Suarez, who is president of the U.S. Conference of Mayors, spoke in advance of the mayors’ 91st annual meeting from Tuesday until this Friday.

Suarez has long been an advocate for cryptocurrency adoption; after winning reelection in 2021, he announced that his own salary would be paid in bitcoin. He has also been an enthusiastic proponent of MiamiCoin, a privately-owned cryptocurrency meant to benefit the city — even after the currency’s value dropped by more than 95 percent.

However, when discussing the recent collapse of crypto exchange FTX, Suarez acknowledged that the technology “screams for regulation.” U.S. legislation tends to be reactive instead of proactive, but the latter approach might have been able to stop the FTX crash, he added.

“I think there should have been regulation on what some of these custodial entities could do with custody assets,” he said. “They’re like banks — the kind of assets that they had were enormous — and what they were doing when you when you peel back the layers of the onion is frightening… there’s a reason why some level of regulation exists already in the banking industry.”

Suarez said that the first step for lawmakers taking on cryptocurrency regulation should be to recognize the significance of the technology. Issues such as the national debt ceiling and rate of inflation demonstrate the value of having currency “outside of the mainstream fiat system,” he said.

In addition to cryptocurrency, Suarez expressed his opinion on a variety of other timely technology issues.

“I think AI is going to be our generation’s arms race,” he said, noting the growing potential for cyberwarfare as weapons systems come to rely on encrypted technology.

Suarez also discussed the impacts that an increasingly digital world may have on childhood development. “My daughter one shocked me when she was two years old — she’s four now — by taking a pretend selfie with her pacifier of me,” he said. “And I was like, wow, this is really crazy.”

Despite having initial concerns about technology’s impact on children, Suarez said that watching his own children’s online interactions had assuaged his fears.

“I’m actually going to take it a step further — I’m starting to see socialization opportunities… they’re actually virtually online with a friend, and they’re playing and talking and socializing,” he said.

Many blockchains, although residing in the digital world, largely fall into the category of “public goods,” which traditionally includes shared infrastructure such as roads, argued Anna Stone, director of impact at eToro. Stone cited the Ethereum network, which is open source and allows many individuals to build on it. “What makes Ethereum exist is not any one company that’s doing anything, it’s actually that there are thousands of different contributors,” she said. 

Mike Wawszczak, general counsel at Alliance, argued that the traditional funders of public goods – governments – make serious mistakes that stem from being insulated from market forces. “[Crypto] offers an alternative method of managing and governing these protocols – that we’re only now starting to see massive amounts of experimentation in – might not be subject to the same failure[s]…that we see in states,” Wawszczak said.

Later in the panel, Wawszczak argued that decentralized autonomous organizations empower individuals and communities to further and protect their own interests, even in opposition to state authority. “If you can imagine a lot of the more disparate groups that exist around particular social-justice causes or identity groups that are far flung or spread out, but now they have a new means of coordinating their behiavior and of generating economic wealth,” Wawszczak explained. He argued that the ability to coordinate outside of government control could be a massive boon for oppressed or dissident groups.

Panelists further said blockchain technologies can ensure that consumers maintain control over their own data. “Giving [users] that choice…to pick a place that is built and verifiable to be secure, to be private, to be a place that fits with their values, that can really enhance things for the users,” said Kurt Opsahl, general counsel at the Electronic Frontier Foundation.

The prices of digital assets have fluctuated wildly in the last year, driving calls for the institution of a crypto-specific regulatory framework. The price of Bitcoin, for instance, plummeted from $64,400 in November 2021 to less than $17,000 early Tuesday afternoon. The downfall of prominent Crypto exchange FTX, allegedly due to massive fraud, has provided further rhetorical fodder to would-be regulators.

Some crypto skeptics say that regulating crypto is a mistake, however, since it would provide legitimacy to the industry. “Legitimizing [crypto] is simply going to drain creative resources from productive activities,” argued Stephen Cecchetti, Rosen Family Chair in International Finance at the Brandeis International Business School. “In economic terms, this would be like subsidizing a dead-weight loss.”

Cecchetti argued that a new regulatory regime would push crypto into the traditional financial world. “Imagine where we would be if leveraged financial intermediaries had been holding crypto in November of 2021, before the plunge in value,” Cecchetti. “So if we need any new rules, they’re rules to prohibit exposure of traditional leveraged intermediaries – prohibit banks, dealers, insurers, pension funds ­– from holding this stuff and from accepting it as collateral.”

Peter Conti-Brown, professor at the Wharton School at the University of Pennsylvania and nonresident fellow at The Brookings Institution, argued that crypto, even without a dedicated regulatory framework, has already been established a significant foothold. Policymakers should clarify how crypto assets fit into existing regulatory structures, Conti-Brown argued. Due to similarities of various types of crypto to elements of traditional finance, he said, the absence of crypto regulation is a “declaration of a prosecutorial non-enforcement of existing laws.”

Regulators should make clear that “if you’re going to act and smell and quack like a bank, you need to charter, and if you’re going to hawk securities, you need to register,” Conti-Brown argued later in the conversation.

Crypto: Useful or useless?

While crypto’s biggest proponents argue that it, along with its underlying technology, blockchain, are revolutionary innovations, many don’t agree. At a recent Senate hearing held Wednesday on the FTX collapse, a law professor from the American University Washington College of Law advocated banning crypto outright. One senator advocated instituting a “pause” on crypto at a hearing held two weeks prior.

Cecchetti voice skepticism as well. “I don’t think crypto is the future of anything” he said, adding that it is, in his opinion, “utterly without redeeming social value.”

Conti-Brown said some crypto-related innovations may prove useful. He further argued that the very possibility of blockchain-driven innovations threatens incumbent industry – e.g., traditional financial technology firms – and will likely drive innovation.

“Every major payments player is…following blockchain developments, and thinking about where this might represent both opportunity and challenge,” Conti-Brown said. Crypto solutions may be “inchoate, (but) are not non sequiturs,” he added.

