Building Blocks of Change: The Benefits of Blockchain Technology for Small Businesses (House Small Business Committee hearing, March 4, 2020)
Summary
Transcript of the House Committee on Small Business hearing Building Blocks of Change: The Benefits of Blockchain Technology for Small Businesses, convened March 4, 2020 during the 116th Congress, Second Session, published as Small Business Committee Document Number 116-076 (GPO 39-892). Chairwoman Nydia Velázquez presided with Ranking Member Steve Chabot. Testimony was given by Shane McRann Bigelow of Ownum, LLC for the Chamber of Digital Commerce, Dawn Dickson of PopCom, Marvin Ammori of Protocol Labs for the Blockchain Association, and Jim Harper of the American Enterprise Institute. Appendix materials include a letter from Engine and written testimony from Shamsh Hadi, CEO of Zorrosign, Inc.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Building Blocks of Change: The Benefits of Blockchain Technology for Small Businesses (House Small Business Committee hearing, March 4, 2020).”
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BUILDING BLOCKS OF CHANGE: THE BENEFITS
OF BLOCKCHAIN TECHNOLOGY FOR SMALL
BUSINESSES
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
HEARING HELD
MARCH 4, 2020
Small Business Committee Document Number 116–076
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
39–892 WASHINGTON : 2020
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
MELISSA JUNG, Majority Staff Director
JUSTIN PELLETIER, Majority Deputy Staff Director and Chief Counsel
KEVIN FITZPATRICK, Staff Director
(II)
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CONTENTS
OPENING STATEMENTS
Page
Hon. Nydia Velázquez ............................................................................................. 1
Hon. Steve Chabot ................................................................................................... 2
WITNESSES
Mr. Shane McRann Bigelow, CEO, Ownum, LLC, Cleveland, OH, testifying
on behalf of the Chamber of Digital Commerce ................................................ 4
Ms. Dawn Dickson, Founder and CEO, PopCom, Columbus, OH ....................... 6
Mr. Marvin Ammori, General Counsel, Protocol Labs, Wilmington, DE, testi-
fying on behalf of the Blockchain Association ................................................... 7
Mr. Jim Harper, Visiting fellow, American Enterprise Institute, Washington,
DC .......................................................................................................................... 9
APPENDIX
Prepared Statements:
Mr. Shane McRann Bigelow, CEO, Ownum, LLC, Cleveland, OH, testi-
fying on behalf of the Chamber of Digital Commerce ................................ 22
Ms. Dawn Dickson, Founder and CEO, PopCom, Columbus, OH ................ 28
Mr. Marvin Ammori, General Counsel, Protocol Labs, Wilmington, DE,
testifying on behalf of the Blockchain Association ..................................... 35
Mr. Jim Harper, Visiting fellow, American Enterprise Institute, Wash-
ington, DC ..................................................................................................... 38
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Letter from Engine ........................................................................................... 52
Testimony of Shamsh Hadi, CEO of Zorrosign, Inc. ...................................... 57
(III)
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BUILDING BLOCKS OF CHANGE: THE BENE-
FITS OF BLOCKCHAIN TECHNOLOGY FOR
SMALL BUSINESS
WEDNESDAY, MARCH 4, 2020
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The Committee met, pursuant to call, at 11:30 a.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velázquez
[chairwoman of the Committee] presiding.
Present: Representatives Velázquez, Finkenauer, Davids,
Delgado, Chu, Chabot, Houlahan, Evans, Schneider, Bishop, and
Spano.
Chairwoman VELÁZQUEZ. Good morning. The Committee will
come to order.
I want to thank everyone for joining us this morning, especially
our witnesses for taking time to travel here to testify before our
Committee.
The key to long term growth in our economy is to make sure we
are creating an environment that encourages innovation. That is
why since last January we have held hearings on how the digital
ecosystem promotes entrepreneurship, how small firms are leading
the way in the clean energy economy, and solutions to decrease
barriers for women and minorities seeking patents and trade-
marks. Today’s hearing is another topic I am excited to explore,
which is how blockchain technology is being used to support entre-
preneurship and small business growth.
I know that when most people hear about blockchain, they auto-
matically think of cryptocurrency and bitcoin. While blockchain is
the technology that enables the existence of cryptocurrency, by no
means is that its only use. As a member of the Financial Services
Committee, I have heard firsthand how blockchain technology is
being utilized in payment processing by large banks and insurance
companies.
Today, we have an opportunity to hear from small businesses
that are using blockchain technology to reduce costs, increase effi-
ciencies, disrupt industries, and grow their businesses. As we all
know, the Internet, once the realm of hobbyists and cutting-edge
tech experts, has grown into a mainstream driver of economic
growth and efficiency.
Yet, much of the power of the Internet is concentrated in a few
multibillion-dollar companies such as Facebook, Google, and Ama-
zon, who gather large amounts of data on consumers, and dominate
(1)
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marketplaces. In fact, many small businesses rely on these large
corporations for advertising, E-commerce, distributing their prod-
ucts, cybersecurity, and cloud computing. Much like when a
Walmart comes to town, it is challenging for small businesses and
entrepreneurs to compete against these massive corporations.
Blockchain technology can help small businesses compete on a
more level playing field with larger corporations by streamlining
operations, reducing reliance on costly third-party intermediaries,
and boosting cybersecurity networks. By deploying blockchain effec-
tively, the technology can have a positive financial impact on small
businesses.
Over the last decade, there has been a frenzy of investment and
entrepreneurship around blockchains. Innovators and small busi-
nesses are at the forefront of a wide variety of blockchain-based
technological applications in nearly every sector of our economy, in-
cluding healthcare, the clean energy sector, financial services,
transportation, and logistics.
The international competition has begun.
Many other countries have invested in blockchain research and
initiated coordinated frameworks. Congress must do our part to
make sure that the United States remains a leader in blockchain
development and engagement.
Because blockchain technology has a wide variety of applications,
both in government and in the private sector, there are a number
of federal agencies that have been looking at the uses of blockchain
technology including the SEC, CFTC, and even the IRS.
However, many of these efforts are not coordinated between
agencies, leaving uncertainty for businesses and entrepreneurs. We
must make sure that the federal government adopts policies that
support blockchain technology as it becomes a driver of wider eco-
nomic growth and efficiency. There is a need for a coordinated
framework to balance the need for regulation, while still supporting
innovation, and providing clarity and predictability for businesses
and entrepreneurs.
Today’s hearing is a chance for us to go beyond the hype to un-
derstand the benefits and challenges of blockchain technology. Our
panel today represents a diverse set of expertise and viewpoints
that will provide insight into some of the areas where blockchain
is having an impact on small businesses. I look forward to the tes-
timony and discussion.
I would now like to yield to the Ranking Member, Mr. Chabot,
for his opening statement.
Mr. CHABOT. Thank you, Madam Chairwoman.
