality of the network extremely hard to maintain. Now, maybe they'll find a way to figure that one out, the fact that there's always this central arbiter of transactions means that that central arbiter is going to have to comply with a mountain of sanctions law issues and a

mountain of AML issues and not just U.S.-based ones. Like, what if a European member of the association says, we're not a U.S. company, we're not subject to U.S. sanctions, and they put a transaction in the ledger, but then a U.S. company says, wait a minute, we can't be in an association with a member who violates sanctions, we can't do that. And this is not just a hypothetical, because right now Europe is finding ways to go around American sanctions against Iran because they disagree with our foreign policy. So it's not an academic discussion at all. It's, I think, foundationally difficult. And then real quickly, the other thing, the other thing on securities law, which I think is maybe just as difficult, is, and we saw a lot of the panelists, Gary Gensler, former CFTC chairman, and Meltem Demirs, both say,

look, to me, this looks like an ETF, an exchange-traded fund. If it is basically a tokenized ETF or a tokenized money market fund, because they have this reserve and because they actively manage the reserve and decide what should go in the reserve and what should not go in the reserve, Then there's this question, all right, the investment tokens that the Libra Association members get, those are definitely securities. And Facebook's been transparent about that because they pay interest from all the money in the reserve. But what about the Libra token itself? Is that really just currency or is it a claim on the principle rather than the interest in the reserve? And if it's a claim on the principle of a fund, it's

probably a security under US law. And if it's a security under US law, the Libra currency itself, it can only trade on national securities exchanges. It can't trade on Coinbase. And there's all kinds of regulatory compliance issues that would suddenly emerge for any American citizen using Libra, because it would be the same as an American citizen transacting with stocks and bonds, unlike an American citizen transacting with just a $20 note. So that could be very... very difficult to comply with and could also be potentially deadly to the project. So I'm not too worried about, you know, sweeping overreach from Congress creating difficulties, although it certainly could still happen. But I am worried just about basic compliance with existing

law, because I think they've got a really hard road ahead of them. Yeah, something that I was thinking about, and I sort of referenced this earlier, is that Facebook, you know, as you mentioned, they kind of want it want to have it both ways. They want to seem like Bitcoin, but frankly, they have to go the regulatory, regulatory compliant route, right? And in a way, that's probably also why they chose the types of members that they did for the association. But then weirdly, I actually feel like, and this is probably far-fetched, but, you know, it's just kind of continuing down the trend I mentioned earlier where it seemed like a lot of the lawmakers were kind of understanding the benefits of decentralization. I just wonder if

the complications of trying to make Libra compliant with existing regulation will sort of point out the the burden, I guess, that a lot of companies face in this industry? And if that maybe could also help spur more friendly regulations, which a lot of the industry has been agitating for, do you think that's likely at all? I think it's possible. I just think that I don't know if you're going to get that much sympathy, though, because There's not much different here from a policy standpoint than what you have with a typical fully

centralized regulated entity like PayPal or a bank or something like that. The difference is you've got this quasi-decentralization. It's 100 members of an association instead of just us. No, but I mean regulations for truly decentralized cryptocurrencies. Do you know what I'm saying? Oh, but they're good. I mean, I think the regulations for truly decentralized cryptocurrencies are actually quite good right now. Oh, OK. OK. I mean, I guess like some of the stuff that you mentioned earlier about OFAC, I was going to point out that that already does apply to the Bitcoin blockchain.

There are two addresses, I believe, that have already been. Absolutely. Yeah. Yeah, yeah, yeah. But the fundamental difference here is you can be a miner. on the Bitcoin blockchain. And you're one of, you know, worst case scenario, you're one of maybe, you know, 10 or 15 powerful miners in the world who sort of take turns, you know, keeping the blockchain. And in a better case scenario with things like BetterHash and a few other innovations that could decentralize mining better, you're maybe one of 40 or 50 or 100 parties that are doing this. And so if you're based in the US, you comply with sanctions law. That's just what you do. You look and see if there's Bitcoin addresses on the OFAC list, and then you just don't validate transactions to those addresses. But if you're not based in the U.S., you don't comply with sanctions

law. So you don't have that problem where there's this international association that has to comply with the laws of every jurisdiction. Miners just comply with the laws of the jurisdiction that they find themselves in. And the same is true of anti-money laundering law, where we can do anti-money laundering law at the edges of the network because there's no single party in the center that could always do it for everybody on the network. And that's currently the policy of FinCEN and Treasury. And, you know, Secretary Mnuchin gave a speech about Bitcoin and cryptocurrencies in advance of the hearings as well, because as he said, this has been a crazy week. And what Secretary Mnuchin said was, look, we've got this under control. We've done two big things.

We issued new guidance in 2019. And by the way, that's guidance that says that, you know, software developers are not regulated for anti-money laundering purposes. Even multi-sig providers with a minority number of keys are not regulated. Custodial exchanges are regulated, the edges of the network. And the other thing he said that we did is export U.S. rules to the FATF, which will export them internationally because the FATF is the international body that... tells other countries how to do their AML. So we've actually ended up in this great place from an AML standpoint for Bitcoin, where we know who's regulated, the custodial exchanges and wallet providers, and no one else on the network is. With Libra, you could argue, well, it should be just the same. It's just the custodial exchanges

and wallet providers like Calibra, the wholly owned Facebook subsidiary. But it's hard to argue that when there's also this Libra association right in the middle of the network with a perfect vantage point to do all the AML for the entire network. And when it's made up of legal corporations and other regulated entities who could very easily be relied upon by people in government to stop illicit flows of funds and things like that. Whereas miners all over the world it's just not as feasible to actually put that kind of compliance burden on all of them because most of them aren't even US-based companies. They might even just be individuals. Right. Well, one other thing that I want to ask was, do you think that kind of seeing