FTX, until recently a highly regarded crypto exchange, suffered an acute liquidity crisis and subsequently filed for bankruptcy in November. The crunch was triggered by reports that the FTX-linked investment firm, Alameda Research, relied heavily on FTX’s in-house token, FTT.

Since the collapse, intense scrutiny has revealed that FTX improperly financed Alameda’s ventures with billions of customers’ investment dollars. Bahaman authorities arrested FTX founder and former-CEO Sam Bankman-Fried on Monday, and he may face extradition to the United States.

Toomey, the committee’s ranking member, rejected proposals to “pause” cryptocurrency trading until a comprehensive regulatory scheme becomes law or eschew regulating of digital assets entirely to prevent their further legitimization. Toomey advocated instituting consumer protections and disclosure requirements that would still allow for healthy innovation in the crypto industry.

“With FTX, the problem is not the instruments that were used (digital assets), the problem was the misuse of customer funds, gross mismanagement, and likely illegal behavior,” Toomey said.

“The 2008 financial crisis involved obvious misuse of products related to mortgages,” Toomey analogized. “Did we decide to ban mortgages? Of course not.”

While several senators decried the losses the FTX collapse inflected on investors, Sen. Elizabeth Warren, D-Mass., raised concerns that cryptocurrency is a favorite tool of terrorists, rogue states, and other nefarious actors. With Roger Marshall, R-Kan., Warren on Wednesday sponsored a bill that would target money laundering in the crypto space.

Jennifer Schulp, director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives and a witness at the hearing, told Broadband Breakfast that Warren ignored the small relative scale of crypto-related money laundering. Illicit activity accounts for only 0.15 percent of crypto transaction volume, Schulp said.

Hearing witnesses clash on banks and crypto

Testifying before the committee, Hilary J. Allen, professor at the American University Washington College of Law, advocated banning crypto outright. In lieu of such a ban, she urged policymakers to bar banks from investing in crypto, which, she said, would protect the traditional financial system from crypto’s volatility. “We have little to lose from limiting the growth of the crypto industry,” Allen argued, labeling blockchain technology “not very good.”

Kevin O’Leary, an investor of Shark Tank fame, later told the committee that preventing banks from holding crypto could cripple American financial institutions. If such a ban were enacted, O’Leary said, “As an investor, I would short every American bank stock because it would make it the most uncompetitive financial services sector in the world.”

Sam Bankman-Fried indicted, new CEO testifies

The U.S. attorney’s office for the Southern District of New York filed an indictment, unsealed Tuesday, charging Bankman-Fried with eight counts of fraud. The Securities and Exchange Commission and the Commodity Futures Trading Commission on Tuesday filed suits against the FTX founder as well.

FTX’s new CEO, John J. Ray III, appeared before the House Financial Services Committee on Tuesday for a hearing at which Bankman-Fried was scheduled to testify before his arrest. 

“This is really just old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose,” Ray testified. “Sophisticated, perhaps, in the way they were able to sort of hide it from people, frankly, right in front of their eyes.”

Rostin Behnam, chairman of the Commodity Futures Trading Commission, told the Senate Agriculture, Nutrition, and Forestry committee his agency needs further statutory authority to protect consumers from harms in the digital assets space. The continued solvency of LedgerX, the only FTX affiliate subject to CFTC scrutiny, testifies to the efficacy of regulatory oversight, Behnam argued.

To prevent the recurrence of debacles like the FTX crash, Behnam called on Congress to institute a robust disclosure regime as well as barriers against conflicts of interest. Committee members denounced FTX’s failures and mirrored Behnam’s calls for congressional action.

A bill to further regulate digital asset markets has already been introduced, and continued revelations of FTX’s extensive mismanagement highlight its importance, supporters say.

Committee Chairwoman Debbie Stabenow, D-Mich., and Ranking Member John Boozman, R-Ark., in August sponsored the Digital Commodities Consumer Protection Act, which, in addition to enacting transparency and conflict-of-interest provisions, would require digital commodity platforms to register with the CFTC, crack down on allegedly abusive trading practices, and set cybersecurity standards.

“To be clear: there currently is no federal market regulation of spot crypto assets that are not securities. These include Bitcoin and Ether, the two most heavily traded crypto assets,” Stabenow said in prepared opening comments. “The Digital Commodities Consumer Protection Act does exactly that,” she added.

A spokesperson for Stabenow on Thursday told Broadband Breakfast there is not yet “a firm timeline” for the DCCPA’s passage.

“Millions of Americans have been scammed by this colossal FTX failure,” said Sen. Cory Booker, D-NJ, a co-sponsor of the DCCPA. “Their exposure has lost a lot of folks their resources, and for some people, their hopes and dreams and security.”

One senator, Kansas Republican Rodger Marshall, suggested instituting a “pause” on digital asset exchanges until effective regulatory tools are developed.

FTX was once considered a paradigm of crypto done right and founder Sam Bankman-Fried a visionary entrepreneur. Bankman-Fried – often referred to as “S.B.F.” – garnered much media attention and distinguished himself as an advocate of crypto regulation.

In early November, CoinDesk reported that FTX’s sister trading company, Alameda Research, had a balance sheet flush with FTX’s house digital currency, FTT. Shortly thereafter, rival exchange Binance announced it would dump its own FTT holdings, which sparked a massive user run on FTX and a correspondingly dire liquidity crisis. 

Binance agreed to acquire the flailing FTX but almost immediately reversed course, saying FTX was beyond saving. FTX filed for chapter 11 bankruptcy on November 11 and Bankman-Fried resigned as CEO. 

Further reports revealed that FTX had improperly siphoned billions of dollars in customer investments to Alameda’s risky investments. Such allegations of mismanagement have only amplified public outcry over the meltdown, which has cost FTX users billions of dollars.

FTX’s new chief, John J. Ray III, the executive who guided Enron through bankruptcy, wrote in a recent filing that he has never “seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

Speaking at a web event hosted by the Brookings Institution, Gruenberg outlined risks associated with cryptocurrencies – including market volatility and fraudulent behavior – and floated the introduction of “payment stablecoins,” which he said could be used for retail transactions.

