The US should take steps to integrate crypto-related activities into the regulated finance system and also develop a “national policy” for a decentralized Web 3 as they did for Web 1 in 1990s, Brian Brooks (CEO of Bitcoin mining company Bitfury) stated in testimony before a hearing at House Financial Services Committeetoday. He is one of six executives who testified at the Digital Assets and the Future of Finance in the United States hearing. Jeremy Allaire, Chairman, Co-Founder and CEO at Circle, Samuel Bankman–Fried, Founder & CEO of FTX, Charles Cascarilla and Denelle Dixon, CEO & Executive Director of Stellar Development Foundation, Alesia Jeanne Haas, CEO, CFO at Coinbase Inc, Coinbase Global Inc.
The Hearing
“[…] A national policy agenda that takes crypto compliance serious should evaluate whether it makes sense to continue to keep crypto activity largely out the regulated financial sector,” Brian Brooks wrote.
He said that bringing these companies into a more controlled environment would ensure that they are properly supervised, with mechanisms to ensure that companies are managing risk at the appropriate levels.
Brooks also stressed the need for a national policy to promote the development of a “decentralized Web 3 powered cryptoassets”.
Unitary Activity
Brooks, a former Comptroller and Chief Legal Officer (CLO), of Coinbase, said that “crypto” should be treated as a single unitary activity whose major feature is a need to financial regulation.
Instead of focusing on “micro” questions like what security is, legislators should consider whether they believe that a user-controlled, decentralized Internet is better then one largely controlled and managed by five large companies. This was the advice of the former regulator who is now a bitcoin mining boss.
Brooks’ final point was that lawmakers should consider the risks in the current financial system before they create a new crypto policy. He stated that nearly USD 1bn in penalties have been imposed on bank executives and banks during his tenure as Comptroller for the Currency.
“Shouldn’t we consider the possibility that algorithms or open source software that take a degree of human error, greed and negligence, fraud out of the system might make it better on net even though there are some new risks that must be examined and understood?” The former regulator asked.
Bitcoin Mining
Brooks spoke out about Bitcoin mining specifically to dispel some myths and show his support for the project.
“[…] What is really striking is how low Bitcoin’s energy consumption is compared with the energy lost each year in the United States,” Brooks stated.
He went on to explain that Bitcoin mining has the potential to capture some of that wasted or lost energy, and that it thus could help make “an unprofitable and government-subsidized solar and wind power industry” more profitable.
During the hearing, several other speakers will also be defending Bitcoin mining. Sam Bankman-Fried is one of them. He testified that the discussion on energy use in mining must also include consideration of the benefits from the proof-of work (PoW), consensus mechanism.
Asset Transmission
The CEO stated that BTC had “for example” delivered benefits to many, as measured by accessing financial products, asset transmission and wealth creation. This should be weighed against network’s energy costs. Bankman-Fried did however, take the opportunity to promote proof of-stake (PoS), which is a less-energy-intensive alternative to PoW. This is what Bitcoin uses.
“FTX uses PoS blockchains for the vast bulk of FTX deposits, withdrawals, and so FTX greatly reduces the overall climate impact,” said the CEO of FTX. He called PoS a “low cost, carbon-efficient” option.
Finally
Haas from Coinbase outlined key issues for regulation in the crypto space, which lawmakers should hear. Haas identified a need for a purpose-built crypto tax code, controls, oversights, and controls to counter crypto transactions for criminal purposes. She also highlighted the many opportunities for tokenization of “anything of value.”
“To fully realize the potential of digital assets, marketplaces must work with products or services across the cryptoeconomy to maximize their potential. This can promote responsible innovation, enshrine competition and foster a vibrant developer ecosystem if fully realized,” Coinbase’s Chief Financial Officer stated.