Technology is continuously being developed to meet the needs of
a rapidly changing world. From the development of the assembly
line, to the credit card, to the virtual universal use of the Internet,
businesses are continually adapting to the world around them in
order to remain competitive and provide for their customers.
Businesses embrace technological advancements in order to re-
duce costs, streamline processes, increase productivity, and maxi-
mize customer satisfaction. Though technological advancements
may be difficult for some to learn and adopt, our most innovative
minds are searching for ways to do better. Our free market thrives
on this continued innovation.
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Blockchain technologies are one of the newest advancements
with a potential to create a positive impact on businesses, con-
sumers, and our economy. It is important to examine this growing
field in order to learn more about the potential security benefits
and cost reductions. Of course, as with all new technologies, we
must be aware of any potential challenges that could adversely im-
pact individuals or businesses, especially small businesses.
Today, we will hear what the complex world of blockchain tech-
nology has to offer our small businesses and gain a broader under-
standing of the benefits and challenges associated with this tech-
nology.
I want to thank the Chairwoman for holding this hearing and for
inviting one, in fact, two witnesses from America’s greatest state,
Ohio.
Thank you, and I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
If Committee members have an opening statement, we would ask
that they be submitted for the record.
I would like to a minute to explain the timing rules. Each wit-
ness gets 5 minutes to testify and members get 5 minutes for ques-
tioning. There is a lighting system to assist you. The green light
will be on when you begin, and the yellow light will come on when
you have 1 minute remaining. The red light will come on, and that
means that the time is up, and we ask that you stay within that
timeframe to the best of your ability.
I would now like to introduce our witnesses.
Our first witness is Mr. Shane Bigelow, the CEO of Ownum.
Ownum companies aim to bring more efficiency to vital records by
converting paper-based processes to digital formats using
blockchain technology. Prior to joining Ownum, Mr. Bigelow was a
Senior Vice President and Managing Director at Bear Stearns
where he managed U.S. business and served on the firm’s Respon-
sible Investment Committee. Thank you for being here.
Our second witness is Ms. Dawn Dickson. Ms. Dickson is the
CEO of PopCom, an automated retail company that uses
Blockchain to help collect customer insights. As a serial entre-
preneur with over 16 years of experience in marketing and busi-
ness development, Ms. Dickson has launched four successful com-
panies since 2002. Her most recent ventures include Flat Out of
Heels and PopCom. Thank you for your testimony and for being
here today.
Our third witness is Mr. Marvin Ammori, the General Counsel
of Protocol Labs. Protocol Labs is a research, development, and de-
ployment institution for improving Internet technology. Using an
open source approach to creation, Protocol Labs focuses on building
systems and tools to improve how the Internet works. Mr. Ammori
is a leading First Amendment lawyer and Internet policy expert.
Prior to joining Protocol, he was a legal fellow at the New Amer-
ican Foundation, an affiliate scholar at Stanford Law School, and
law professor in Nebraska. He was also the head lawyer for Free
Press and has been a leading legal advocate in advancing network
neutrality. We appreciate you being here today.
Now I yield to the Ranking Member, Mr. Chabot, to introduce
our final witness.
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Mr. CHABOT. Thank you, Madam Chairwoman.
Our final witness is Jim Harper. He is not one of our two Ohio
witnesses, but he is still pretty good. Mr. Harper is a visiting fellow
at the American Enterprise Institute (AEI). Before joining AEI, he
worked at the Competitive Enterprise Institute and the CATO In-
stitute. Previously, he served as counsel for the House Judiciary
Committee Subcommittee on Commercial Administrative Law and
is counsel for the Senate Committee on Homeland Security and
Governmental Affairs. Mr. Harper received his B.A. from Univer-
sity of California, Santa Barbara, and his J.D. from University of
California’s Hastings College of Law. And we welcome you here
this morning, Mr. Harper. We welcome all the witnesses.
Chairwoman VELÁZQUEZ. Mr. Bigelow, you are now recognized
for 5 minutes.
STATEMENTS OF SHANE MCRANN BIGELOW, CEO, OWNUM,
LLC,; DAWN DICKSON, CEO, POPCOM; MARVIN AMMORI, GEN-
ERAL COUNSEL, PROTOCOL LABS; JIM HARPER, VISITING
FELLOW, AMERICAN ENTERPRISE INSTITUTE
STATEMENT OF SHANE MCRANN BIGELOW
Mr. BIGELOW. Good morning Chair Velázquez, Ranking Mem-
ber Chabot, and members of the Committee. Thank you for inviting
me to speak on this important topic.
I am Shane McRann Bigelow, the CEO of Ownum. Today, I am
appearing on behalf of the Chamber of Digital Commerce, as well
as my company, Ownum, to offer our specific experiences in start-
ing a small business that improves the lives of consumers by pro-
viding quicker and more efficient access to vital records and en-
hances public safety in doing so.
In the United States, our vital records are used to demonstrate
ownership, citizenship, birthright, and much more. However, ac-
quiring these important documents is cumbersome because these
records are largely paper based. For most Americans this is an an-
noyance at best and debilitating at worst. For the poorest in our
Nation, a group disproportionately tilted towards minorities, vital
record acquisition and maintenance can represent the worst in life.
From a mother who is trapped in an abusive relationship with
her husband because he is holding hostage her and their children’s
birth certificates and other important documents to a title loan
store that is pressuring a downtrodden individual to relinquish his
or her vehicle title in exchange for an exceedingly high interest
rate loan, vital records are regularly at the epicenter of physical
and economic disadvantage in our most vulnerable communities.
Further, our government process today requires considerable pa-
perwork and more importantly time spent in line at the DMV or
Department of Health in each state in our Union. This requires
time away from employment and is an event that requires trans-
portation, something that studies indicate our poorest communities
lack in quality form in much of our Nation. It could easily be said
that the process to acquire vital records in this country is discrimi-
natory.
The question of course becomes why, in this age of technology
where cell phones are abundant and internet access is readily
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available, do we still require such antiquated processes as filling
out paperwork, spending hours in long lines, and physically show-
ing up at inconvenient locations, all while missing work?
We have failed to become fully digital because there has been no
incentive to change. The ecosystem around vital records—banks,
insurance companies, hospital systems, etc.—have accepted the leg-
acy process of using paper as a cost of doing business. That was
acceptable 20 years ago when our technology could not fully sup-
port a digital process, but that is unacceptable today.
At Ownum, we aim to change all of that. Ownum is a holding
company, that was started by Bernie Moreno and me, approxi-
mately 2 years ago. Under Ownum, other companies are created,
each with a similar goal. That goal is to digitize a particular vital
record and the process to acquire it—no paper, anywhere, anytime.
Our first company is Champ Titles, which can be found at
champtitles.com, where we are digitizing vehicle titles. The second
company is Vital Chain, found at vitalchain.com, which is digitizing
birth and death certificates. Each uses blockchain technology to im-
prove accuracy and efficiency, and fight fraud.