“There has been considerable discussion and public debate regarding the benefits and risks associated with the development of a payment stablecoin for both domestic and international, cross-border payment purposes that is subject to prudential regulation,” said Gruenberg. “The main benefit given for the development of a payment stablecoin is the ability to offer cost-effective, real-time, around-the-clock retail and business payments.”

The value of stablecoins, a type of cryptocurrency designed to reduce price volatility, is tied to a reserve asset, such as the U.S. dollar. Stablecoins were developed to trade between other cryptocurrencies without “the need for converting into and out of fiat currencies,” Gruenberg said. Panelists at previous events argued for stablecoins potential ability to increase financial inclusion in the country, and its importance in the technology race with China. 

Part of the criteria for such stablecoins, Gruenberg further said, is that they be backed dollar-for-dollar by high-quality, short-dated United States treasury assets, and for the transactions to be conducted on well-regulated permissioned ledger systems.

A permissioned ledger system allows moderators to regulate who can participate in the network.  In addition, participants are not anonymous, which, according to Gruenberg, is important for the safety of payment stablecoins. “The ability to know all the parties…that are engaging in payment stablecoin activities is critical to ensuring compliance with anti-money laundering and countering-the-financing-of-terrorism regulations and deterring sanction evasion,” he argued.

Because of the novel and complex nature of cryptocurrency, Gruenberg said, the FDIC should approach its regulation with thought and care. The FDIC issued a letter to its supervised banks that requested information on their cryptocurrency activities earlier this year, and Gruenberg said collaboration with banks would continue.

“There are important risks and policy concerns that will need to be taken into consideration before a payment stablecoin system is developed,” he said.

The department said three reports will be released and will discuss the impact of digital assets on issues such as national security, financial inclusion, privacy and on consumers, businesses, and investors.

The department’s August 24 announcement will fulfill a commitment required by a March executive order from the Biden administration that mandates within 180 days the department produce a report about the future of money and payments systems, including adoption of digital assets, and the implications of technology and those assets on the country’s financial system.

The Biden administration has put “a high level of urgency towards research and development efforts into a potential U.S. central bank digital currency,” Julia Smearman, director of international financial markets at the Treasury Department, said Wednesday.

At an event earlier this year, experts pondered whether the U.S. was falling behind other nations, such as China, when it comes to developing their own digital currency.

Jerry Cuomo described blockchain as an “odd duck” type of database with a few defining features, explaining that each blockchain has several administrators, that each transaction must be vetted by the administrators before being recorded to the digital “ledger,” and that transactions, once recorded to the ledger, are essentially impossible to change or delete. Cuomo also explained that each data point – or “block” – in each blockchain is heavily encrypted, which creates high levels of security and user trust.

Although blockchain is most widely associated with the transactions of cryptocurrencies like Bitcoin, Cuomo said it can used for a wide variety of purposes – including identity verification, food safety and intra–supply chain communication. For example, Cuomo suggested that instead of making hundreds of accounts on various websites, a user may soon be able to have a single, blockchain-based identity that would be accessible whenever verification is necessary.

Cuomo said he believes food safety, for example, can be improved by using blockchain technology to document salient information about food conditions during transport. IBM Food Trust is a blockchain-based service that the company says allows participants to track a food product throughout a given supply chain and to ensure that it is safe, fresh, and sustainably sourced.

The company said it offers a wide variety of blockchain services. IBM’s supply chain service, for instance, promises “data integrity and faster reconciliation,” features that are made possible by the immutability of each blockchain record once it is entered into the ledger.

As for the timetable on blockchain technologies becoming commonplace in the economy? “I think its within the decade,” said Cuomo. “This is not an ‘if,’ this is a ‘when.’”

Rostin Behnam said amid the crypto market chaos, regulation is needed to protect Americans. Since the beginning of 2021, “More than 46,000 people reported losing over a billion dollars in crypto to scams” and that the median loss per individual was $2600 from crypto, Behnam said.

“Our guiding principle at the CFTC must be to stop fraud or harmful conduct that harms our markets,” Behnam said, explaining the need to use CFTC authority to bring justice to those who harm our markets. However, without current regulation, Behnam added that “existing ambiguities force hard decisions at the CFTC.”

Behnam praised recently introduced legislation – the Responsible Financial Innovation Act –which proposes a regulatory framework for cryptocurrency under the CFTC’s authority. “I’m encouraged by the bipartisan, bicameral support for legislation that recognizes the need for guardrails around the digital asset economy,” he said.

Behnam has previously pitched his commission as the preferred regulator. In February, he said there needs to be a single regulator to “fully police conflicts of interest and deceptive trading practices impacting retail customers.

“The CFTC is well situated to play an increasingly central role in overseeing the cash digital asset commodity market,” he said then.

Until then, Behnam said the CFTC is monitoring how it can get mitigate some harms in lieu of legislation. We “need to constantly monitor risky behavior,” he said, adding the commission is thinking “creatively about how [to] use existing regulatory authority to root out fraud and manipulation in the market.”

There has been debate about what type of regulation should be imposed on the digital currencies and who should be administering that. Some have suggested that there should be a singular regulatory body, as there is confusion as to whether the currencies are commodities or securities, which would but them under the purview of the Securities and Exchange Commission.

In June, the Department of Justice announced four cases of criminal offenses of cryptocurrency fraud, one of which was the largest non-fungible token scheme ever brought. All cases involved over $100 million in losses.

“As cryptocurrency marketplaces advance and offer new opportunities for consumers, criminals also seek ways to exploit them,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division.

“We have moved past the stage where digital assets were once a research project,” Behnam said. “There is a critical need to educate and protect the public.”

The issue with early NFTs, and what caused the trend to be met with such initial hesitance, is that the general public is hesitant to accept anything without a tangible benefit to them. However, the recent trend towards utility NFTs — in other words, NFTs that offer some value or benefit to the user beyond the string of blockchain code they are composed of — has opened up the door to numerous opportunities for their implementation in various industries.

