S. HRG. 116–104 EXAMINING REGULATORY FRAMEWORKS FOR DIGITAL CURRENCIES AND BLOCKCHAIN HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION ON EXAMINING THE DIFFERENT TYPES OF DIGITAL CURRENCIES AND THEIR INFRASTRUCTURE, THEIR APPLICATION IN THE FINANCIAL SYSTEM, AND THE POTENTIAL BENEFITS AND DETRIMENTS OF EACH JULY 30, 2019 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: https://www.govinfo.gov/ U.S. GOVERNMENT PUBLISHING OFFICE 38–950 PDF WASHINGTON : 2020 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS MIKE CRAPO, Idaho, Chairman RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey BEN SASSE, Nebraska JON TESTER, Montana TOM COTTON, Arkansas MARK R. WARNER, Virginia MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada MARTHA MCSALLY, Arizona DOUG JONES, Alabama JERRY MORAN, Kansas TINA SMITH, Minnesota KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona GREGG RICHARD, Staff Director LAURA SWANSON, Democratic Staff Director JOE CARAPIET, Chief Counsel LEXI HALL, Professional Staff Member BRANDON BEALL, Professional Staff Member ELISHA TUKU, Democratic Chief Counsel COREY FRAYER, Democratic Professional Staff Member CAMERON RICKER, Chief Clerk SHELVIN SIMMONS, IT Director CHARLES J. MOFFAT, Hearing Clerk JIM CROWELL, Editor (II) CONTENTS TUESDAY, JULY 30, 2019 Page Opening statement of Chairman Crapo ................................................................. 1 Prepared statement .......................................................................................... 28 Opening statements, comments, or prepared statements of: Senator Brown .................................................................................................. 2 Prepared statement ................................................................................... 28 WITNESSES Jeremy Allaire, Cofounder, CEO, and Chairman, Circle Internet Financial Limited, on behalf of the Blockchain Association .............................................. 4 Prepared statement .......................................................................................... 29 Responses to written questions of: Senator Warren ......................................................................................... 59 Senator Cortez Masto ................................................................................ 60 Senator Sinema ......................................................................................... 61 Rebecca M. Nelson, Specialist in International Trade and Finance, Congres- sional Research Service ....................................................................................... 6 Prepared statement .......................................................................................... 37 Responses to written questions of: Senator Warren ......................................................................................... 61 Senator Cortez Masto ................................................................................ 68 Mehrsa Baradaran, Professor of Law, University of California Irvine School of Law .................................................................................................................... 8 Prepared statement .......................................................................................... 50 Responses to written questions of: Senator Cortez Masto ................................................................................ 73 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD Statement submitted by the Chamber of Digital Commerce ............................... 76 Letter submitted by the National Association of Federally-Insured Credit Unions ................................................................................................................... 91 ‘‘Go Slow on Libra. Speed up on Faster Payments’’, by Jennifer Tescher, Forbes .................................................................................................................... 92 ‘‘A Former Bank CEO Named His Boat ‘Overdraft’. Now That Bank Is in Hot Water Over the Fees’’, by Jonelle Marte, Washington Post ...................... 95 (III) EXAMINING REGULATORY FRAMEWORKS FOR DIGITAL CURRENCIES AND BLOCKCHAIN TUESDAY, JULY 30, 2019 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10:02 a.m., in room SD–538, Dirksen Sen- ate Office Building, Hon. Mike Crapo, Chairman of the Committee, presiding. OPENING STATEMENT OF CHAIRMAN MIKE CRAPO Chairman CRAPO. This hearing will come to order. Last Congress, this Committee held two hearings examining the digital currency ecosystem. In those hearings, we heard about some of the developments that have occurred within the digital currency marketplace since the creation of bitcoin in 2008; the potential benefits of digital cur- rencies; and concerns about value stability, fraud and illicit uses, market manipulation, and privacy. Since then, Facebook announced its intentions to launch a blockchain-based payment system and digital currency, libra, that will be governed by an association comprised of up to 100 financial and nonfinancial members, including Facebook’s digital wallet serv- ice, Calibra. Facebook’s Libra project has generated renewed interest in dig- ital currencies and blockchain generally, including how they inter- act with U.S. and international regulatory frameworks, the poten- tial benefits and challenges they pose, and concerns around issues like anti– money-laundering and counterterrorism efforts, including data privacy, consumer protections, commerce, and monetary pol- icy. A few weeks ago, the head of Calibra, David Marcus, joined the Committee to provide an update on Facebook’s proposed digital currency. During that hearing, Mr. Marcus emphasized some important points and commitments, including that there are a number of reg- ulators globally that are currently engaged on the Facebook project, including the Federal Reserve, FSOC, FinCEN, Financial Conduct Authority, the G7, and more; Calibra and the Libra Association will have the highest standards when it comes to data privacy, and no financial data or account data that is actually collected in Calibra will be shared with Facebook; and that the Libra Association will be headquartered in Geneva, Switzerland, but will still register with FinCEN and have oversight from U.S. regulators. (1) 2 Though while Libra may have begun this conversation, the blockchain and cryptocurrency system is diverse. It seems to me that these technologies and other digital innovations are inevitable; they could be beneficial; and I believe the U.S. should lead in their development. That cannot happen without clear rules of the road. As the U.S. develops a more comprehensive regulatory approach, care must be taken in determining what gaps may be present in the existing framework. In mid-July, Treasury Secretary Mnuchin said, ‘‘To be clear, the U.S. welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services. That being said, with respect to Facebook’s libra and other developments in cryptocurrencies, our overriding goal is to maintain the integrity of our financial system and protect it from abuse.’’ He also noted that Treasury has serious concerns regarding the growing misuse of digital currencies by money launderers, terrorist financiers, and other bad players. As digital currency efforts move forward, I am particularly inter- ested in better understanding how these technologies may impact individuals’ ability to exercise control over their data, including the right to receive information about and access their data, correct in- accuracies, and delete their data. During this hearing, I look forward to learning more about how the market for digital currencies has grown and evolved over the last decade; different types of digital currencies in the marketplace, including their differences with Facebook’s proposed digital cur- rency; how other countries are approaching the regulation of digital currencies and blockchain technology, and what we might learn from their successes and failures; potential gaps in existing regu- latory frameworks; whether distributive ledger technology can help to facilitate meaningful privacy for individuals’ data; and ap- proaches Congress should consider in developing a comprehensive regulatory regime for digital currencies, including ensuring individ- uals have real control over their data. With the appropriate balance of regulation, digital currencies and their innovative underlying technology could provide meaning- ful benefits, and I look forward to learning more about the eco- system during this hearing. Senator Brown. OPENING STATEMENT OF SENATOR SHERROD BROWN Senator BROWN. Thank you, Chairman Crapo, and welcome to our three witnesses. Thank you all for joining us, some of you more than once. Thank you. At this Committee’s hearing earlier this month, many of us of both parties, as you could hear from the Chair, voiced concerns, se- rious concerns about Facebook’s plan to run its own currency out of a Swiss bank account. By and large, we mostly heard deflections and dodging.