Ownum’s use of blockchain technology is why we are invited to
be here today. But sadly, the use of blockchain is often a source of
confusion and one of the biggest delays for governments. Unlike in
the 1990’s and 2000’s when government promoted business and fos-
tered the internet boom, today our governments seem to be doing
the opposite with anything related to blockchain. This is where this
Committee can be of great help to any small business or start-up
working with blockchain technology today. If state governments
were encouraged to pursue digitization, like what the IRS did when
they allowed a multitude of vendors to replace paper tax filing with
digital filing, that would be a great step forward.
The states need an incentive to allow vendors like us to send in
and transact completely in digital form the information they cur-
rently acquire and transact in paper form.
Ideally, the outcomes Ownum seeks are as follows:
Help the poorest in our country to gain better access to their
vital records in a secure way by encouraging Federal and state gov-
ernments to allow for the digitization of not only their vital records,
but the process to acquire them; use this Committee’s paper reduc-
tion authority to promote the digitization of paper-based vital
records at the state and Federal level in areas where government
services are involved; provide financial aid to small businesses
seeking to provide digitization of records; incentivize state govern-
ments to adopt digitized vital records; and affirm publicly that the
Federal ESIGN Act applies across all 50 states to blockchain tech-
nology and other emerging tech.
By recommitting, as we did during the internet boom, to focus
our government, at all levels, on what a technology enables, we will
help our government to pursue digitization strategies for vital
records. Doing so will enable many startups and small businesses
like us to build the next generation of the innovative and entrepre-
neurial culture in America.
Thank you, and I look forward to your questions.
Chairwoman VELÁZQUEZ. Thank you, Mr. Bigelow.
Now, Ms. Dickson, you are recognized for 5 minutes.
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STATEMENT OF DAWN DICKSON
Ms. DICKSON. Thank you, Chairwoman, Ranking Member,
members of the committee, it is an honor to be here today to rep-
resent the great state of Ohio.
I am Dawn Dickson, a small business owner for 20 years. I am
what most call a serial entrepreneur. I am driven and passionate
about business ownership and identifying resources to move my
companies forward.
Like many small business owners, I have benefitted greatly from
SBA programs, including SCORE and Bixel Exchange. In 2016, I
won $20,000 in the SBA innovateHER Challenge, and last year I
won $125,000 in the MEDA $1 Million Pitch Competition that is
also SBA funded.
I own four small businesses but today I will focus on one,
PopCom, where I am leveraging blockchain technology for specific
aspects of my business.
PopCom is a small B2B tech startup that develops software and
IoTconnected hardware for self-service retail. This includes vending
machines and kiosks used to dispense products and perform trans-
actions.
At PopCom, we are using blockchain to optimize machine-driven
transactions for government-regulated products that require identi-
fication verification, sales compliance, supply chain information, or
a combination of all three. There is tremendous opportunity in this
space, over $3 trillion in global revenue, growing to $5 trillion by
2022.
I want to clarify that PopCom is not a blockchain company. We
are a technology company that uses facial recognition and artificial
intelligence in our software. I am simply using specific blockchain
applications for my business. This is an important distinction.
Blockchain is not a silver bullet. However, it can solve problems
that small businesses face. Instead of buying our own proprietary
product, we partner with CIVIC, a secure blockchain identity man-
agement platform to age gate customers, to execute purchases of
regulated products, such as cannabis from a vending machine.
As a company, we believe that the most secure way to check and
confirm a customer’s identity, while ensuring their personal data
remains secure, is to have the customer verify their information on
their mobile device and store that data on the blockchain. We never
collect or have access to any of their personal data. We know noth-
ing about or from the customer, and that is the power of
blockchain.
Blockchain is more than a business tool. It can also be leveraged
for fund-raising. I know first-hand the challenges that small busi-
nesses face when raising traditional and nontraditional capital.
In 2016, after I won the SBA InnovateHER Challenge, I still
could not qualify for an SBA loan, despite already generating rev-
enue and having excellent credit history.
Federal programs are ineffective if they are not accessible to the
very small businesses they were created to empower.
In 2018, I made the tough decision to turn down $1.5 million in
VC investment because it would have meant giving up over half of
my business ownership. After we completed our seed round, bring-
ing our funding to close to over $1 million from Angel and VC, I
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decided to do a secure token offering to raise capital and to give
people in my community the opportunity to invest in my business.
Blockchain technology made this possibility through the
tokenization of my cap table. A token represents a digital share
stored on the blockchain, and it is treated no differently than a tra-
ditional stock certificate. However, the token is proof of investment
that lives on the blockchain ledger forever and cannot be erased or
retracted. This gave people comfort and security knowing that their
money is safe.
In 2019, I became the first female CEO globally to raise over $1
million using equity crowdfunding under Title III, Reg CF of the
JOBS Act. I leveraged my personal network to raise capital
through the STO, instead of relying solely on VCI and Angel inves-
tors to fund my business.
Access to capital for small businesses has come a long way since
I started my first company in 2001. However, more needs to be
done to increase this access in order for entrepreneurs to continue
to grow, bring products to market, and create jobs.
Congress is in a position to address these issues and this Com-
mittee can lead the way.
There are few financial institutions that will capitalize enter-
prises that are using blockchain. The National Policy Network of
Women of Color in Blockchain have developed a legislative proposal
to create a federally-backed SBA 7(a) loan for entrepreneurs and
small businesses who are using blockchain technology. This unique
SBA 7(a) loan could help level the playing field for all businesses.
Congress should consider blockchain and cryptocurrency as a
part of the solution and advance policies that will benefit small
business owners like me.
I hope you will continue to engage diverse forces as you delib-
erate legislative priorities to ensure entrepreneurs can innovate,
build, and grow right here at home.
Again, thank you for the opportunity to contribute to this impor-
tant debate on behalf of the millions of constituents across the Na-
tion that this Committee is tasked to empowering.
Chairwoman VELÁZQUEZ. Thank you, Ms. Dickson.
Mr. Ammori, now you are recognized.
STATEMENT OF MARVIN AMMORI
Mr. AMMORI. Thank you, Chairwoman Velázquez, Ranking
Member Chabot, and other members of the Committee for inviting
me here today.
I am Marvin Ammori, testifying on behalf of the Blockchain As-
sociation.
I head Legal and Policy at a member company called Protocol
Labs. Protocol Labs was founded in 2015, and now has more than
117 employees and contractors across 36 states and 16 countries.
This year my company plans to launch the Filecoin protocol,
which is software designed to create a vibrant marketplace for on-
line data storage. And Blockchain technology is one key enabler of
that marketplace.
So, let’s begin with blockchain technology.
When you cut through the hype, a blockchain is essentially a
data structure. So, think of a database, a ledger, or a spreadsheet.