Why NFTs are the future of ticketing

The ticketing industry is a perfect match for the NFT revolution. For one, the technology used in the ticketing industry has been around for decades. QR codes, which make up most ticketing operations, were introduced in the 1990s, and the barcode system two decades before. The industry has primarily operated on an “if it isn’t broke, don’t fix it” mindset, but it is time that leaders begin to embrace this shift towards newer, better technologies.

NFT ticketing will help combat many issues plaguing the ticketing industry right now. Fraud will be discouraged — if not entirely eliminated — thanks to the blockchain technology upon which NFT tickets are built. Blockchain code is virtually impossible to replicate, which means that fake tickets cannot be produced. When combined with the revolving QR code technology that has been implemented in NFT ticketing systems, this means that virtually no money will be lost by event organizers, and thus, no unhappy customers being scammed.

From the consumer’s perspective, there aren’t many differences between using an NFT ticket and a standard ticket. Like any other ticket, you simply scan its code and enter the event. But the greater security features will assure customers they aren’t being ripped off, and the pre, during, and post-event benefits that come along with an NFT ticket will be highly desirable.

After a ticket is scanned, the ticket becomes a collectible NFT in the ticket-holder’s Ethereum-based digital wallet. For one, it’s a unique souvenir that fans can keep to remember their experience of going to the event, but the NFT could provide value in and of itself. Trading and selling the collectible NFT after the event could continue its influence long after it is over.

Building a community with NFT ticketing

In addition to these utilities, NFT ticketing benefits from the feeling of community that is associated with going to events. For example, because concerts are generally attended by fans of the artists performing, attendees are relatively like-minded in their interests, creating a built-in audience for NFTs. Many NFT projects fail due to a lack of community support, but with NFT tickets, there is no need to build that community from scratch.

NFT ticketing also enables a safer, fairer secondary market, further establishing that sense of community and protection for the consumer against ticket scalping or fraud. Thanks to the built-in verification of blockchain, Consumers are able to buy tickets on the secondary market without worrying about whether or not they are legitimate. Furthermore, blockchain technology prevents massive purchasing transactions. thanks to its more easily verifiable record-keeping, meaning scalping in the secondary market is substantially reduced, if not outright eliminated.

These advantages offered by NFT tickets show the potential of the technology to make the consumer experience significantly better. Many NFT projects have failed because of their lack of utility — and thus, relevance — to the user and inability to form a community around them. NFT ticketing is not susceptible to either of these issues, making them the future of NFT technology.

Throughout his career as a marketer, Hunter Abramson has contributed to all aspects of experience, from cross-promotional marketing to operations to ticket sales. He always pushes the limits to create positive experiences for both the enterprise and the consumer. He is currently the co-founder and CEO of Relic Tickets, which aims to disrupt the ticketing industry with NFT tickets.This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

Rep. Jim Himes, D-Conn., told an event hosted by the Center for Strategies and International Studies, that the digital coin, backed by other currencies, would bring in people who don’t use the banking system, which are about 5.4 percent of American households, according to the Federal Deposit Insurance Corporation. Roughly three times as many more are “underbanked,” referring to those who engage in costly nonbank services such as check cashing, money orders, payday lenders and international remittance services, the data show.

Himes, who said the U.S. is late to the digital currency game, added that by enabling these Americans to access this new digital system, this would lower prices for remittances and foster financial inclusion.

Separately, high-powered law firm Skadden, Arps, Slate, Meagher and Flom explained in a recent memo that a CBDC could provide “safer, faster and cheaper payments.”

Dante Disparte, the chief strategy officer and head of global policy at digital financial services company Circle, said for countries that depend on foreign remittances, this is a pathway for accelerating currency receipts and increasing settlements.

Digital currency an international race

“We are seeing things we could not do with our money as compared to if our money stayed in physical or analog form,” said Disparte, adding on the international front, this is akin to the “space race.”

A panel at an event hosted by the Center for Strategic and International Studies said earlier this month that the U.S. was falling behind China, a technology powerhouse, on the digital currency front.

“We don’t need to win every technological race out there, but we need to at least be fast followers,” said Himes. “Let us not find ourselves left behind on the innovation this could provide.” Disparte agreed with Himes that the U.S. is late to the game, but added his caution to the Federal Reserve’s cautionary approach in April to develop a potential CBDC for the U.S.

“Better get it right than to get it first or fast,” Disparte said.

Himes said his ‘elevator pitch for a CBDC rests on the benefits the digital dollar provides for innovation. In the United States’ potential development of a CBDC, the framework or result will not satisfy everyone, but it will be a platform of innovation.

Disparte added that digital dollar currencies such as “blockchain and stable coin will change the world when people start to think of it less as a digital challenge to the dollar and to the U.S. banking system, but rather as foundational technology” for U.S. innovation.

Editor’s note: A prior version of this story referenced a report by the law firm of Skadden Arps and said that the report had argued that a CBDC would allow for “safer, faster and cheaper payments.” The article has been revised to clarify that the Skadden report was not mentioned at the CSIS event, and to note that the the firm explained that a CBDC could allow for such “safer, faster and cheaper payments.”

“We will need new substantial law,” Douglas Elliott, financial regulation expert and partner at consulting firm Oliver Wyman, said on a panel hosted by the Federalist Society on Tuesday. “There are too many ambiguities” with the current regulatory system, he added.

As state and federal governments consider how the growing crypto industry should be regulated, various crypto experts further argued Tuesday for a redesign of the regulatory structure, while others said there was no need for a consolidation of agencies.

Part of the reasoning behind the consolidation is confusion about whether cryptocurrencies are commodities or securities. As such, some are recommending a merger between the Securities and Exchange Commission and the Commodity Futures Trading Commission to handle the regulation of the digital money.

“A lot of regulatory gaps exist because we have two regulators,” said Michael Piwowar, executive director at the Milken Institute Center for Financial Markets, suggesting that Congress merge the two into a single regulatory body.

Thomas Vartanian, executive director at the Financial Technology and Cybersecurity Center, backed the agency merger idea. Vartanian explained that despite the existence of cryptocurrencies for fourteen years, crypto remains largely unregulated.

