An engineer inspects a Sapphire Technology Ltd. AMD graphics processing unit (GPU) at Evobit’s crypto farm in Cluj-Napoca, Romania on Wednesday, January 22, 2021.
Akos Stiller | Bloomberg | Getty Images
On Tuesday, the Senate Banking Committee pressured a panel of crypto-industry experts on systemic risks in a hearing entitled “Cryptocurrency: What Are They Good At?”
Some lawmakers made a point to speak for the positive qualities of the industry. Senator Cynthia Lummis, R-Wyo., Said openness and openness in open source funding can promote economic integration. Senator Sherrod Brown, D-Ohio, said blockchain technology could have many useful non-financial applications. Space seemed largely unconvinced, however, that cryptocurrencies would be a good solution to the existing and very deficient financial system.
“Instead of leaving our system, our financial system, after the onslaught of giant banks’ crypto system, sets in after the onslaught of some shadowy, faceless group of supercoders and miners, which does not sound better to me,” Senator Elizabeth Warren, D-Mass. , Said.
In a letter Tuesday Warren also called on Finance Minister Janet Yellen to develop a framework that federal agencies can use to regulate cryptocurrencies.
“As the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, consumers, the environment and our financial system are under growing threats,” Warren wrote.
Legislators were fixated on two main themes: the reality of the decentralized nature of cryptocurrency – that is, the fact that it does not depend on centralized authorities such as banks – and system failures in crypto markets that can curl over to the traditional financial system.
“Crypto, understood through a realistic lens, is not a miracle coming out of the financial system-free card, it has the same problems,” said Angela Walch, a participant in the hearing and professor at St. Mary’s University School of Law. “We need to recognize the concentrations of power within it and make thoughtful policies and risk decisions about how to tackle this power.”
Walch, who is also a research assistant at the UCL Center for Blockchain Technologies, sat on the panel with Jerry Brito, CEO of research and advocacy firm Coin Center, and Marta Belcher, president of the Filecoin Foundation.
In response to various questions seeking a reality check on the decentralization of cryptocurrencies, Walch warned that taking cryptocurrencies at their word could mean turning a blind eye to concentrated “pockets of power” within cryptosystems, including key software developers and miners, who can “exploit their position of power to influence users of the systems.”
Legislators also pressured the panel on development problems in cryptocurrency, “flowing into the conventional financial system,” as Senator Pat Toomey, R-Pa., Put it.
While that is possible, Brito of the Coin Center said, the United States should not shy away from cryptocurrencies, but instead put appropriate protection lists in place for hedge funds and other market participants.
He noted that cryptocurrencies are not on a scale or reaching into the economy, which has systemic implications for everyone, citing recent comments from Atlanta Fed President Raphael Bostic, which has also been repeated by St. Louis. Louis Fed President James Bullard. In May, when bitcoin and other cryptocurrencies sold, both Politicians reportedly said they did not see digital currencies as a systemic matter.
Brito added that while a mistake could pose a systematic threat to digital currencies invested in by hedge funds and others, the same could be said of any commodity, and “cryptocurrencies are ultimately commodities”
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