DR. MULLIGAN: Absolute pleasure. Thank you for having me.
MR. NEWMYER: I’m sorry, Dr. Mulligan. I couldn’t hear you.
DR. MULLIGAN: Sorry. Yeah, I said, pleasure, thank you for having me. Can you hear me now?
MR. NEWMYER: I can. Thank you very much. And a reminder to our audience, we want you to join our conversation. So, tweet your questions and comments to the handle @PostLive.
Dr. Mulligan, I wanted to start just by kind of level setting here. You’ve written about the transformative potential of blockchain to solve some intractable problems and to promote broadly shared prosperity all over the world. You’ve also written that this technology is yet to prove itself, and it may be a decade–a decade or two before it does. And there are big questions, you’ve said, that remain before we get there. I’m just curious, could you place yourself on a spectrum between blockchain skeptic and blockchain advocate?
DR. MULLIGAN: Yeah, so I think I’m slap bang in the middle. I’m for very pragmatic application of an extraordinarily exciting new technology. So, you know, I’ve spent many years in digital technologies, and I’ve seen a lot of hype and a lot of failed promises from different types of technologies. So, what I think we’re seeing with blockchain is actually we’re living through one of the world’s greatest thought experiments. You know, what is money? That is what cryptocurrency and blockchain are really asking us. And I think that’s such a fantastically interesting question. But we shouldn’t jump to the first dance, and we should think about those things really, really carefully before we, you know, drive through to the end of the–end of the game, if you will. So I’m slap bang in the middle. I really do believe in the potential, but we’ve got to be careful.
MR. NEWMYER: Thank you. So with stakes that heady, it’s probably understandable that we’ve seen a lot of hype around this. And you’ve warned about this. You wrote four years ago in a–in a paper you co-authored for the World Economic Forum: It has started to seem that the most intractable of the world’s problems have merely been waiting for blockchain to arrive. This is not only misleading and untrue, but also becomes a barrier to decision makers in taking a balanced perspective on the technology.
And you said that the hype is, quote, “damaging its long-term prospects.” I’m wondering if you could expand on that and tell us whether you think that is more or less true today.
DR. MULLIGAN: Absolutely. One of the worst things about being an academic is people can quote your own work back at you. I think actually, we’re pretty much at the same point. I think we’re starting to see some really interesting ideas and concepts come to the fore. I think we’ve been watching the sort of fermenting and bubbling innovation in the cryptocurrency space, the creation of web 3.0, moves towards NFTs and then metaverse, and I think there’s a lot of, sort of, what’s the next thing, what’s the next thing, what’s the next thing. But at the same time, we’re also starting to see some really interesting moves towards some very, very solid–what I think are really solid cryptocurrency and blockchain pieces of work.
So, you know, one of the things that I find quite irritating or frustrating is, you know, when we start to see the cryptocurrency community are basically, you know, trying to recreate the traditional financial system on top of the cryptocurrency base. And for me, that’s a little bit of misdirection, because the whole point of cryptocurrency, was we were going to create a new type of financial system, why we’re recreating the one that we didn’t like before in this new space.
But there are ways, for example, that we could use cryptocurrency and blockchain to deliver social good. So, for example, are there new ways to create financing mechanisms for really critical infrastructure that could fundamentally restructure the organization of delivering our financing for water, for energy, for food? You know, I truly believe there’s a great opportunity in those kind of spaces. And we’re starting to see slow moves in that space, in that direction.
MR. NEWMYER: So you’ve also written that Bitcoin has done little so far to overcome inequality, digital or otherwise. It may help our viewers here if maybe we provide some definitions between the difference–the differences between crypto and blockchain. But–and I’m also curious if you draw a distinction between the promise of crypto and the promise of blockchain.
DR. MULLIGAN: Yeah, so for me, you know, cryptocurrency is a subset of what I would call a distributed ledger technology. So blockchain, really, and cryptocurrencies are similar, but not necessarily the same thing. So, you can use blockchain or distributed ledger technologies to do sort of very traditional transaction management. And we can see some great examples of that. You know, IBM does a lot of work in that space, R3. There’s a lot of different organizations out there who are using distributed ledger technologies, but in a very traditional sort of IT sense.