“Bottom line is we’ve built a business of ten trillion dollars with no regulation and that is a financial risk,” Vartanian said. “We are building a financial time bomb.”

But Dawn Stump, former commissioner of the CFTC, said the best way to address these gaps in crypto regulation is not to redesign the regulatory system.

In August 2021, Stump said in a public statement that due to public misunderstanding about the CFTC’s regulatory oversight authority, “there has often been a grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission or commodities regulated by the Commodity Futures Trading Commission.”

“If other countries are innovating in a direction that could represent a technological advantage, and the US is not prepared to meet that challenge, the U.S. will be at a disadvantage,” said Stephanie Segal, senior associate of the economics program at the Center for Strategic and International Studies. She and other panelists were speaking at a CSIS event on Thursday.

Segal’s comments were supported by her colleagues at the center, which hosted panelists to discuss the promises and pitfalls of creating a central bank digital currency. These stablecoins, as their called, are backed by other currencies, including fiat money.

Matthew Goodman, senior vice president for economics at CSIS, noted there is a lot of uncertainty surrounding this debate on the digital dollar. While there has been interest in the U.S. for developing such a currency system, Goodman said the US is relatively “behind” and delayed in conversations about CBDC compared to countries like China.

According to Fariborz Ghadar, scholar and senior advisor at CSIS, developing a CBDC is no easy fix, and is a risky step. However the concern about China having already developed a CBDC is a “major triggering point” he said.

Steven Kamin, senior fellow at the American Enterprise Institute, called China’s development of CBDCs “nearly operational” and potentially problematic for the U.S., with China as a world leader in technology. Kamin was speaking at an AEI event in April.

Risks of such a digital currency

A CBDC has upsides, but also presents risks to privacy and cybersecurity, according to Segal. She said a CBDC could create fear about data collection methods, regarding who has access to the data, and wonders if privacy protections would be provided.

Additionally, instead of having various intermediary points of security with the current banking system, a central bank digital currency would only have one point of security, making cybersecurity more vulnerable to threats, according to Segal.

“The Fed has been approaching this in a very sagacious manner by putting out the issue for public debate, thinking about the pros and cons and arguing that they will not move forward unless there is broad political and public support. But, I think the reality is this is where we are going, and it’s going to be in some ways an interesting world,” said economist and author Eswar Prasad, who published a book last year called, “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.”

“The world of CBDCs is going to be an interesting one,” Prasad said at the think tank event. “And this is certainly what we are moving towards.”

The current conversation surrounding CBDCs in America, which would ride on a digital ledger called the blockchain and are backed by the nation’s dollar, is delayed in comparison with other developed countries that have already made strides in government adoption of federal currencies.

“Among the advanced economies, Sweden’s Riksbank seems nearly dead-set on issuing an e-crono, while the Bank of England, European Central Bank and Bank of Canada are giving CBDCs serious consideration. The Fed seems a little bit more uncertain about it,” Steven Kamin, senior fellow at the AEI, said at the event.

At a Federalist Society event last Thursday, academics argued that such digital currencies backed by other currencies, such as stablecoins, can improve financial inclusion. It has also been said previously that these digital currencies could expedite federal payments to citizens. And because they’re backed by the government, there is a perceived added level of security and trust.

The panelists’ discussion also veered into the developments of China’s CBDCs, which are “nearly operational,” according to Kamin. This could potentially be problematic as the US economy is already grappling with the effects of China being a world leader in the manufacturing and distribution of semiconductors, a key product of important technology.

Experts have previously said that, if the U.S. is to remain competitive on the international cryptocurrency scene, the government must take key steps to solidify its digital currency systems.

At the law organization’s Thursday event, Paul Jossey, a lawyer and adjunct fellow for cryptocurrencies at the Competitive Enterprise Institute, argued the benefit of stablecoins as a way to increase financial inclusion in the country, while Timothy Massad, a research fellow at the Kennedy School of Government at Harvard University and adjunct professor of law at Georgetown Law School, asserted that it is only one way of many to ensure a more equitable monetary system in America.

“Stablecoins are digital assets pegged to the value of a stable monetary value, usually the US dollar. If you go anywhere in the world right now where there is a crisis, extreme poverty, people in desperate situations, you will find people trying to acquire stablecoin,” said Jossey. Because stablecoins have proven to be in demand around the globe, Jossey said expects them to take off in America if given the proper attention.

Massad, in some ways, said he agrees with Jossey’s point. “People who live paycheck to paycheck, even if they have a paycheck, often face delays in getting their payments cashed – it can take 3-5 days.

“If they need to pay their bills right away, they can’t do that, so what do they do? They go to a check cashing service where they have to pay maybe 10 percent of the value of their check, but they get the cash with which they can pay their bills right away. Speeding up payments would be beneficial to them. Having them be able to have digital accounts that aren’t as costly as bank accounts might be a good thing, too. Stablecoins are potentially a way to address that, but there are other ways to address it too,” he said.

But Massad also noted the risks of using stablecoins as a way to address these problems.

“Blockchains can have issues,” he said, referring to the digital ledger on which all digital transactions are recorded. “They can have software bugs, they can be hacked, they can simply be not big enough, not resilient enough, to handle the trading. They’re not regulated in any way, so there’s a payment system risk there too,” he said.

Jossey agrees that there should be more regulation, but not heavy handed. “I think that this new iteration coming from Web3 where it’s individually centered and the power and the data stay at the individual level and can remain there so…content creators are not giving most of their take to these massive platforms like Youtube. All of this will be fueled by stablecoins.

“In a perfect world the government would be encouraging this [stablecoins] and not stifle innovation. I do agree with Tim that there should be some guardrails as far as disclosure and redemption policies, but other than that we should just let the people who are creating this stuff do their work,” Jossey added.

During the Broadband Breakfast event on February 9, University of Arkansas Professor of Law Carol Goforth argued that one of the most significant issues facing cryptocurrencies is striking a balance between regulation and consumer safety.