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Now, why is there so much hype for a better spreadsheet? Because
a blockchain stays up-to-date and in sync based on software rules
and community agreement. So, one person or one company does not
choose how to update the entries in the spreadsheet; rather all (or
a specified number) of the computers in a network will ?agree to
make the update together.
So, you might prefer a blockchain instead of a traditional data-
base or ledger. If you would rather trust a consensus of multiple
actors versus trusting one single recordkeeper. It is that simple.
So the invention of blockchain technology can affect industries
far beyond money listed in a ledger, including health care, supply
chain, vital records, and anywhere else you would want multiple
people making the consensus, including enabling competition in
Internet infrastructure, such as services like cloud storage.
So, the Filecoin network will be a marketplace for buying and
selling cloud. For decades, computer scientists and law professors
have written about the resilience benefits of a programmable, effi-
cient market for storing data, where people who have extra hard
drive space on their phone or in their data center could rent that
storage, securely and efficiently, to others who wanted access to
that storage. Our software will be open source, and anyone will be
able to download it for free to broadcast their desire to buy or sell
hard drive space.
In the Filecoin network, a blockchain will record the storage
market’s transactions. As a result, nobody will be needed as a mid-
dleman, including us, to manage the marketplace. Anyone can rely
on software rules and underlying that, mathematics for the mar-
ketplace.
So how can Filecoin and the Blockchain underlying it benefit
small businesses?
First, creating a marketplace in online storage may drive down
the cost of data storage, which is a real cost for almost every busi-
ness in every sector. Businesses need reliable and secure places to
store data as much as they need electricity, and many of them pay
cloud storage providers to hold and serve that data from their data
centers. If Filecoin drives down storage costs through enabling
more competition, small businesses will save money, which they
can invest in jobs and R&D. Further, more small businesses would
be able to afford the digital file cabinets needed to innovate in
data-hungry new fields, such as virtual reality, healthcare imaging,
and artificial intelligence.
Second, and just as importantly, Filecoin will enable small busi-
nesses to compete directly in the cloud storage market. Today,
Amazon is the largest provider of cloud computing through its
Amazon Webservices Division. This is actually Amazon’s biggest
business, accounting for more than 2/3 of Amazon’s operating in-
come with high margins. We hope that an open storage market-
place can help all the smaller and mid-size players to compete
more effectively, not based on brand recognition or large enterprise
sales teams but by competing on costs, speed, and security.
We are not the only company using blockchain data structures
to create open marketplaces for Internet infrastructures, which we
hope will decrease the power of today’s large Internet platforms,
and some would say decentralize the Internet. Others include new
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browsers, privacy-protective advertising exchanges, video encoding
marketplaces, identity solutions such as mentioned by Ms. Dickson,
and highly-distributed computing.
In sum, blockchains are novel data structures. They may be use-
ful in many industries where multiple players prefer collectively
updating records instead of relying on one central updater. One of
those industries is Internet infrastructure, including our project
which we hope will benefit many small businesses, and there are
many other use cases.
Thank you. I look forward to your questions.
Chairwoman VELÁZQUEZ. Thank you, Mr. Ammori.
Mr. Harper, you are now recognized for 5 minutes.
STATEMENT OF JIM HARPER
Mr. HARPER. Chairwoman Velázquez, Ranking Member Chabot,
and members of the Committee, thank you for the opportunity to
testify before you today despite my woeful lack of Ohio roots.
When I was counsel with the House Judiciary Committee in the
latter part of the last century, I had the opportunity to collaborate
with a lot of Small Business Committee staff, so I have a lasting
affection for the Committee. I do not think any of those folks are
still here, but I am glad to see consistency in the leadership.
I am Jim Harper, visiting fellow at the American Enterprise In-
stitute, and senior research fellow at the University of Arizona,
James E. Rogers College of Law.
Since I left the House in 2000, I have been a student of tech-
nology, including blockchain and cryptocurrency since 2011. In my
time I came to believe that you really have to understand a tech-
nology fairly deeply to gather what the consequences of the tech-
nology are and what might come from any regulatory intervention.
So my written testimony is fairly heavy on blockchain as a tech-
nology, the processes by which blockchains are created and the use
of cryptocurrency in some cases to secure blockchains, such as
when there are higher value uses or larger scale blockchain appli-
cations.
I am going to spare you that lecture here today. You should be
happy to know that. And I will skip to the consequences that I per-
ceive for small businesses.
You have heard from my co-panelists about specific implementa-
tions that illustrate the benefits of blockchain. I perceive them
breaking down into three categories. One, already mentioned, just
simple efficiency. Blockchains may allow various business functions
to be conducted at lower cost. On the theory that each dollar saved
is more precious to a small business than it is to a larger business,
I think that is a distinct and important benefit for small business.
Second, blockchains may allow for diversified and open-market
structures that support more niches and specialties. Because I like
the example so well, I focused my written testimony on an effort
called Beefchain. Along with saving on costs and losses when meat
supply may be tainted, a Beefchain may allow small producers of
specialty meats to serve national markets. What a boon for small
businesses and consumers who might enjoy greater options than
what is available through commodity meat production.
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Finally, I think blockchains may reduce the competitive advan-
tage that large businesses have in the world of data. This relates
pretty well, Chairwoman Velázquez, to the reference you made to
the bigger players in tech right now. Large companies, not only in
tech but throughout industry, have the resources and heft to set
data standards for their industries. These standards may benefit
the large businesses themselves. And of course, they have access to
more data about markets, products, customers, and so on.
Blockchain can bring large communities together to create data
commons, unowned, nonproprietary stores of data. These projects
more likely have data structures that serve all use cases, including
the uses of small business, and they may give small businesses ac-
cess to data that they did not previously have. This would give
them the ability to use advanced analytics and make other uses of
data that are now reserved only to bigger businesses. So blockchain
may lower barriers to entry and innovation.
My friends in the cryptocurrency world may poo-poo the benefits
of mere blockchain. The larger cryptocurrency projects may have
world-changing consequences, and that is exciting stuff. But I think
about it this way: The Internet, when it came along, was an amaz-
ing tool for communication. When I left The Hill 20 years ago, I
do not think even I imagined that we would have video conversa-
tions on our hand-held phones. I did not think we would have a
language of emojis and gifs that we use. I did not think I would
be able to keep in touch with high school friends from 35 years ago
the same way I keep in touch with my neighbors. All that is be-
cause of the communication medium that the Internet created.
Well, what the Internet itself did for communication, blockchain
and cryptocurrency may do for recordkeeping and administration.
That means big changes in how business and government are con-
ducted. Big shifts in power, including, hopefully, lower power and
fewer concentrations of power in society, including in those larger
businesses. That is important, even if it is mostly still potential.
There will be a lot of consequences to sort through. One could
argue that the challenges we face in online privacy exist because
the Internet grew a little too fast for our society to absorb it. The
net benefits are great though, and they will continue to accrue.