Then we have cryptocurrency, which is a slightly thing–different thing altogether. And what’s unique about cryptocurrencies really is the fact that it brings together this idea of money together with the blockchain. And it actually, you know, provides a sort of new type of currency, if you will, as well as the actual transaction management.
MR. NEWMYER: So, from where you sit as a–as an optimistic skeptic, or a qualified advocate, what do you think the future looks like in a decade or two in which blockchain tech has been widely adopted? Is–are we going to notice this? Are our lives going to be different either in the United States or, you know, maybe in the developing world?
DR. MULLIGAN: Yeah. So, I think that’s a really interesting question. And I think there’s two different ways to look at it. I think what’s going to happen in some instances is it’s going to be a lot like a database technology. Most viewers will probably understand what a database actually is. But they probably don’t really need to worry about how it’s implemented, where it’s implemented in all of the systems they’re working with on a day-to-day basis. So, you probably interact with probably between 15 and 20 databases in a day. You don’t know what that’s doing. You just trust that it’s actually working as it should be. So, I think some of the cryptocurrencies and some of the blockchain activities will end up in that space, that they will sort of sink into the background, and you’ll trust that it’s running as it should.
Other things are going to be much more transformative and much more disruptive. So, for example, one of the things we’re working on in the lab I run in Lisbon at the moment is that we’re looking at how you can use cryptocurrencies as financing mechanisms for the delivery of water infrastructure or the delivery of energy infrastructure, and doing that in a crowdsourced manner and a bottom-up manner rather than needing to rely on, you know, massive large-scale debt from, I don’t know, the World Bank or other geopolitical actors in the space. So that could be–foundationally, that can be really transformational in the way that energy and water is actually built and delivered as an infrastructure. So that, I think, people would notice on a day-to-day basis.
MR. NEWMYER: And do you think we are going to have to become masters of our own data management here? Is everyone going to have to become a kind of crypto expert in some guise where we understand how this stuff works much more than we do now?
DR. MULLIGAN: So, one of the things that I thought–I had a really interesting experience last year when someone asked me to join a DAO. And prior to joining this particular a DAO, I’d only ever mined cryptocurrency, you know, in the way that you would. And it was the first time in my life I actually needed to buy some Ethereum. I know that sounds ridiculous. I’ve been working in the space since 2009. But I’ve never needed to buy cryptocurrency. I’d always just mined it. And when I went in to try and buy it, I found myself absolutely at a loss of how to actually, you know, conduct business really in this cryptocurrency space. And it took me quite some time to understand how to get through it.
So, I think that, you know, if we’re thinking about one of the biggest problems with cryptocurrency is actually two things: usability, so how easy it is it to understand. And if we can’t understand how to use it on a day-to-day basis the same way as we currently do with our banking or any of the other apps that we work with on a day-to-day basis, I think that’s a big barrier for the uptake and adoption of cryptocurrency.
And also, you know, I sort of think about would I asked my mum to bank in cryptocurrency? No, I wouldn’t in today’s world because I think it’s a little bit too complex. So, I think we’ve got some way to go to streamline and make cryptocurrency accessible and usable in a really, you know, very structured manner that people understand and trust. So when I talk to a lot of people about, you know, buying cryptocurrency or trading in cryptocurrency, they are panicking a little bit about the fact that they don’t necessarily fully understand what’s happening with their money.
MR. NEWMYER: Let’s talk about a use case that is, unfortunately, front and center right now, but it’s a place where crypto users have, I think, proven in a very vivid fashion how this thing, how this technology can be deployed at a scale that’s immediate and meaningful. And that’s, of course, in Ukraine, where users from around the world have been airdropping contributions to the effort there to help the government and also some allied organizations provide relief and material to the war effort as they’re resisting this Russian invasion. I’m curious, as you talk to policymakers, has that struck a chord with them, people who aren’t necessarily as clued into this debate about the potential for the–for the tech?
MS. MULLIGNA: Yeah, and I think it’s a really–you know, it’s a very soul-destroying use case, but it’s a fantastic example of what cryptocurrency can actually achieve. So, you know, we’ve seen in the Ukraine that over $55 million in cryptocurrency has pretty much been raised very, very quickly and put to use by the Ukrainian government for, you know, delivering services and things like that to its citizens. So, I think it shows the massive potential.
