Congress and the Blockchain: The 2018 Joint Economic Report’s Discussion on Cryptocurrency
Matt Stankiewicz, an Associate at The Volkov Law Group, rejoins us as a guest contributor for another posting on cryptocurrencies. Matt can be reached at [email protected].
A few days ago, Congress released its 2018 Joint Economic Report. As many of you know, the Joint Economic Committee prepares this report as a national assessment of the country’s economic status. The report often assesses the implications of a variety of economic factors and variables relevant to the United States economy.
In this report, Congress noted that the emergence of cryptocurrencies should be listed among the most significant economic events of 2017 – right amongst the “passage of tax reform, regulatory reform, [and] the continued drop in unemployment.” This makes sense to many that have been following the industry, though it’s odd to see cryptocurrency within the stodgy pages of a major Congressional committee report.
At a high level, the dedicated chapter was very well sourced and presents a lot of general information on cryptocurrency and the blockchain. For those that don’t have a good grasp on the technology, it also includes a very brief primer on what the blockchain is and provides some basics on the mechanics. The report introduces such key terms as “proof of work” and “smart contracts.”
What was especially refreshing about the report is the Joint Committee’s realization that the blockchain will have far greater impacts in areas other than “currency.” While the aim to create a digital, decentralized currency was the catalyst that gave rise to the technology, its potential is so much more. Here, the report discusses applications in the health care sector including the (relative) ease of attaching medical records to the blockchain in an encrypted manner that would comply with HIPAA and allow them to move with the patient through the use of their smart phone. Other possible cases include the sharing of power between local microgrids of solar panels or tracking products through the supply chain to verify accuracy. The use cases are immeasurable, with Congress noting that certain projects “could transform the way the internet and technology works for decades to come.”
The report also notes the benefits of raising capital through Initial Coin Offerings (“ICOs”) while also championing the benefits of compliance by making a stark business case. The report briefly explored the cost differences between an ICO and an Initial Public Offering (“IPO”). IPOs can cost between four- to seven-percent of the raised capital and another $4.2 million in accounting costs, not to mention more than $1 million annually to maintain the publicly listed status. An ICO, meanwhile, can raise a similar amount of capital in a shorter period of time, with an approximate cost of $60,000 with a third of that cost going towards legal costs to ensure regulatory compliance, with the added benefit of continually raising funds through network and transaction fees. The cost of compliance is a drop in the bucket compared to the potential amount that can be raised, and is a crucial one considering the SEC’s newfound focus on the area.
The regulations themselves, as the Committee concedes, are a tangled mess at the moment and the Committee is encouraging regulators to coordinate to create a coherent framework. Cryptocurrency has been classified in four different manners across the various regulatory bodies, as a commodity, a security, a currency, and as property. Properly navigating the current tangle will allow entrepreneurs to quickly and effectively pursue innovation and increase economic growth.