this threat from Libra, that that could spur the US government to more quickly act on a central bank digital currency? The big problem with central bank digital currencies, especially from the US standpoint, I'll just give a really quick... thesis, this is not my area of expertise, but this is a pretty strongly held belief of my own, is that they're just not ever going to be viable anytime soon. Because if a central bank issues, you know, dollars directly into American wallets, digital wallets, Americans would have no reason to keep their money in banks. Because why would you take the risk of keeping your money in the bank when you can have direct to central bank money in your pocket? And so,

it would be massively disruptive to the banking sector if the central bank issued a digital currency, because it would basically obviate the need for bank deposits and lending. And it would completely change monetary policy in the U.S. because suddenly, you know, we used to use interest rates for lending to try and control the monetary supply, and now the Fed can still do that, sort of, way better for them to just create or destroy units and give them directly to American citizens in a digital wallet, or maybe even directly delete them from the wallets of American citizens in a sort of negative interest rate type scheme. This is all sci-fi and the Fed is a member association of banks. They're not going to put themselves out of business.

Yeah. Well, one other thing that I want to ask about, this is also kind of an unlikely scenario I wanted to talk about, would but it was that draft bill to prevent tech companies from creating cryptocurrencies. How likely is that to go anywhere? So it's hard to really develop a sort of like odds or percentage of success, uh, likelihood because things are very chaotic right now and things are very uncertain, both from a, you know, partisanship standpoint, which would generally make you think that nothing's going to pass unless it's totally bipartisan, but, As I was just saying, there's a surprising amount of bipartisanship around people being wary of Facebook and wary of it launching a cryptocurrency. I think the

collateral consequences of the Keep Big Tech Out of Finance Act that Maxine Waters presented might be severe enough that it ends up being something that, you know, cooler heads, maybe even Maxine Waters herself decide, you know, needs to be moderated a bit because basically that law says you can't even run a money services business. So products like Google Wallet or Apple Pay would have to be shut down. So that seems a little extreme, although I don't know, you know, and, you know, let me just give my disclaimer again. This is not Coin Center's issue area because we don't represent any of big tech. We don't want to represent any of big

tech. We want to represent open source protocols for cryptocurrency. The one thing I will say about that proposal, not that I advocate for it at all, because, again, I think everybody should be allowed to compete in this space. And I don't think we need laws to protect Bitcoin from big corporation competition, because I don't think they can actually compete on the margins where we're succeeding. But at the very least, that law wouldn't hurt Bitcoin, wouldn't make a hostile regulatory environment for Bitcoin or Ethereum. Not that it's necessarily good for Bitcoin. innovation or anything else. But at least it's a calibrated response, not a response that we were originally afraid of, which was something like all cryptocurrencies are banned or something like that. All right. All right. So I guess just the last question before we sign off, I just was

curious. So you did mention that you felt that the way Libra is constructed, it is kind of like an ETF. And in the hearings, David Marcus Marcus seemed not to really know who the regulator or regulators should be for Libra. So which government agencies do you think should regulate Libra? It's really not for me to say. I think it's already clear. And David Marcus and, you know, and other people from Facebook have said, we know we're going to be regulated by FinCEN for anti-money laundering. And that makes sense. And then they're in negotiations with the G7 and with their potential, you know, Swiss regulators, because they're incorporating in Geneva, which would be FINMA, about

how we do investor protection in this space. You know, I could see the Swiss regulators and FINMA doing a good job making sure they keep the reserve fund solvent and they don't accidentally become like a fractional reserve or... a Ponzi scheme of some sort. I could see the Swiss regulators being great at that. I believe David Marcus when he says, we're not trying to avoid regulation by going to Switzerland. We think the Swiss are actually good regulators and they're just very well known for being a country with an international focus because it's this little country in the middle of the EU, in the middle of the world, and so many nonprofits have their base of operations there like the WTO and such. So I could see that

happening and I think that would be fine. But that said, the existing securities laws in the US say that if you're dealing with American retail investors and the thing you're selling them is a security, which as I said earlier, might be true of Libra if basically what the association is doing is running a tokenized ETF, then they're not going to have a choice. They're going to have to comply with U.S. securities law, which means the SEC is their regulator for investment protection, unless there's some sort of amendment to the securities laws that changes that obligation for the SEC to regulate, which maybe they should advocate for. Or maybe they can even make the argument that, yeah, it's a lot like an ETF, but Because users don't expect profits, and

David Marcus did say this in the hearings, because they don't expect profits from something that is meant to be stable, it shouldn't be regulated as a security. It should be regulated as like a negotiable instrument or a payment instrument, which is what they were arguing. I just think it's difficult. It's a hard argument to make. So I personally wouldn't want to be in their shoes trying to make that argument. Yeah, well, we'll see how this plays out. I have a feeling that no matter what, it's going to continue to be incredibly fascinating. That's for sure. So thanks so much for coming on Unconfirmed. Thanks so much, Laura. Good talking with you as always. Thanks for joining us today. To learn more about the topics we discussed, be sure to check out the links in the show notes of your podcast

player. If you enjoyed the show, be sure to share the episode on Facebook, Twitter, or LinkedIn. Unconfirmed is produced by me, Laura Shin, with help from Fact of Recording, Anthony Yoon, Daniel Ness, and Rich Stroffalino. Thanks for listening.