“The growing challenge is finding a balance between the legitimate need to protect the public, investors, and our financial structures and systems against abuse, [with] the desire to protect and encourage legitimate entrepreneurs,” Goforth said.

One of the benefits that often piques the interest of consumers while also worrying regulators is the decentralized nature of cryptocurrency. Cryptocurrency advocates often tout the lack of a single regulatory body with domain over the blockchain and cryptocurrency as an enticing feature, while governments are often left scrambling for ways to still protect consumers in the often anonymous and deregulated sector.

Matthew Snider is the senior vice president of Centri Tech – an organization dedicated to improving broadband connections and utilizing those connections to improve user quality-of-life. “Decentralization is a spectrum,” Snider said. “There are lots of different places where people can land on that [spectrum].”

He explained that this spectrum has extremes on both sides – with one extreme relying on a central bank, all the way to a completely disaggregated blockchain that operates independent of any body.

Goforth said that if regulators, such as the Securities and Exchange Commission, had their way, entrepreneurs and companies may find themselves disincentivized to conduct their business in the United States if they were planning to leverage blockchain and cryptocurrency technologies.

“There is a huge pressure – not just to not do business [in the United States] – but to protect American investors by not letting them decide for themselves whether or not this is a risk they want to take.”

“To my mind, that is a very clear example of regulatory overreach that is likely to harm American investors and is likely to push technology and entrepreneurs away from our country in a way that is not optimal for anyone – other than folks who like large jurisdiction for the SEC.”

Uncertainty still exists

Snider said that while you have some countries that are leaning into the technology, many are still unsure of how to approach it.

“You have got some countries that have made [cryptocurrency] their national currency, and you have got countries like Russia and China that said ‘no, it is banned,’” Snider said. “I think you have people who do not understand something who are taking laws that are anachronistic in nature – very old – and saying ‘hey, these buckets apply because we cannot think of other buckets to put them into at the moment and we do not have the time or the effort, so we are just going to put them into these buckets and hope that they work.’”

Snider also added that for all the effort regulatory bodies and countries have put into trying to regulate cryptocurrency, all it takes to circumvent the laws is a virtual private network, or VPN, that enables users to send and receive data while obfuscating their location from those who might be trying to monitor them.

“There is a very big lack of being able to control [cryptocurrency], and it is freaking them out,” Snider said.

Our Broadband Breakfast Live Online events take place on Wednesday at 12 Noon ET. You can also PARTICIPATE ONLINE in the current Broadband Breakfast Live Online event on Zoom.

Wednesday, February 9, 2022, 12 Noon ET — Harnessing Cryptocurrency

Join us in person for a Broadband Breakfast for Lunch on cryptocurrency. In Broadband Breakfast’s premiere session on the subject of decentralized finance, we’ll explore recent developments in the blockchain, consider the ways that cryptocurrencies are impacting global financial transactions and transfers, and address government officials’ attempts to harness – or to banish – blockchain-based digital coinage.

Panelists for this Broadband Breakfast Live Online session:

• Jennifer Schulp, Director of Financial Regulation Studies at the Cato Institute’s Center for Monetary and Financial Alternatives
• Carol Goforth, Clayton N. Little Professor of Law, University of Arkansas in Fayetteville
• Matthew Snider, Senior Vice President, Centri-Tech
• Drew Clark (moderator), Editor and Publisher, Broadband Breakfast

Panelist resources:

• New Technology and Old Rules: Constructing a Crypto Regulatory Framework, Cato Institute series of four events, November 22, 2021-January 13, 2022
• Regulation of Cryptotransactions, by Carol Goforth and Yuliya Guseva
• Broadband Internet Solutions for Affordable Housing, Centri Tech
• NFT Consulting
• Will web3 reinvent the internet business?, The Economist, January 28, 2022
• CES 2022: Cryptocurrency Leaders Press Benefits as Uncertain Over Regional Clampdowns Looms, by Benjamin Kahn for Broadband Breakfast
• U.S. Needs to Modernize with Blockchain and Cryptocurrencies, Said Former Trading Commission Chairman, by Benjamin Kahn for Broadband Breakfast
• NFTs May Be Central to the Emerging ‘Internet of Value,’ Say Experts at Pulver VON3, by Megan Boswell for Broadband Breakfast

WATCH HERE, or on YouTube, Twitter and Facebook.

Illustration of blockchain from Exin used with permission

As with all Broadband Breakfast Live Online events, the FREE webcasts will take place at 12 Noon ET on Wednesday.

SUBSCRIBE to the Broadband Breakfast YouTube channel. That way, you will be notified when events go live. Watch on YouTube, Twitter and Facebook. 

See a complete list of upcoming and past Broadband Breakfast Live Online events.

More companies are entering the so-called metaverse, a virtual world that mimics the real world, where real social interactions happen through avatars. Facebook has rebranded to become Meta in an effort to get ahead of this evolution, and Microsoft’s proposed purchase of Activision-Blizzard is to also be in part a proposal to get its foot into the metaverse.

But another relatively recent development in the space is the creation digital memorabilia known as non-fungible tokens, which are purchased and sold through no intermediary — that is, no payment processing company or bank gets involved in the transaction.

The way it works is that users enter a marketplace that features listings for these digital assets, which can be a digitized news item or even a memorable tweet from social media platform Twitter. The users will have a digital wallet that will store the items and will have a purse for cryptocurrencies, which are themselves on a decentralized ledger known as the blockchain.

When a transaction is made, all users of the blockchain will have a copy of the deal. This process is said to make fraud difficult, as opposed to a centralized ledger that would keep all deals on one system, keeping eyes of those not involved off transactions.

The development and increasing acceptance of these assets — and the move toward the metaverse largely — are what experts at The VON3 Summit last month are calling the next phase, the third big cycle, in the internet’s evolution.

In this third phase, the internet is focused on communities and users having control of their creative assets, unencumbered by large technology companies and banks trying to get a slice of them through transaction fees and the like.

“Web1 was a promise of an open internet. Web2 was a promise of social connection. Web3 is a promise of creative content ownership,” said Jeremy Lipschultz, a professor at University of Nebraska Omaha and participant of the conference.