And when I talk to, you know, policymakers in this space about this kind of thing, they’re struck by two things. One is that, you know, not every–not all the crypto millionaires are really just about driving a Lamborghini, and you know, making ridiculous statements on Twitter. They actually do genuinely have a–you know, a– how would you say–like a civic feeling and a civic duty that they want to contribute to the world and they see cryptocurrency as a way to do that.
The other thing is that it shows the power of grassroot movements. And I think that not just cryptocurrency but digital technologies in general, we now have the new computational capacity, it is no longer just limited to governments and limited to corporations. It’s now in the hands of the average everyday person. That gives us truly powerful ways to reorganize and organize in a different way for society so we can actually really challenge some of the political economic structures in the world. But we’ve seen some fantastic, you know, work done by the cryptocurrency community and in, indeed, the digital community in support of Ukraine.
MR. NEWMYER: Let’s talk about a challenge to adoption. It seems like it’s becoming a bigger deal as days go by here, which is hacks and crypto-based crime. We know crypto-based crime roughly doubled last year to $14 billion according to Chainalysis. We’ve seen a number of big hacks of DeFi platforms, including the biggest one in history to date last week. Can you talk about what you think this does–how urgent is this? How much damage is this doing to undermine confidence in the technology, and what should we be doing about it?
DR. MULLIGAN: Yeah, I think it’s about, you know, providing a proper service as much as it is about creating confidence. We’re seeing–you know, my lab has looked a little bit at the types of attacks that are happening in the cryptocurrency space at the moment and tried to do an analysis to understand the different style of attacks. But there is one thing that I think it really brings home, and that is the power that software engineers currently are gaining within society. And you know, traditionally again, you know, when you have coded something, it probably has crashed someone’s computer, at most it’s brought down, you know, someone’s network or something like that.
But what we’re seeing in today’s world with smart contracts, you can actually have genuinely devastating effects with code if it’s poorly coded, incompetently coded, and those kind of things. So for example, in one of the most famous DAO hacks, the way that that hack occurred was the fact that two lines of code were the wrong way around. And if they had been switched around the other way, you know, it wouldn’t have been able to have been hacked that way.
So I think the important thing to understand is that we need to also think about how we are training software engineers and potentially think about are there types of software engineers that should be certified as able to build these type of smart contracts because they’ve gone through a certain type of security training? And the other angle on that is I think there could be a really good set of services built by someone there, someone somewhere basically where you would run tests of the smart contracts, because currently I think they’re sort of being tested on the test–they’re sort of tested to see if things work, but they’re not being tested for the security. So I think those are some of the things that the community should be actively working on and developing together to ensure safety and security for their customers, basically.
MR. NEWMYER: Is that a job for the industry to do, sort of self-policing capacity? Or do you think if there are certifications, that that should be something done by policymakers?
DR. MULLIGAN: I think it could be done by both. So, for example, you know, if a smart contract is working in a very heavily regulated industry, like financial services, then potentially something like the FCA in the UK could run those tests and ensure that those smart contracts are well-coded. But the other way to do that, of course, is to create industry standards, and potentially industry testbeds. So, we’ve seen very good examples of that previously in the telecommunications industry, where, you know, even competitors will get together; they will jointly run what they call test fests to ensure the security of the code and the safety of that particular service for the overall customers of the telecommunications industry. So, I think it should be a bit of both.
And I also believe–actually, you know, it’s one of the reasons I am an academic–that we need changes in the way we train software engineers in the world of today where software is so embedded into our day-to-day lives, that we actually, you know, can cause not just damage to financial services, but potentially damage to human life as well with some of the systems that we code today.
MR. NEWMYER: I want to ask you about decarbonizing Bitcoin, because I know this is something you’ve paid attention to. I think the estimates now are that the network is consuming as many terawatt hours as Norway, and that’s apart from the e-waste problem where the network–the miners are chewing through actual computing machinery at a pretty alarming and wasteful clip. There’s a new–there’s a new effort in the United States by environmental groups to force a switch in the Bitcoin code from proof of work to something else, probably proof of stake but not clear. Bitcoin defenders say the essence of the Bitcoin network is its security, and you’d be compromising that by moving to a different kind of protocol for securing the network. Where are you on that? Do you think–is security paramount? Or is this a tradeoff that’s worth making? Or is that–is that a false choice?
