Congress — in the News and on the Pod

Plus: Ethereum killers

All eyes were on Washington this week, including this week at Unchained, when Congressman Patrick McHenry appeared on the show. The main takeaway from the interview with Mr. Fintech is that he seems to support all sorts of innovation, whether it’s Libra, a digital dollar, and of course, Bitcoin. Zuckerberg didn’t face the same level of openness from all House Representatives on Wednesday, with the questions being asked of him ranging from substantive to bizarre — and quite a bit of grandstanding. Meanwhile, from the G-7 to Tyler Cowen’s blog, the discussion on stablecoins and central bank digital currencies continued apace.

As for this week’s Unconfirmed, I was excited to chat with the creators of Gods Unchained, who have found themselves the beneficiaries over the outrage around Western companies performing censorship on the behalf of the Chinese Communist Party. They stepped in to reinstate the winnings by Hearthstone player Blitzchung, who Blizzard also banned from the platform — but then they were the target of a cyberattack.

This Week’s Crypto News…

The Congressional grilling of Facebook evinced more of the lawmakers’ hatred toward Facebook, with Zuckerberg taking heat for all kinds of things, including the sensible step of limiting anti-vax content. Anyway, after his opening remarks, when he wasn’t being cut off or not even being asked a question so a Rep. could use their full time for grandstanding, Zuckerberg managed to get across that Facebook wants to go forward only with US regulators’ approval, but that the Libra Association is now in control of Libra, and Facebook does not control the association. Libra moving forward without Facebook would be a pretty interesting scenario to see play out, but at this point, it still looks unlikely. The fact that Facebook is best positioned to offer up a competitive alternative to a digital renminbi remains, but whether or not the Libra will continue in its proposed fashion as a basket of currencies or tied to the local fiat currencies is up in the air. 

The NYT had a great writeup on the charm offensive Facebook and the Libra Association undertook leading up to the hearing. But the French economy and finance minister says of Libra, “The project would mean a private company controlling a common good and taking over tasks normally discharged by states. This is unacceptable for both economic and political reasons.” And the FT posed a great question: “how it is possible to bring the great swell of unbanked onboard and at the same time satisfy all the sanctions compliance and money laundering rules that come along with transacting in the big currencies?”

First, I’m amazed that the G-7 has a working group on stablecoins. More importantly, the report highlights the risks of stablecoins with some of the more notable points being: cybersecurity/data privacy is an especially big issue for a global stablecoin that reaches scale; they could have impacts on financial stability in the economies of multiple countries; and if widely adopted, they could cause a reduction in deposits at commercial banks. But the report ends by recommending that authorities “ensure a level playing field that encourages competition.”

Tyler Cowen, the George Washington University economist and author of the Marginal Revolution blog, pens an op-ed saying he thinks it would be bad for central banks to issue their own digital currencies because it would likely inhibit lending, which in turn would depress the economy, Also, he says, it would increase the number of economic institutions that are regulated like banks, which will spread onerous financial regulations beyond QUOTE “the narrow core of the banking system.” He points to the fact that China is in the lead on a central bank digital currency, saying that has to do with the fact that its banking and payments system is already state-run and state-controlled, and asserts that a central bank digital currency would take our system, which is a blend of centralized and decentralized features and tilt it more toward centralized.

Chris Burniske of Placeholder Ventures wrote a great piece outlining some of the factors that could make or break the various Ethereum killers that are coming online. As he puts it, “A common logic I’ve seen in almost every EK goes something like: our technology is superior to Ethereum’s, thus we deserve a similar, if not superior, network valuation.” But he says that if a good-enough network-technology has enough tooling and distribution, then those network effects can outweigh the potential benefits of switching to an alternative with better technology but worse network effects. He also makes some interesting points about how proof of stake networks gain traction vs. proof of work ones, with the main point being that POS networks will need killer applications to create demand for the services being offered on the network.

Bakkt CEO Kelly Loeffler announced that the firm will be launching the first regulated options for Bitcoin futures, and that it saw a record 590 contracts of Bakkt Bitcoin Monthly Futures change hands Wednesday. 

Speaking of money laundering, as the lawmakers did with Zuckerberg on Wednesday, according to Elliptic, one of the more effective, if less popular, ways to launder money is through mining. “The key to this laundering technique is the transfer of illicit funds via custom transaction fees paid to the miner,” writes Tim Lloyd at The Block.

Last week, Circle announced it has sold crypto exchange Poloniex, and it’s rumored that the buyer is an Asian investment group headed by Tron CEO Justin Sun. Now, Frank Chaparro writes in The Block, the open question is what lines of revenue Circle can depend on, with its various products and services, such as Circle Pay, Circle Research, and its one-time money-making OTC desk all axed or reduced. A couple possibilities include custody and lending and perhaps interest off its stablecoin USDC. But right now that last business is probably only bringing in a couple million. We shall see if it manages to make a smart pivot, or if it sells — as it has been shopping itself around to the likes of Coinbase.