Jeff Pulver, founder and host of The VON3 Summit, declared that Web3 is the “dawn of a new era of the internet.” He said, “Web2 is really about companies, products and then community, and Web3 has a characteristic that is community first.”

By selling, gifting, redeeming or trading NFTs through the blockchain, in other words, creators have complete control of their content and who has access to it, the summit heard.

‘Internet of Value’

Web 3 has been coined by some of Pulver’s contemporaries as the “Internet of Value” because individuals will have complete control of all their assets on the internet without an intermediary. This new reality would mean that the economic world we know today would completely shift, say proponents.

“The tools are there, the value to be created is there, it requires one thing: Imagination,” said Pulver.

Non-fungible tokens are the reason Web 3 could be critical to the creative community, the summit heard. NFTs are defined by Bret Kinsella, VON3 panelist and founder and CEO of Voicebot.ai, as the “bridge between Web 2 and Web 3.”

Beyond creativity, NFTs could also be the future of nonprofits and charities. Carole Baskin from Big Cats Rescue has used the power of NFTs to raise money that will save large cats like tigers and lions around the world. Even wineries are trying to get involved, said Jacob Ner David, CEO of one called Vinsent.

As pioneers discover and decide what is possible for NFTs as a result of Web3, Pulver was quick to remind listeners that “this is new for all of us. We’re in this together.”

Users owning their data

Jeremiah Owyang, an industry analyst based in Silicon Valley and one of the speakers at the conference, said that in the ideal Web3, “we can own our data, we can own our identities, and we can own our equity.”

Instead of internet platforms taking users’ data and making money from that, the users would have ownership and control over that data.

“That’s the vision,” said Owyang.

This vision was shared by other speakers, such as the co-founder and co-chair of location technology company Foursquare, Dennis Crowley. He said that while it would be the user’s choice what to do with their own information, maybe we, as users, would be able to “hold onto some of the value [of our data] and monetize them.”

Bringing back micropayments?

This vision also tied into an idea of Koji CEO Dmitry Shaprio: Bringing back transaction costs for messages or phone calls as a way to deter spam messages and robocalls.

Lower costs for voice and data communications have been a godsend for many. But the fact that there is no charge (beyond access to an internet service provider) to send email messages led in the early internet to the proliferation of spam.

More recently, the widespread use of digital telephony and a U.S. regulatory system in which termination charges have been eliminated for cellular calls has led some to appreciate the value that toll charges impose in ensuring that the communicators aren’t scamming recipients of their messages.

Or as Shaprio put it, “Want to send me a message? Pay the price.”

Chris Fine, a technologist and business leader, also emphasized the value of time, saying that in Web3, there should be “some way to filter” the messages and calls received.

Pulver agreed. “Pay me for my time,” he said.

Theadora Soter contributed reporting to this article.

“Everybody talks about the volatility [of Bitcoin], but it has tended to go up,” said Michael Terpin, CEO of Transform Group, a company that does public relations for blockchain, on a panel Wednesday. “[2021] has been one of the least volatile years.”

Clara Tsao, founding officer and director at Filecoin Foundation, an organization that deals with certain cryptocurrency governance, added that “there are so many people from around the world who have benefited from blockchain. [Blockchain] touches everything today.”

And Tushar Nadkarni, chief growth officer at Celsius Network, a cryptocurrency earning and borrowing platform, said “this is not the first time that a technology has come in and essentially just railroaded through inefficiencies that were in the [pre-existing] system.

“We have seen this movie before,” Nadkarni added.

Experts argue that one of the most significant benefits to cryptocurrencies is that they decentralize finance. This means that “miners” and consumers from anywhere in the world, in theory, can mine and use Bitcoin regardless of their location, and they do not need to operate through a regulatable intermediary.

But the comments come against a backdrop of global events that are adding to concerns that the state of cryptocurrencies is too volatile.

Beginning on January 4, the government of Kazakhstan, which has been quelling protests in recent days, began implementing internet blackouts that led to a national blackout on January 5. Kazakhstan is the second largest miner of Bitcoin – after the U.S. – and accounts for approximately 18 percent of the mining power in the world.

The value of Bitcoin plummeted in the following days, and though it has since begun to stabilize, questions remain about how truly decentralized the currency is, given how drastically its value can be impacted by the goings-on in a single country.

At the same time, Kosovo joined the growing list of countries that has made cryptocurrency mining illegal, seizing mining devices. Cryptocurrency mining is a notoriously power-intensive process; as the network of miners grows, so to does the complexity of the cryptographic equations required to mine a coin. To combat this, miners rig matrices of graphics processing units, thereby reducing the time it takes to solve algorithms.

Kosovo, much like the rest of Europe, is in the midst of an energy crisis as Russia continues to withhold its glut of natural gas as leverage over European Union and NATO aligned countries, some of whom are largely dependent on Russia to meet their energy needs.

Because of this fuel scarcity, Kosovo, a small country with just under 2 million people, announced a ban on cryptocurrency mining on January 4. On January 6, police forces in Kosovo announced their first arrests for those who refused to comply with the new law.

Kosovo is only the most recent country to outlaw cryptocurrency mining. In September of 2021, China announced a complete ban on cryptocurrency after nearly a decade of cracking down on it. Cryptocurrency is even facing challenges from non-state actors, as it was declared haram – or forbidden – by the national council of Islamic scholars in Indonesia, home to the largest population of Muslims in the world.

Christopher Giancarlo, staunch supporter of cryptocurrencies and adjacent technologies, said during a panel hosted by the American Enterprise Institute Tuesday that, while some entities in the private sector are blazing ahead on cryptocurrencies and the decentralized ledger system called the blockchain — exploring the possibilities and limits to these technologies — western governments and societies at large are lagging.

“Money is changing right before our eyes,” the former chairman said. “Like text messages and photographs, money is becoming digital, decentralized, tokenized and borderless.”

Antiquated methods of transferring and ordering money are still mainstream, and not suitable for the fast-paced transactions that take place in the 21^st century, said Giancarlo. He argued that these methods put the U.S. “at a competitive disadvantage to the likes of China, that are building new financial infrastructure from scratch with 21^st century digital technology.

