The Committee was accommodative of the views of the crypto companies.
On Wednesday, the much-anticipated hearing on “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States”, hosted by the House Committee on Financial Services, was held.
It featured top executives from Coinbase, Circle, FTX, Paxos, Bitfury, and Stellar testifying before the House Committee on Financial Services.
It was expected that the companies would be grilled, but unexpectedly the Committee was quite accommodative of the views of the crypto players.
Given Stablecoins is a pressing issue, as expected, it was hotly discussed.
Concerns About Stablecoins
The role and importance of Stablecoins in the crypto ecosystem was discussed by the executives.
Bitfury Group CEO and former Acting Comptroller of Currency, Brian Brooks argued that the regulators treat Stablecoin issuers as banks, but the issuers do not get bank charters.
Brooks also made an alarming claim that the current regulatory regime is driving legitimate activities offshore. This could hurt the US economy.
Nearly all the executives pointed out that Stablecoins also help the unbanked population.
An old point of contention that made rounds is that the Stablecoins are not fully backed by cash or Treasury Bills or bank deposits. However, the stakeholders assured the Committee of the robustness of their reserves backing their Stablecoins.
Surprisingly, Tether, which has the most contentious reserves, was missing from the meet.
Investor Protection and Cybersecurity
With respect to investment, the protection of retail investors and the cybersecurity practices of crypto exchanges were discussed.
Representative Carolyn Maloney (D-N.Y.) asked Alesia Haas, CFO at Coinbase Inc, about a cyberattack earlier this year which resulted in the loss of funds due to a hot wallet compromise.
Haas explained that all the impacted users were reimbursed their funds. Maloney asked a follow-up question that is this sort of protection is Coinbase-specific or something all platforms offer. It was only specific to Coinbase.
FTX CEO, Sam Bankman-Fried emphasized that users can avail 2-factor authentication.
Representative Barry Loudermilk (R-Ga.) asked if Blockchain can improve data protection.
Brooks remarked that in previous cybersecurity breaches, such as Target or Equifax, people did not use to get the details of the breaches until weeks or months. With Blockchain, a user can get to know the status of the network, resulting in greater transparency.
Representative Bill Foster (D-Ill.) calls for “controlled anonymity” wherein a court could de-anonymize an account for illicit activity. None of the witnesses objected to it.
Impact on Environment
The environmental concerns of bitcoin’s energy usage were raised by Representative Rashida Tlaib (D-Mich.). Stellar Development Foundation CEO, Denelle Dixon explained that there are different kinds of consensus mechanisms with different energy requirements. Some of them use quite less energy and thus are environmentally friendly.
Overall, the meeting marked a change in the attitude of regulators. Earlier they were interested in more aggressive regulations. Now, they are more liberal in their discussions and consider the arguments made by the crypto players.
But it remains to be seen who is going to be the prime regulator of the industry. Will there be single or multiple regulators? It will take time to find an answer.
As the regulators are realising the power and transparency offered by Blockchain, they may begin accepting that. It is held that a large majority of crypto users are not malicious actors.
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