The same goes for blockchain and cryptocurrency. They hold out
substantial benefits for all sectors of society and the world. You are
wise as a Committee to be examining this now and making this
Committee part of the process of ingratiating the technology into
society so that we can get the benefits from blockchain while con-
trolling the costs and the risks.
Thank you again for having me here today. I look forward to any
questions you may have of me or my co-panelists.
Chairwoman VELÁZQUEZ. Thank you. Thank you to all of the
witnesses for great insight that you have provided to us today.
Mr. Bigelow, small businesses often rely on third-party inter-
mediaries or middlemen when conducting business. Can blockchain
help eliminate multiple intermediaries in certain industries, there-
by increasing efficiencies and reducing costs for small businesses?
Mr. BIGELOW. Chairwoman, thank you very much for a great
question.
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The short answer is yes. An example comes to mind from an ex-
perience recently that might shed light on how this could occur. I
had to get from a meeting to an airport as is commonly the case
with my travel. I could not take an Uber or a Lyft, so instead I
arranged for a car service. I was in the car on the way to the air-
port, and I started talking to the driver and I asked is this part
of a fleet? He said, the owner started it and there are six or seven
cars in the fleet. And I asked, how often do you cycle through the
vehicles? And he said, more often than you think. We put a lot of
miles on them. And I asked, who takes care of that? And he said,
every time we have to sell the car, the owner gets involved, and
he has to go through the whole process. I asked, what sort of in-
volvement does that require? He said, as far as I understand it, we
sell three or four cars a year, and every time they do that they
have to go down to the DMV and take the title, convert the title
into the new owner or get the title from the lender if they just paid
off the loan, and they spend anywhere from 3 to 4 hours either in
line or getting to and from the location. I asked, does the owner
also drive the cars? He said, yes, he is a crucial part of our fleet.
I said, for the totality of that time, that owner is out of pocket. The
owner probably makes somewhere in the neighborhood of $50,000
to $60,000 per year. If you presume that the cost of that time is
anywhere from 3 to 4 hours per instance and there are 3 or 4 in-
stances per year, it is very easy to equate that to somewhere in the
neighborhood of about $500 or $600 per year. That is 1 percent of
their earnings. That is effectively a tax on that individual.
With blockchain as the intermediary, immediately the car title
can be shifted from the bank back to the owner. The owner can
then give it to somebody else.
Chairwoman VELÁZQUEZ. Is there any industry where this can
have the most impact?
Mr. BIGELOW. It is self-serving for me to say, but I believe
there are two places. For car titles, the example was not accidental.
This is the low-hanging fruit that exists right now in a place where
the government can be helpful. Anyplace where there is a govern-
ment-based vital record, if we convert that to a digital form, it will
help all of the businesses around it. Banks and insurance compa-
nies, are particularly burdened with the cost of titles so vehicle ti-
tles are the first place.
Chairwoman VELÁZQUEZ. Thank you.
Ms. Dickson, for all small businesses, improving customer service
is critical for success. How is blockchain technology being used by
small businesses to learn more about their customers?
Ms. DICKSON. Thank you, Chairwoman, for the question.
What comes to mind immediately is our use of blockchain for
identity management when we use facial recognition. So, as you
know, face recognition is becoming very big across multiple indus-
tries and everywhere in the world, really. And on our vending ma-
chine platform we offer facial recognition to understand the cus-
tomer demographic profile. So, understand male, female, approxi-
mate age, and your engagement ring. However, the privacy con-
cerns around are you taking that person’s identity data and using
that for anything, that has been a big concern and that is why we
utilize the blockchain so that when we do need to confirm that
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identity for a regulated product or for a prescription or alcohol,
that we can verify they are a confirmed identity, of age, and able
to purchase that product, but never take their identifying informa-
tion.
Chairwoman VELÁZQUEZ. Thank you.
Ms. DICKSON. Okay. Yes.
Chairwoman VELÁZQUEZ. I do not have much time left, but I
would like to ask a question to Mr. Ammori.
Do you believe that blockchain, or the use of blockchain, by small
firms will level the playing field allowing them to compete against
the big tech, like Amazon, or Google?
Mr. AMMORI. Well, that is definitely our hope, and I think it is
the hope of several large investors in the country. Andreessen
Horowitz and Union Square Ventures essentially have a thesis
around using cryptocurrency and Blockchain to compete with a
large platform.
Chairwoman VELÁZQUEZ. Thank you.
New industry allows policymakers the opportunity to put in place
rules and guidelines designed to increase equity and diversity.
What can be done to ensure that communities of color and women
are leaders in this industry, and that we do not end up with an
all-boys club that exists in a sector like the financial sector?
Yes, sir?
Mr. AMMORI. I think there is a whole range of different initia-
tives that would cut across all venture capital. I think one thing
would be to reduce the general risk around cryptocurrency and
Blockchain. There are several good rules that are being proposed,
including tax fairness and clarity around securities. And I think if
you reduce the risk you will get more money in and that will go
across the entire diverse American economy.
Chairwoman VELÁZQUEZ. My time has expired. Thank you so
much.
The Ranking Member is recognized.
Mr. CHABOT. Thank you, Madam Chair. And I will begin with
you, Mr. Harper.
What, if any, challenges are there that may be discouraging or
preventing any small businesses out there from adopting block
chain technology?
Mr. HARPER. Well, there are many across a wide range. There
is a lot of uncertainty. Blockchain and cryptocurrency are sort of
category-busting. They do not fit into the old boxes. I think most
of the agencies are doing a creditable job of trying to figure out how
old rules apply. And that is generally the case, that old rules prob-
ably apply, and they just have to figure out exactly how. There are
little gaps where there might be challenges.
But the lack of certainty around how existing regulation applies
to various blockchain applications is probably a hindrance. Even
today, I think the IRS is holding a session to hopefully do better
on how it categorizes and how it works with cryptocurrencies, the
value of cryptocurrencies. There are ways its done right, which is
establishing pretty much that cryptocurrencies are property, and
you get capital gains if you sell at a gain. And there are other cases
where it has sort of missed and does not fit well with the tech-
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nology. So a lot of certainty needs to grow up around blockchain
and cryptocurrency so that people can move forward confidently.
Mr. CHABOT. Mr. Ammori, somewhat related to the question I
just asked, is Blockchain ready to be fully embraced would you say?
Or are there still areas that should be worked out before mass
adoption?
Mr. AMMORI. I think it is ready. I think some of the areas that
need to be worked out on the technical side is we really need to
improve user interface and usability so that all small businesses
could use it. On the legal side, as Mr. Harper mentioned, the tax
treatment at the moment is very complicated. If you want to just
spend bitcoin on a coffee this morning you would have to keep
track of what you paid for the bitcoin and how much it was worth
the moment you spent it and pay the capital gain or loss on every
single transaction. Doing your taxes for crypto is the worst night-
mare.