DR. MULLIGAN: I think it’s a little bit of a false choice, actually. So, what I–what I think is, you know–and I completely understand the impetus to say that we should reduce energy consumption. To be honest, I think we should be reducing energy consumption on every single technical system we have worldwide, so that should be a massive priority for everybody. But when it comes, you know, firstly, to switch Bitcoin from proof of–proof of work to proof of stake, that would be almost–I would say it would be almost impossible. There’s–you know, exactly like, other people have stated, there are security issues. There’s a reason why proof of stake, you know, works the way it does. You could actually game that system much more easily if you could get control of sort of a certain number of the nodes doing the mining. But at the same time, you know, one thing that I think is desperately needed is in-depth research into the next generation of cryptocurrencies.
You know, like I said, I really believe this as a thought experiment. Bitcoin, for me, is a fantastic thought experiment. But it’s the first of its kind. And I think what we need is, you know, to research into how we could create different types of Byzantine fault tolerance systems, different types of protocols that can deliver potentially the security of proof of work without needing to make the compromises that proof of stake does.
MR. NEWMYER: Well, Dr. Mulligan, we are just about out of time. But I want to thank you for joining us for this conversation. We appreciate you spending some time with us.
DR. MULLIGAN: Absolute pleasure. Thank you very much.
MR. NEWMYER: And I will be back in just a few minutes with our next guest. So, I want to encourage you to stay with us.
MR. GRONAGER: Hello, my name is Michael Gronager. I’m the CEO and founder of Chainalysis. Here with me today I have financier CEO Changpeng Zhao, or better known as CZ. CZ, it’s a pleasure to talk to you today and discuss why regulation is such an integral part of the evolving cryptocurrency framework.
As one of the leading blockchain ecosystems and cryptocurrency exchanges, Binance is at the very forefront of the conversations with regulators and policymakers to develop [unclear] infrastructure by growing consumer access to cryptocurrency in a safe way. But how are you thinking about those in the knowledge gap, both on the consumer level and on the policymaker level to understand what crypto is all about?
MR. ZHAO: Yeah, thanks, Michael. Yeah, I think education is really, really important today. I think that today most people don’t understand crypto to a deep level, both on the consumer side and on the regulatory side. And to be honest, even with many of the industry players, it’s not like we understand everything crypto. But the education part is really important. People generally fear what they don’t–what they don’t know well. And today most regulators do not have experience running a large-scale crypto exchange like we do, and we will very much love to share that knowledge with regulators, whoever wants to listen. So, we are engaged in conversations with many different policymakers, regulators all around the world.
On the consumer side, we have multiple programs as well where Binance Academy, which teaches basic concepts online, the Binance Academy content is actually used by the Portuguese government on the government website for education–for crypto education. And we also have Binance Masterclass, which is a in-person and also online class now during COVID. And we’ll run many–we also have starting a Binance scholarship program to work with universities to enhance further education on finance and blockchain. So, I think education is extremely, extremely important.
MR. GRONAGER: So you said publicly that it’s your responsibility to work with regulators and policymakers, not just to educate but also to shape the new standards for cryptocurrency assets. What role do you think regulation plays in helping consumers trust cryptocurrency? And how do we strike this right balance between innovation and regulation?
MR. ZHAO: Yeah, I think what you said there is exactly important. It’s the right balance. There’s no perfectly good regulation or perfectly bad regulation. It’s just striking the balance between promoting innovation and protecting consumers. And different parts of the world care about different things, and so we need to work with regulators to find the right balance in different parts of the world. For example, in the U.S., KYC AML is extremely important, and for the rest of the world, and they’re extremely worried about terrorists and bad players.
In China, for example, money–anti–money laundering is moving money out of China; that’s money laundering. So, they have different focuses in different parts of the world. And we want to work with regulators all around the world.
MR. GRONAGER: So recent research indicates that–that’s kind of surprising–but recent research indicates that consumers would have a higher trust in buying cryptocurrencies from their traditional financial institutions as opposed to cryptocurrency exchanges. So how do you–how do you at Binance work with that fact? And how do you build increased trust with the consumers around compliance?
