Jerry Brito is a pioneer in matters relating to cryptocurrency regulation. A former senior research fellow at the Mercatus Center, he now serves as executive director at non-profit advocacy group Coin Center.
In this entry in CoinDesk’s “Bitcoin Milestones” series, Brito discusses one of the first major regulatory hearings centered on bitcoin in the US.
On 18th November, 2013, the Senate Homeland Security and Governmental Affairs Committee held the US Congress’s first hearing on bitcoin.
These days, such meetings hardly raise an eyebrow. Back then, though, the hearing was a big deal for obvious reasons – and I testified.
First, it’s important to remember this hearing came at the end of a string of announcements that, while aiming to clarify how the industry was regulated, ended up stoking fears among users.
In March of that year, the Financial Crimes Enforcement Network (FinCEN) issued guidance applying anti-money laundering rules to bitcoin businesses. Then in August, the New York Department of Financial Services (NYDFS) began its inquiry by unceremoniously subpoenaing 22 bitcoin companies and investors. And lastly, in October, federal agents shut down the Silk Road (a dark market largely powered by bitcoin).
Against this backdrop, it was with great tension that many were watching the bitcoin hearing’s webcast live around the globe.
What would the Secret Service say about bitcoin? How about the Department of Justice (DoJ)? Or the US Treasury? What effect would it have on the ecosystem?
Once you understood how bitcoin worked, it was obvious what a profoundly disruptive force it would be. And working in technology policy in Washington, DC, it was clear to me that its regulatory implications were vast.
So I started researching, especially as it related to bitcoin and the law, which came up pretty sparse. I even asked around DC, but both the policy shops and government agencies hadn’t heard much.
So, in April, in Time, I published what would be the first article about bitcoin in a mainstream publication.
At that time, I was directing the technology policy program at the Mercatus Center at George Mason University, and while I worked on a number of tech policy issues, bitcoin was increasingly taking up more of my time. I was developing a reputation in DC as the guy to call if you had a bitcoin question. The questions at first came here and there, but by 2013, they were frequent.
I accepted. And that’s when I first met John Collins, a staffer for chairman Tom Carper. John had become very interested in the technology and had started the inquiry at the committee (just over a year later, he would join Coinbase to head up its government outreach).
In the meantime, he and his colleagues were asking serious and thoughtful questions about bitcoin, its illicit uses and its innovative potential.
It was refreshing that the committee staff were approaching the issue so professionally and open-mindedly. Most folks don’t realize it, but by the time a hearing happens, its outcome is often a foregone conclusion. The real work of educating members and staff happens in the weeks and months leading up to the actual hearing. So, it was good they were as interested in understanding bitcoin’s benefits as they were about its risks.
It was also good that my colleague Andrea Castillo and I were close to publishing “Bitcoin: A Primer for Policymakers”, a monograph we’d been working on after anticipating just this kind of educational need.
In May, I attended the bitcoin 2013 conference in San Jose, which was a watershed moment for the ecosystem. It was an amazing gathering of people and the air was electric with possibilities.
It started to become clear that bitcoin was what I was doing with my life. At the conference, I met Patrick Murck who was then general counsel of the Bitcoin Foundation. I also met KT Sagona of Thomson Reuters.
They asked me and Patrick to participate. Knowing Patrick would be in town with Gavin Andresen (who at the time was the grown-up face of bitcoin), I introduced them to the Senate Homeland Security Committee staff who were looking to talk to more experts.
After the conference, ICMEC/Thomson-Reuters created a task force of government, law enforcement, academics and policy experts to study the benefits and risks of digital currencies and online markets. Patrick and I were again asked to participate, and so was Jim Harper of the Cato Institute and Kelley Misata of the Tor Project.
During the various task force meetings, Patrick, Jim, Kelley and I made a couple of simple but very important points over and over again:
- The benefits of these technologies outweigh the risks (or at the very least we need a better assessment of the risks).
- If you place too high a regulatory burden on these innovations, you will effectively cede them to the very illicit actors you’re trying to stop.
In July, Patrick and the Bitcoin Foundation organized a major briefing for law enforcement hosted by FinCEN, where same message was delivered.
By the time the hearing came around, we had forged a consensus on the risks posed by bitcoin.
The day came and, well, I can’t put it better than The Washington Post did in its headline: “This Senate hearing is a Bitcoin lovefest.”
“High-level international cybercriminals have not by-and-large gravitated to the peer-to-peer cryptocurrency, such as bitcoin,” testified the Secret Service witness, Edward W Lowery.
“These virtual currencies are not in and of themselves illegal. There is good reason for us to remain watchful, but we also intend to balance that against the need for legitimate users,” said the DoJ.
And FinCEN’s Jennifer Shasky Calvery answered a question from Chairman Carper: “Cash is probably still the best medium for laundering money.”
And there were the first words in Ernie Allen’s testimony:
“Let me begin by saying we are enthusiastic about the potential of virtual currencies and the digital economy for social good, particularly in helping to bring about financial inclusion for the 2.5 billion adults on the planet today without access to banks, credit cards, and the mainstream financial system.”
You can imagine what Patrick, Jeremy and I said.
What was most interesting to me was what Senator Chuck Schumer had to say.
Six months earlier, Schumer had written a letter to the Attorney General expressing concern about online drug markets and he’d told the press that bitcoin was “an online form of money laundering used to disguise the source of money and to disguise who’s both selling and buying the drug”.
On the day of the hearing, he began his statement this way:
“A while back, as you know, I called on federal authorities to shut down the website Silk Road, which they recently did. Many people interpreted my action at the time as directed at bitcoin because bitcoin was the sole method of payment on Silk Road, and assumed that I also wanted to shut down or stamp out bitcoin. That is not the case. I do not want to shut down or stamp out bitcoin.”
Bitcoin had jumped a major hurdle.
The message from official Washington was clear: bitcoin was not illegal or illegitimate, it was an important innovation – even if, like most new technologies, it presented challenges to law enforcement.
The industry and ecosystem around bitcoin was serious and replete with businesses and individuals who could be counted on to help fend off illicit uses.
It really couldn’t have gone better and, of course, the price of bitcoin jumped about 20% (although a couple of months later, Mt Gox imploded).
At the time both of these hearings were scheduled, I knew we were at a major turning point, and government interest in bitcoin hasn’t let up yet.
Senate hearing image via YouTube