“It typically takes days in the United States to settle and clear retail bank transfers, while in many other countries it takes mere minutes if not seconds. And it takes days to settle securities transactions, and it’s ridiculously expensive to remit money overseas,” said Giancarlo. “It is often faster to move money around the globe by stuffing cash in a suitcase and hopping on a plane than it is to send a wire transfer.

“I just rode the Acela from Newark to Washington and the state of our dilapidated American infrastructure is on full display right outside the train window,” he said. “But sadly, the same is true about much of our financial infrastructure, both in the United States and in developed western economies.”

Innovation on the internet comes in waves, said Giancarlo. The first wave was the “Internet of Information,” which gave rise to digitally accessible and nearly instantaneously shareable libraries, such as Wikipedia. The second wave is what is commonly referred to as the “Internet of Things,” where nearly every device one can engage with can be accessed via the internet.

The ‘Internet of Value’

In Giancarlo’s view, a third wave is now in the midst of crashing down: the “Internet of Value” has begun to wash across the internet, where property titles, contracts, stock certificates, and other fungible and non-fungible assets can be shared and exchanged.

“Thanks to stablecoins, value is now transferable around the world in nanoseconds – 24/7/365 – the way that is increasingly decoupled from the traditional bank account-based system and corresponding correspondent banking service,” he said. “And it is the private sector, not the official sector that is leading the way to the future of money.”

Giancarlo condemned the U.S. government’s inability to “declare any national imperative to harness digital asset innovation to upgrade our creaky exclusive financial system to expand inclusiveness and lower costs for new generations of Americans.”

“I believe we can harness this wave of innovation this internet of value for greater financial inclusion, capital and operational efficiency and economic growth for generations to come. But if we do not act, this coming wave of the internet will lay bare in the shortcomings of our aged, analog financial systems with potentially disruptive impact on our western economies.”

Giancarlo stated that 80 percent of the world’s central banks are currently considering a central bank for digital currency. Bearing that in mind, he provided seven core reasons why they are doing so:

• access to citizens economic data
• financial infrastructure modernization
• financial inclusion solution monetary policy execution
• rising success of stable coins
• geopolitical influence

He said that over the coming decades, there will be myriad stakeholders attempting to advance digital currencies – ranging from national governments, to legacy fintech institutions, to Big Tech – but that “citizens for a free society” need to be one of the key players.

“Looking back on the carnage of World War One, French premier George Clemenceau is said to have remarked, ‘war is too important to be left to the generals,’” Giancarlo said. “I adapt Clemenceau’s famous quote: money, especially the digital money of the future, is too important to be left to central bankers.”

Giancarlo stated that it is important for both non-sovereign and sovereign currencies to coexist in the same financial ecosystem. “The best protection against impermissible government surveillance of economic activity or restrictions on otherwise lawful transactions may be robust competition from well-constructed stable coins, and other non-sovereign digital money.

“On the other hand, privately held operators of stable coins are not bound by the Fourth Amendment to respect individual privacy. They can easily be brought under political pressure to surveil or restrict politically incorrect transactions.

“Perhaps the best approach is what I call a ‘jigsaw’ approach to privacy, where no entity or provider of the digital currency has all the information about a transaction.”

He argued that such a system would be “the most effective guarantor of economic liberty and individual privacy.”

Patrick McCarty, professor at Catholic University of America Columbus School of Law, said at an event at the American University School of Law on November 23 that China’s central bank may create a central digital currency in the near future, and other nations’ central banks are likely to create their own digital currencies in response.

If the U.S. is to remain competitive on the international cryptocurrency scene, they say, the government must take key steps to solidify its digital currency systems.

Meanwhile, the Infrastructure Investment and Jobs Act, signed into law last month, establishes tax reporting requirements for cryptocurrencies.

McCarty said it is unclear whether Congress will take such steps, including clarifying whether cryptocurrencies are securities or commodities, and the Securities and Exchange Commission identifying which assets are considered securities to help with building digital currency systems in the U.S.

Melanie Teplinsky, professor at American University Washington College of Law, pointed out that even the major cryptocurrency players are asking for government regulations to be imposed on the industry.

Need better ransomware security

Teplinsky also said the U.S. must work to improve cybersecurity for cryptocurrency exchange.

With a four-times increase in the ransom that ransomware hackers received last year compared to 2019, she said shortages of available cybersecurity workers pose a very large problem.

She predicted there will be efforts to strengthen cybersecurity as the private sector seeks to work more collaboratively with government, and that active cyber defense through threat hunting will become more prevalent.

Teplinsky also stated that coordinated domestic and international policy responses to ransomware threats are specifically necessary, such as through diplomatic efforts to shut down foreign safe havens for hackers and common exchange regulations to ensure adherence to anti-money laundering rules.

The lobby registration was filed on November 4 and it comes after the infrastructure bill, signed into law this week, established tax reporting requirements for cryptocurrencies, which require the decentralized transaction ledger known as the blockchain to function.

The registration, which does not provide specifics on what the company hopes to discuss, also comes just days after the company rebranded as Meta, which is intended to broaden the company’s scope into new technologies that allow people to be together in the virtual space.

When the rebranding launched in late October, Facebook founder Mark Zuckerberg wrote a letter that indicated that this new metaverse would require open standards and interoperability, including supporting crypto projects.

Meta also has a number of jobs that require knowledge of crypto and blockchain.

Facebook has set its sights on initiatives involving the blockchain for years. In 2018, head of Facebook Messenger David Marcus announced on Facebook that he would set up a small group to “best leverage Blockchain across Facebook, starting from scratch.”

On Thursday, a bipartisan group of House representatives introduced a bill – the Keep Innovation in America Act – that would better define who are crypto brokers for tax reporting purposes.

In a separate lobby registration, Facebook also specified that it would like to discuss specific funding for computer science education in legislation.

The company has previously registered to lobby Congress on Section 230, the law that shields tech platforms from legal repercussions for what their users post.