And what are you doing around security? Because I think that’s one of the things we’ve seen from financial institutions. We used to think about them as having a big vault and everything is safe. And what of the new initiatives have been around security for the cryptocurrency ecosystem there?
MR. ZHAO: Sure. I think, yeah, it’s–given the crypto adoption today is probably around 3 to 5 percent globally. So out of a hundred people, only three to five people have some kind of cryptocurrency. And most people are still used to using a bank system. And even when they use crypto exchanges, they are more used to using the centralized exchange, which they access using your email and password, and they can call customer support when there’s an issue. So, people are still more used to the centralized service offerings today. And so we–and people do trust banks to a large–to a very large extent, and that’s what they, you know, put all of their savings in most of–for most people. So, we do work very closely to integrate with traditional service providers, financial service providers, like banks, payment service providers, et cetera. So, we view that Binance has to be the bridge between the crypto world and the traditional financial world. So that’s kind of where we position ourselves.
MR. GRONAGER: So, I think I’d like to ask you one more question around another thing that’s been very dear to me, as well, and that’s how do we strike the right balance. And how do you think, from Binance’s point of view, to strike the right balance between privacy and the fact that the blockchain is probably the most transparent value transfer network we’ve ever seen?
MR. ZHAO: Yeah, so I think that’s a pretty tricky one, to be honest today. So, but fundamentally it’s quite–the principles are very simple, but the practice of it is–will be hard. Principally, everyone should have their right to privacy. They should–they should be able to choose what information are required to disclose when they want to disclose it. There are certain cases where, you know, certain information like KYC AML, those are required by regulators by law, and that the–that those information are extremely accessible by a small number of law enforcement and regulators. So, but in practice, there’s a lot of details. And how do we ensure that privacy is kept while we ensure maximum enforceability of laws and protecting consumers against illicit activities? There’s a lot of nuance. So, I think as an industry, we’re still trying–we’re still figuring it out as we go along. And we work very closely with regulators to–when regulators and law enforcement agencies come to us with a request, and that request is properly vetted, and we do share that information.
And but we–in other cases–but aside from those cases, we keep that information extremely private. And the blockchain makes it quite tricky for consumers as well, because if a person knows your [unclear] address, they can track like, you know–I mean, you guys do a very good job tracking where the funds go, et cetera. So, there’s a fine balance. But I think as an industry, we’re still figuring that out.
MR. GRONAGER: Thank you so much, CZ. I really enjoyed talking to you now. And now back to The Washington Post. Thank you.
MR. NEWMYER: Welcome back to Washington Post Live. For those of you just joining us, I’m Tory Newmyer. My next guest is Congressman Darren Soto. He’s a Democrat from Florida and co-chair of the Congressional Blockchain Caucus. A reminder to our audience, we want you to join our conversation. So please tweet your questions and comments to the handle @PostLive. Congressman Soto, thanks so much for joining us.
REP. SOTO: Thanks for having me, Tory. Appreciate the opportunity.
MR. NEWMYER: And I understand you’re at votes. So, thank you for making time. I understand this isn’t exactly convenient, but we appreciate it.
MR. NEWMYER: You first introduced legislation on this topic four years ago. And I think something that everybody on all sides of this agree on, whether you’re very anti-crypto, or you know, a total evangelist for this, is that we need clear legal and regulatory lines governing this space. So, what is taking so long?
REP. SOTO: Well, in Washington, it takes a lot of input from a lot of folks. I introduced two bills, the Digital Taxonomy Act and the Token Taxonomy Act with Warren Davidson back in 2018. And it took a while because we need agency feedback. We needed feedback from the administration. The committees want to have more input in it. We’re literally talking about defining a new digital asset–cryptocurrency–which can be a currency, it could be a security, it could be a commodity, or even a future. And we haven’t done a lot of redefining of assets in a long time. So, it’s a big deal.
And President Biden’s new executive order to finally get feedback from the agencies is going to really start moving us forward. They took a lot of issues from our bills that passed the House already, study bills that were the first cryptocurrency bills to pass in this term.
MR. NEWMYER: Are you–so it sounds like you think this is a sort of natural learning curve. Are you frustrated at all by the–by the pace of this progress? Or do you think it makes sense when the stakes are so high for everybody to be as deliberative, I guess, as they’re being?
