Senate Banking Weighs Potential for Privacy Enhancing Blockchain Technology

Blockchain technology could potentially enhance data privacy using digital identities, digital currency company Circle CEO Jeremy Allaire told the Senate Banking Committee during a hearing Tuesday. But skeptical University of California-Irvine law professor Mehrsa Baradaran said policymakers should rely on the Federal Reserve to offer digital currency options, rather than allowing industry to become a dominant money-making authority.

The committee discussed broad cryptocurrency issues, as Facebook advances plans to launch its digital currency, Libra (see 1907160042). Blockchain infrastructure is designed to create a global record-keeping system that's secure and tamperproof, Allaire testified. He described fine-grained, selective methods for consumers to identify themselves online, instead of providing companies every aspect of their identities.

Companies like Facebook said one goal is to establish a public payments system that would benefit underbanked individuals, Baradaran testified. But such a system already exists in the Federal Reserve, she said. She agreed blockchain has the potential to be more secure than traditional payment systems but said the technology is currently no less susceptible to breaches and hacks.

Cryptocurrency's a very real and potentially helpful innovation, but it also has serious risk, Chairman Mike Crapo, R-Idaho, told reporters after the hearing. He agreed with several colleagues that the U.S. should lead in setting rules for cryptocurrencies and privacy. During the hearing, he raised “serious concerns” about the explosive growth of data collection and sharing. Individuals should have rights to their data, and handlers should have corresponding obligations, he said.

Large corporations like Facebook have repeatedly broken the public’s trust, said ranking member Sherrod Brown, D-Ohio, during the hearing. He cited Capital One’s recently announced breach. The Federal Reserve's in a position to offer digital payments, Brown told reporters after the hearing: “They could do it, but the longer they wait, the harder it is.” If the Fed doesn’t move quickly, Wall Street, Facebook or another tech company will move faster and “squeeze more profits” from hard working families and community banks, Brown said during the hearing.

It’s likely the technology will be widely used in the next decade or two, Sen. Brian Schatz, D-Hawaii, said. But tech companies are acting as if they can “wave a magic wand” and address deep societal issues with the technology, he said. Schatz was skeptical of Facebook claiming Libra will serve low-income populations. He noted about 19 percent of Americans don’t own smartphones, suggesting digital currency is nowhere near universal. Allaire responded, citing the personal computer and the internet as examples of why companies need to move forward with innovation. He agreed with Schatz there are human issues that technology won’t solve alone.

There’s potential for blockchain technology to transform all sectors, and it’s not going away, said Sen. Catherine Cortez Masto, D-Nev. She also said if the U.S. doesn’t lead, other countries will, perhaps China. International cities like Geneva are luring companies like Facebook because they offer regulatory certainty that the U.S. doesn’t, testified Congressional Research Service Specialist-International Trade and Finance Rebecca Nelson.