And so, if we could have a di minimis tax exception which has
been proposed, the virtual currency Tax Fairness Act, I think all
of you should support that. And then we should also have a little
more clarity around the CFTC’s role versus the SEC’s role. And
they are both trying very hard, but more certainty would be very
helpful.
Mr. CHABOT. Thank you very much.
Ms. Dickson, did you make the right decision in turning down
that $1.5 million from the venture capital fund? I hope the answer
is yes.
Ms. DICKSON. Yes. I appreciate the Ranking Member’s ques-
tion.
Mr. CHABOT. If so, tell us about it.
Ms. DICKSON. No, it was an excellent decision because it al-
lowed me to let other investors from around the community invest.
So, in the case of venture capital that is one fund or a few funds
that come together and they are credited, and they are already
wealthy, and they can invest. But using a STO would allow me to
leverage friends, family, peers, social media, the community, our
customers, to invest at as low as $250. So instead of having two
investors in a round or three, we have 2,200. But the way it is
structured with the token is that it is considered as like a syn-
dicate, so it is only one line item on my cap table. So, it was a great
decision.
Mr. CHABOT. Great. Thank you.
Mr. Bigelow, you mentioned the auto title function, and the
Chair mentioned some other businesses. Are there some other gov-
ernmental agencies or functions that you could envision either at
the local level or state level or at the Federal level that you think
would make sense for your technology that you have described?
Mr. BIGELOW. There are. Expanding on auto titles, they have
an impact on not only the banking industry and the insurance in-
dustry when it comes to total loss, but they also have an impact
on the way consumers can use that asset to either acquire a loan
or value it as part of their total assets for other purposes. Birth
and death certificates are another great place. If you think about
the example in my opening testimony, we do have a problem in
poor and minority communities where those assets are very dif-
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ficult to come by, and the time that is spent to acquire them often
leads to missed work and sometimes can even lead to someone los-
ing his or her job because he or she was not there. It is a dispropor-
tionate tax on that person because the time he or she has to spend
in line costs them much more as a percentage of their income than
it does for perhaps someone on this panel to actually spend that
time in the line.
If the government determined that we should be digitize all of
our paper-based assets that are vital records, that would be a great
use of time and a great benefit to society.
Mr. CHABOT. Thank you very much.
Madam Chair, my time is getting ready to expire, so I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Kansas, Ms. Davids.
Ms. DAVIDS. Thank you, Chairwoman, Velázquez, and Ranking
Member Chabot for holding this hearing.
I know blockchain offers some pretty exciting possibilities for
small businesses looking for security and autonomy, and so I am
really glad we are getting the chance to focus on this today.
We have seen some pretty fundamental security issues with
Internet and privacy issues. Sometimes the small businesses are
particularly vulnerable to these things. I am curious if you could
talk a little bit about just what kind of protections implementing
blockchain technology in small businesses could provide? And I am
particularly thinking just about personal data.
And so, Mr. Bigelow and Ms. Dickson, you both have touched on
whether it is facial recognition or our vital records, if you could
talk a little bit about the future of privacy protection there.
Ms. DICKSON. I am happy to answer that question, Congress-
woman.
Again, just storing the data on the blockchain and allowing the
customer to grant that access to whether it is a retailer or a doctor,
the customer, the individual has control over the data and that is
how they can use the blockchain. And a business can use a
blockchain even as far as managing human resources and any sen-
sitive information about our employees or about our customer. So
that is what comes to mind immediately is just as Mr. Ammori
talked about that ledger, that secure database, that database that
not one person controls. And that is really important as it comes
to transferring data to multiple sources.
Mr. BIGELOW. To add to that, if you think about your data
today, it is being used by the large companies that the Chair-
woman referenced in her opening comments. Blockchain offers a
path. As Mr. Ammori mentioned, it is a ledger on which data can
be stored. Because of the transparency often associated with public
blockchains, you can see how that data is being used.
In the permissioned world, which is where my company spends
most of its time, it is the protection around that data that is cru-
cial. Blockchain is generally not the issue when it comes to secu-
rity. It is the applications on top of blockchain where there are
vulnerabilities that are created. Blockchain itself tends not to be
vulnerable.
Ms. DAVIDS. And Mr. Ammori, I would just like to follow up be-
cause you mentioned earlier the need for probably an additional
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user, the UX, the user interface and how do we make sure that
people understand. So if they have the ability to control the per-
mission or they are granting authorization, how far along are we
in developing out whether it is the apps that help people navigate
that or the different businesses that are moving in that direction?
Mr. AMMORI. There are actually multiple attempts at the mo-
ment to centralize identity or sovereign identity. I do not think
there has been a lot of uptake quite yet because I do not think we
have solved the UX problems.
But the question about security on the Internet comes because
when the internet was invented and created, there was asset of
open protocols anyone could use. Right? The Internet protocol. The
transmission control protocol. All these protocols for email and
transmission. Security was not built into the protocols of the Inter-
net. Identity was not built into the protocols of the Internet. And
so, a few large companies came along, and one of them kind of
owns our identity on the Internet, Facebook. Facebook is this giant
database of all of our names and our friends and our relationships
and it is controlled by one company. And if you could take that
database and make it an open blockchain where it is not controlled
by one platform but you could use encryption and authentication
to identify yourself, and instead of logging in with Facebook every-
where on the Internet, you could log in with Civic or some other
blockchain application. You could actually take that identity and
not controlled by certain platforms, and you could do the same with
security as well.
Ms. DAVIDS. So, Ms. Dickson, I know in your testimony you
mentioned having participated—I do not want to get it wrong,
sorry—with a delegation of 25 industry leaders to address
blockchain issues. I know it was a Women of Color in Blockchain
congressional briefing. And I am curious if you can tell me if you
feel as though we have done up to this point a very good job. Or
what do we need to continue to do to make sure that we are open-
ing those avenues up and hearing what is going on as it relates to
small businesses and blockchain, particularly with women of color?
Ms. DICKSON. Thank you, Congresswoman.
You know, you are doing it here today by giving us all the plat-
form to be here and speak on it. By giving us the opportunity to
hold that briefing in October. And just hear us. Hear what we have
to say. Give us the opportunity to share.
So, my position is showing the use case. Since we do not bill
blockchain like my fellow panel members do today, we use it. The
things that they are building, we need. And I am here to be a voice
for all of the companies that are really excited about what Mr.
Bigelow is building and Mr. Ammori are building and waiting for
us to be able to put those in a practice. So, by you doing what you
are doing today, you are doing enough, and more of this definitely
needs to continue.
Ms. DAVIDS. Thank you. I yield back.
Chairwoman VELÁZQUEZ. The gentlelady yields back.
Now the gentleman from Pennsylvania, Mr. Evans, Vice Chair of
the Committee, is recognized.