REP. SOTO: Well, I certainly would have been happy to have our bills passed into law two or three years ago but understand that’s not the reality. And this is a big deal, right? We’re talking about definitions that are going to have to have a whole industry abide by, and it could be the formation of the rules of the road for the whole world, because the U.S. is a huge leader in financial services. So, let’s just say I have a lot of patience and we’re in it for the long haul to get this right. We need to balance between innovation and consumer protection. We need to define what each agency has as a jurisdiction, as well as the definitions, and then see where we can promote us being a choice forum for cryptocurrency, because we know this: The future of the economy is going to increase more and more the use of cryptocurrency going forward.
MR. NEWMYER: How would you assess your colleagues’ level of understanding of these issues? It seems like in in the House there’s been a lot of interest and it’s maybe corresponded with a higher comfort level with the technology, especially among Democrats, and then you look at–you look at the Senate, they are–Democrats over there seem to be a little bit more skeptical.
REP. SOTO: Well, you know, the House, we’re younger just generally. That’s just a fact. And one of the reasons I engaged in both environment and technological issues as being one of the younger members familiar with technological applications, I saw a huge gap in the Congress a few years ago. Look no further than the first Facebook hearings on that need.
In the Senate, they are more deliberative, and many of them are in their ’70s and ’80s and haven’t really familiarized themselves as much to the technology, though that’s getting much better. So, it’s not surprising given the differences in our institutions that we’re proposing a lot of bills and then the Senate’s kind of reflecting on them. But we do need after agency input to really get towards a solution.
But I think it’s healthy to not only have a debate of proponents, but folks who want to make sure that this doesn’t go awry. These are people’s nest eggs. It’s the future of our economy. At some point, we do need to have final reforms go into law. So, President Biden’s executive order does move us along in a big way, because those study bills passed the House, but they languished in the Senate. So, him adopting a lot of that language in there means it’s a big step. Hopefully, we’ll get a response this year. That means we might be able to have real pen to paper by the end of this year, early next year, to establish the rules and rural jurisdiction and definitions.
MR. NEWMYER: And help us just kind of from a civics perspective here. So, the executive order that you mentioned from Biden tasks various departments and agencies with going off and producing reports on various aspects of blockchain and crypto technology. They come back with those reports and then what? Congress–is Congress next up to sort of take the take the ball and start drafting bills, or is this something that can happen at the agency level? How–where do we go from there?
REP. SOTO: We would have hearings after that. We do need statutory definitions, because the current definitions just don’t reflect the reality of digital assets being multiple different things. Certainly, agencies are going to have huge input in it, which is why the executive order is important. And then there’s going to be attention–right?–as there always is between regulatory, financial agencies, and the Congress. But at the end of the day, we do need new laws to protect consumers, to promote innovation, to have rules of the road people can abide by. And right now, you have mission creep between different agencies from the SEC, the FTC, the CFTC, [unclear] control the currency. So even though they may not want laws, we need to define this, and that’s where hearings will happen and then eventually, committee bills.
I serve on the Energy and Commerce Committee, so the CFTC–well, rather the FTC and part of the CFTC portion go through our committee, and then Financial Services will play a big role in the SEC portion. And then even the Ag Committee, has part of the CFTC for a portion of it. So, there’ll be three major committees really added on this to make sure that we establish the agency definitions and jurisdiction.
MR. NEWMYER: So clearly, the SEC is elbowing for sort of first chair here in overseeing this space. It seems like the industry is much more inclined to see the CFTC as their primary regulator. Do you–and I know you think there should–they should be sort of apportioned based on how things–are how different assets, digital assets are defined. But would you like to see the CFTC in that–in that primary role?
REP. SOTO: I see the CFTC and FTC doing a lot of the work together. There are instances where cryptocurrency can be a security, which would be SEC jurisdiction. For instance, if folks have an issuance of a coin that is going to convert to stock in a company, that would be a perfect example where that would clearly be a security, as opposed to having a currency that you could buy goods with, cryptocurrency that represents commodities, whether it’s NFTs or other assets. Or it could be a future where you’re making an investment on a prediction for certain dates. So, I really think we’re going to need all of them. That’s why this needs new definitions, because it just doesn’t fit in the 20th century definitions of financial assets, which is why need we need a whole new definition and multiple different agencies working on this.
MR. NEWMYER: Do you think–so the CFTC is about a sixth the size of the SEC both in terms of its budget and its staff. Are they appropriately resourced to tackle an asset class that is, as we sit here today, $2 trillion, and seems to be growing?
REP. SOTO: Well, they would need a ramp-up in resources with the additional futures they would be regulating, and the FTC would deal with some of the comptroller and consumer protection aspects of it. So, they would need additional funding. And then, we’d look at what the SEC needs would be. So yes, we would have to recognize these are additional responsibilities, and each agency would get to present what they need, and of course our appropriators would make that decision.
MR. NEWMYER: Let’s talk about security for a second. You’ve noted that there are scams and crime that happens in every industry, including traditional finance. But we’ve seen a kind of profusion of headlines about hacks and crypto scams that seem to be picking up in frequency recently. We saw the biggest DeFi hack in history unfold last week, and people are still sort of sorting through what that means and if users are going to get their money back. How urgent is this, do you think, for the future of the industry? Are these growing pains, or is this sort of an emergency for an industry that is working very hard to establish trust with users that it’s got and the users it’s trying to attract?
REP. SOTO: Well, if it was up to me, our bills would be passed into law already and we’d be able to define all these things. In the meantime, it’s going to take agencies stepping up. Look, the idea of cryptocurrency, obviously, the blockchain is balanced. It’s a fixed ledger. It is–it is nearly impossible to affect it after the fact, which is why it was such a revolutionary part of internet transactions by making a permanent fixed ledger. But there are other technologies to be able to undermine it that we saw in other instances.
And so first, our concern is to make sure that it is airtight in cybersecurity. Second is to make sure we’re protecting consumers from dump and pump scandals and whitewashing and other things that have happened that have affected consumers. And third, to address the cyber hacking where cryptocurrency is sometimes used for that. And the one thing I’ll say on those things is because it’s a permanent record, it really lends itself to us being able to track down funding, like, for instance, in the Colonial Pipeline, where we saw 2.3 million of that recovered when Russian hackers were in the 2020–excuse me–the 2016 election were using cryptocurrency. That’s how we figured them out to subpoena them. So, there are some very secure aspects and traceable aspects to cryptocurrency. But it certainly isn’t perfect in every fashion. And so these are reasons why we need hearings. These are reasons why we need new laws and to focus our agencies going forward.
MR. NEWMYER: Do you have ideas about what Congress or the regulators can do to make these networks more secure?
MR. SOTO: Yes, well, we’ve already passed in the omnibus a key Cyber Incident Reporting for Federal Infrastructure Act that requires when companies are hacked that are in infrastructure, that they give notice. I think it should be for financial institutions, too. I know a lot of them already have obligation over existing law. But I think some of that is key. We need transparency between the federal government and major infrastructure, whether it’s financial or otherwise, so that we know when hacks happened. The beauty of cryptocurrency, though, is it can be tracked like it was in the Colonial Pipeline incident, where it was the non-cryptocurrency that we couldn’t recoup but the cryptocurrency we were able to claw back. So, the very fixed nature of it gives it a unique, secure aspect. But it’s still technology, and we’re still learning parts of it. So, you know, that’s where agencies need to have the rules of the road and then be nimble enough to be able to respond to new situations.
MR. NEWMYER: Let’s talk about use cases for a minute. Are there ways that the federal government can use blockchain? Maybe there are ways this is already happening and we’re not aware of them yet, or they’re not on everybody’s radar. Is that–is it happening?
REP. SOTO: Absolutely. So, I’m glad you mentioned that. Most people look at the application of blockchain we know of as cryptocurrency, the financial transactions. But it’s really an aggregate of information. And so you can utilize information let’s say to try to resolve a health crisis or let’s say to try to resolve climate change. And it’s decentralized. So the information can be added to the blockchain from various different sources–think universities studying climate change across the nation–and then utilizing AI, which, because we’re dealing with so much information in this scenario, we can utilize that to analyze and help government solve complex problems.