Mr. EVANS. Thank you., Thank you, Madam Chair.
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Ms. Dickson, I want to follow up a little bit on some of the ques-
tions, for example, that have been raised with you. Like, what are
the other benefits for businesses considering using ICOs or STOs
to raise capital?
Ms. DICKSON. Thank you for your question.
Speaking from just personal experience, the benefit for our com-
pany was to be able to have a wider pool of investors. You know,
I live in Ohio. It is no secret I am a black woman, and I went to
the Ohio State University, but that is not an Ivy League school.
You know, I did not go to school to be an engineer, so my network
was really concentrated from 20 years of being a business owner
and the reputation I built in my community. And I wanted to be
able to leverage those relationships to raise capital and everyone
was not accredited. And it came down to accredited versus non-
accredited investors. So, the benefit of being able to use a secure
token offering, which I did not do in ICO. I wanted to make a dis-
tinction between a secure token offering, which is legal under the
SEC Jobs Act, Title III, and you can raise up to $1,070,000 a year
that way. And it really allows businesses to leverage their net-
works, their personal networks, nonaccredited investors.
Mr. EVANS. So do you think only certain types of businesses,
such as tech businesses for using ICOs or STOs?
Ms. DICKSON. So, you know, the ideal type of business to raise
capital in this way are high-growth businesses. So, of course, if it
is a small business that does not have a 10X potential or above,
they definitely can look into many other funding that is available.
There are also other types of crowdfunding that exists that are not
inclusive of equity. So, I would encourage businesses that have
high-growth potential to have the opportunity and the potential to
return high investment yields to their investors. So those would be
the ideal companies to do that.
But it is an option for any business. However, the very extensive
due diligence that is required, including financial reviews, includ-
ing being compliant with many of the regulations around it, it is
not just that anybody can do it. So, the SEC has definitely put
things in place to make sure that the businesses are compliant,
they are solid businesses, and they have great potential.
Mr. EVANS. Do you have any concerns relating to the security
of these type of exchanges?
Ms. DICKSON. Can you please clarify the question when you say
‘‘exchanges’’, please?
Mr. EVANS. In other words, you state that investor tokens can-
not be sold because the SEC has not approved alternative trade ex-
changes. Can you further, you know, in terms of the approval?
Ms. DICKSON. Yes, sir. So initially, when raising the secure
token offering in which 2018 was the first year that this was legal
under the Jobs Act, with the understanding that after a 12-month
holding period the investors would be able to trade those tokens on
an ATS and be able to get liquidity earlier and not have to hold
them for maybe the standard 10-year period that a venture capital
or institutional investor would have to hold them.
So, since there has not been an ATS Exchange approved yet for
the trade of these secure tokens that companies like myself have
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done, the investors are still holding onto those tokens until that is
approved by the SEC.
Mr. EVANS. Mr. Harper, you have several years of experience.
What are your thoughts on the security of these exchanges and
what the government can do to improve security?
Mr. HARPER. Well, the industry is young, and it is new. And
there are, unfortunately, a lot of businesses that are immature.
And actors that are immature. So, it is right to be concerned about
the security of exchanges, just like the security of any application
provider. The question that came earlier about the security of
blockchains in an application setting is very important. One of the
advantages that blockchain has, I think, is simplicity. Blockchains,
although they are a little bit complex, are really ultimately rather
simple. They are also open. That is, a lot of eyeballs can be on the
software and the blockchain itself. And that will cut down on secu-
rity risks, though it certainly does not eliminate them.
So, a lot of the problem in security has not been the blockchain
itself but it has been the applications on top of the blockchain.
Some of the smart contracts that people have tried to write to run
on a blockchain like a Ethereum. There are a lot of things to work
out in this area. And so, I do not think people should rush in, but
be careful about the exchanges and about the applications that sit
on top of any blockchain.
Thanks for the question.
Mr. EVANS. Thank you, Madam Chair. I yield back the balance
of my time.
The gentleman yields back.
And I would like to go to a second round and ask some questions
myself and then if the Ranking Member has any other questions,
he will be recognized for 5 minutes.
So, I would like to ask this question to the panel. And Mr.
Bigelow, you mentioned, right, that we should incentivize state
government to use blockchain and to deal with some of the paper-
work and so on.
So, my question to you is what conditions are needed to help en-
courage the U.S. government to realize the economic potential of
blockchain technology?
Mr. BIGELOW. The easiest way to think through it is to look at
examples. This past winter, the Department of Transportation, re-
issued their statement on the Federal odometer statement. They
clarified that it could be completely in electronic form.
You would think that ESIGN from years ago would have already
clarified this. You might even think that their 2016 revision would
have already clarified it. But because titles are done at the state
level, the Federal government had to be very clear about how their
one piece of paper that happened to be within the titling system
but was Federal instead of at a state level. They had to be very
clear how it could be executed at the state level. That clarity is par-
ticularly important. By being clear, now states are able to move to
a more electronic process around odometers. Further, the focus was
not on the technology. They mentioned blockchain as a valid path
to go down for this electronic record. However, they focused on the
function, not the technology itself. This is also outlined in the
Chamber of Digital Commerce’s National Action Plan that the real
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focus should be on function, not on technology. If our government
can do that, we will unlock a lot of value that is currently right
now unable to be unlocked due to a lack of clarity because people
are focusing on the tech and not the function.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Ammori and Mr. Harper?
Mr. AMMORI. I am not sure if this directly answers your ques-
tion, but I believe that the U.S. government should embrace a dig-
ital dollar, especially if China embraces a digital renminbi. I think
that will help China compete with their Silk Road Initiative and
other investments in Africa. And I think if we care about the domi-
nance of the U.S. dollar, we should really think about what other
countries are doing as well.
Chairwoman VELÁZQUEZ. Okay. Mr. Harper?
Mr. HARPER. There are a couple of examples that I have come
across of Federal government agencies using blockchain, even just
experimenting with blockchain, which I think has value because it
will familiarize people in the agencies with how blockchains work.
At the Treasury Department, if my recollection is correct, they
are using blockchain to track devices. So, if someone is issued a
phone or a computer by the agency, software in the computer, the
phone is programmed to check in from time to time whenever there
is a login and say I am here. I am in the possession of my employee
or the employee that works for the agency. What a great savings
over sending someone around, person to person, office to office, to
find 70,000 different devices as a physical matter? So, it is not the
superlative use of blockchain, but it is the agency familiarizing
itself with blockchain. And they will find uses that really take ad-
vantage of the open data capability of blockchain. That is, things
that they can put on the blockchain and make open so that people
can see how the government is operating and see in real time what
the functions of the government are. I think there is a real oppor-
tunity there for open government.
Chairwoman VELÁZQUEZ. Ms. Dickson?
Ms. DICKSON. Thank you. The only thing that I would add as
a business owner is just making funding more accessible to small
businesses that use blockchain and also making the barrier to
entry easier for companies that would like to utilize token offer-
ings.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Chabot?