Just a kind of a primer to that, where it wasn’t–the information wasn’t compiled through the blockchain, but eventually could but AI was used–when we figured out Remdesivir, antiviral drug for COVID, that was actually a supercomputer at Department of Energy that narrowed down antivirals to about a dozen or so, one of which turned out to be the one that we use to help combat coronavirus. So, you’re going to see a combination of AI along with blockchains combining information in a decentralized way to help us solve some of the most complex problems or at least address them in the 21st century. And so there’s a lot of potential there for the blockchain generally.
It’s even been used by dissidents in China to submit protest messages that then the Chinese government couldn’t take down. So, there’s a lot of other uses of the permanent nature of the blockchain that we’ve seen before that are going to also have key applications in government and in our society.
MR. NEWMYER: Got it. But as far–as far as our federal government goes, though, this is–this is–these are potential uses. This is not something that is starting to roll out just quite yet.
REP. SOTO: Well, I know that–I know that universities are starting to add information using blockchain and private companies are, so this is something that we’ve submitted into the budget over the last few years, everything from DOD to VA to start using blockchain to help store information. And so we’re in the process through getting that in the budget for reporting back. Again, you’re seeing a theme. It takes a while for these things to happen. But we did successfully get budget language in for them to start incorporating blockchain into certain healthcare, into the VA, into food tracing and other aspects over the past few years. So, there is nascent efforts in this already.
MR. NEWMYER: Well, that’s fascinating. Are these–are these pilot projects?
REP. SOTO: It’s programmatic language in the budget encouraging them to utilize and determine different ways blockchain can be used. For instance, blockchain can even be used in the technology in secure communications. I’m not going to go too into it with the DOD, but that’s one application right there. And blockchain can be used in food traceability to make sure that inspections have happened and to be able to trace things afterwards, if there have been food poisoning issues or other scares with food. So, this traceability, this aggregating of information, and adding it to the blockchain, adding it to this fixed ledger has multiple applications, present and future.
And the budget’s been where we’ve worked on it mostly. I’ve gotten programmatic language in over the last two to three years. And we started to get some agency input back on that. Ultimately, we want to create a Blockchain Center of Excellence in the Department of Commerce to look at least the commercial aspects of it, with the potential of it also coordinating with other federal agencies. So that’s a bill we’ve had, and there’s also a possibility that that could come to fruition from President Biden’s executive order.
MR. NEWMYER: So as far as more retail applications or use cases go, the one that gets talked about a lot–and I’ve heard you’ve mentioned this—remittances. You also represent Orlando, and I’ve heard you talk about the potential here for the tourism industry to use this to book international travel with much lower fees. Is that–is that something that’s happening now? Are travel agents in Orlando with foreign clients interacting with–transacting in crypto, or is that–is that something that you’ve talked to them about or something that you think is something that might be a use for the future?
REP. SOTO: Well, I’m glad you mentioned that, Tory. So, the main reason I’ve gotten involved in this space, in addition to the need for members to step up to help out with technology is because I do believe it’s the future of the economy, and it’s going to help small businesses. So, a travel agent in Orlando booking a hotel, or perhaps even conducting transactions about timeshares, a key aspect; remittances, another key one. Because you’re eliminating the transaction costs of going between currencies. I know it’s being used much more widely in and around the District.
In remittances, especially in unstable areas like Venezuela, where there’s a–there’s a real hyperinflation and not a stable government there. We’re seeing it used in donations in Ukraine, generally speaking, to help them through that. And we’re starting to see small businesses use cryptocurrency in Orlando in the tourism space. I wouldn’t say it’s a standard procedure just yet. But this is all a reason why we have to look, three to five steps ahead. If the United States is going to continue to remain a global leader in financial services, we need to regulate and innovate in this space.
And two areas that I know I’m excited about for our theme park capital of the world, Orlando, is in tourism. And with such a diverse area, so many folks, first generation in the United States, them helping their families, especially in countries that maybe have unstable currency. So, the latter being more used right now, but the former I think we’re going to see more and more of over the years as people get more comfortable.
MR. NEWMYER: Congressman Soto, we are out of time, but I want to thank you for joining us today.
REP. SOTO: Thanks for having me, Tory. I appreciate it.
MR. NEWMYER: And we want to thank you, all of our viewers, for joining us. To find out more about our upcoming programming, please go to WashingtonPost.com. I am Tory Newmyer. Thanks again.