Mr. CHABOT. Thank you, Madam Chair.
I hesitate to ask this question, but I will.
Mr. Harper, you started out at the beginning saying that you
were not going to bore us with how this thing actually works tech-
nology-wise. And as you notice, this is being broadcast and there
are probably tens of people out there watching. And so for that one
guy that is out there at home or will see this down the road, that
technology nerd or the lady that is out there watching this that un-
derstands—her mom she just said—how does it work in like just
a couple of minutes if you could?
Mr. HARPER. I like to say the same thing but a different way.
I say, figuratively thousands of people are watching.
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Think of a blockchain as an e-ledger. The blockchain name is
kind of confusing. It might be forbidding to people. We can under-
stand what email is. It is electronic mail. This is an electronic ledg-
er, and it is a way that participants across the Internet or any kind
of community that is created by Mr. Bigelow’s company or Mr.
Ammori’s, they come together, and they post information that goes
into a ledger. A block is essentially a ledger page.
Cryptography and techniques that I will insist on not describing
here because I will probably get it wrong, but my written testimony
might be a pretty good resource. People go to the Small Business
Committee website and download it there. Cryptography ties the
blocks together and assures that they are not going to be changed.
And it ties new blocks to old blocks. So, you get a string or chain
of blocks that become an authoritative record of whatever trans-
action or whatever event is recorded on that blockchain. So,
cryptocurrency, like the bitcoin blockchain, that is a blockchain
that records transfers of this asset. And you have an immutable
record that lasts forever. Thanks to cryptography, it is highly se-
cure. There are always attacks and concerns about ways that that
immutable record could be undermined. But there is pretty clever
cryptography that secures the blocks in and of themselves and then
secures the blocks together to make a chain. And it is kind of
amazing, I think, to create a system for worldwide recordkeeping,
worldwide administration. It is not owned, or government con-
trolled. It is not corporate. It is not governmental. It is people get-
ting together and deciding how to do things. So, it might be iden-
tity. We all exist separate from our driver’s licenses. Honest, we do.
And there are ways of doing identity that can prove relevant things
about you without giving away your eye color, address, height, and
weight. You need to prove that you are over 21. You need to prove
that you have passed a certain security check. You can do so at the
airport, for example, without sharing who you are and where you
are traveling. They can be assured that you are safe without get-
ting a big record of where everybody has traveled. So, there is a
lot of potential out there.
That is not the complete technical description but hopefully it
gets people a little further.
Mr. CHABOT. Very good.
And you can tell your mom, ‘‘You are welcome.’’
Thank you. I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
The gentleman from Pennsylvania, Mr. Evans, is recognized.
Mr. EVANS. You spoke about smart contracts in your testimony
and I am concerned about the legal implications of using smart
contracts. Can you please speak to some of the legal issues such
as jurisdiction with smart contracts that are essentially borderless?
Mr. HARPER. Yes. I will do a little bit of the technology behind
smart contracts.
A block captures events and transactions generally, but smart
contracts, such as on the Ethereum blockchain, the notations in the
ledger are actually code that can operate. And so, the example I
give in my testimony is that a farmer might want insurance
against bad weather. They can set up a smart contract that grabs
information from an oracle, that is a reliable source. So, if there is
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bad weather during harvest season, they get a payout that helps
compensate them for lost crops. That kind of thing. So, it is really
computer code planted in the block chain. They will operate auto-
matically to carry out whatever measure people decide they want
to do.
‘‘Smart contracts’’ is actually a misnomer. It is just code. A con-
tract is when two people enter into an agreement and they have
to carry out that agreement one way or another. The legal issues
arise when someone decides not to or when they do not understand
the terms of their agreement. This code executes the code, no mat-
ter what it is. And sometimes it goes badly, and there have been
examples of smart contract code going badly.
The legal issues, and I might invite Mr. Ammori, also a lawyer,
to chime in with others. The legal issues may include what the
legal consequence of a given smart contract is in different jurisdic-
tions. You could have someone in Asia enter into a smart contract
deal with someone in New York, and things go wrong. How is that
going to get resolved in courts if the Asian party believes that their
laws should apply and the New York party thinks that their laws
should. In a way, the Internet, but especially blockchain, kind of
lifts things off of territorial jurisdiction and opens really difficult
questions about what laws apply, if they can apply at all in these
kinds of situations.
So, it is a great question and I have an incomplete answer, I am
pretty sure.
Mr. EVANS. Yes, do you want——
Mr. AMMORI. Thank you for the question.
So, I think there are ways to address that issue. One, when it
comes to a smart contract, let’s say. Let’s say you and I have a
smart contract and if, you know, there is crop damage because of
weather, you will pay me some insurance. If that smart contract
executes but there was something wrong with the deal or if there
is a dispute, we could still go to the same courts. You could go to
the courts. The problem is the money has already been prepaid. So,
if you believe in the Roman dictum that possession is 9/10 of the
law, right, you would be the one who would have to pursue the dis-
pute versus me being the one who would have to pursue the dis-
pute. And sue my insurance company might be the other way
around. So, the legal system would still apply.
And if you are dealing with a system where there is Chinese and
African and American and Canadian, people all using the same
blockchain, you could in theory write into the code a choice of law
provision. So, all disputes regarding the smart contracts will be
solved through an arbitration, right, if there is enough money in-
volved. So, there are ways to actually embed real law in the code
that is the smart contract. But I agree with Mr. Harper. Smart
contract is kind of a misnomer. It is too highfalutin. It is just code.
Mr. EVANS. Thank you. I yield back my time.
Chairwoman VELÁZQUEZ. The gentleman yields back.
Let me take this opportunity to thank all of you for your testi-
mony and for helping to shed light on the numerous applications
of block chain technology. Blockchain technology’s ability to
streamline processes, promote transparency, increase security, and
decrease costs has the potential to transform the way we do busi-
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ness. As these technologies continue to develop worldwide, we want
to ensure that innovators and entrepreneurs have the opportunities
to expand upon the enormous potential of blockchain technologies
to support small businesses and spur economic growth. It is clear
that there is a role for both businesses and government in enabling
innovation.
I look forward to working with my colleagues on both sides of the
aisle to address the opportunities and challenges facing the use of
blockchain technology.
With that, I will ask unanimous consent that members have 5
legislative days to submit statements and supporting materials for
the record.
Without objection, so ordered.
If there is no further business to come before the Committee, we
are adjourned. Thank you.
[Whereupon, at 12:33 p.m., the Committee was adjourned.]
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APPENDIX
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Æ
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File and source
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- 3,441,098 bytes
- SHA-256
- 09252f4e45a6fd12c974e26aace0a9b81fc44de2f97c3d26e90ff02fe73f34c8
- Our copy
- CHRG-116hhrg39892.pdf
- Original
- www.govinfo.gov