A new report from Congress — the 2018 Joint Economic Report, used to assess the nation’s economic status and provide recommendations for the upcoming year— includes an entire chapter dedicated to cryptocurrencies and blockchain technology.
The report called for policymakers, regulators, and industry leaders to cooperate and ensure developers can implement these new blockchain technologies, and even called 2017 “The Year of Cryptocurrencies.”
The comprehensive report illustrates blockchain as a “potential tool for securing America’s digital infrastructure,” and points out how “methods of theft, espionage, and vandalism” are shifting “from physical toward virtual.”
Included within the Blockchain section is a statement that the technology is “not only nearly invulnerable to cyberattack but is revolutionizing the way the world conducts commerce and shares information.”
Blockchain is the distributed ledger technology that underlies digital currencies such as Bitcoin. A ledger is the accounting tool that tracks the movement of money from one person or account to another. Conventionally, such records are stored in central locations like banks, headquarters, and Paypal servers. Blockchain revolutionizes ledger technology with a network of distributed ledgers. Instead of one central, authoritative record of all transactions or information, blockchain creates potentially thousands of identical ledgers in computers and servers all over the world.
In “permissionless” proof-of-work blockchain, people compete to validate each transaction in return for a reward. The protocol rewards users for creating and validating entries into the ledger. This reward creates an incentive for competition and gives these validators (“miners” see Box 9-1) new tokens to use in the system. Users who do not earn tokens by performing verifications, i.e., not “miners,” must buy the tokens. This interplay between miners and purchasers create an ecosystem where people have clear incentives and rewards to maintain the distributed ledger for everyone.
The report tracked cryptocurrency’s massive rise during 2017, noting the significant price growth of leading cryptocurrencies Bitcoin and Ethereum, and that both outpaced the Dow Jones Industrial Average and the S&P 500.
The report shared a critical view of cryptocurrencies as a currently viable form of money and stated that “technical and economic limitations” of Bitcoin “hinder its use as a medium of exchange.” The report went on to acknowledge that “If digital currencies become less volatile in the future, valuing items in those denominations could become easier and individuals might begin using them more frequently as a medium of exchange.”
Regulation concerns were also examined in this report, noting that cryptocurrencies, ICOs and exchanges all pose unique challenges. “Their rapid ascension led to instances of new products running afoul of America’s current regulatory framework,” the report noted. “This demonstrated how certain regulatory environments are simply out of touch with the internet age.”
The report concluded that:
Technology presents evolving challenges and generates new solutions. Blockchain technology essentially stores and transmits data securely, in large volume, and at high speeds. So far, the technology has proved largely resistant to hacking, and given this feature, developers first applied it to digital currencies. Yet blockchain has many more potential applications, such as portable medical records and securing the critical financial and energy infrastructure.
The report offered recommendations to policymakers, regulators, and industry leaders in its conclusion:
— Policymakers and the public should become more familiar with digital currencies and other uses of blockchain technology, which have a wide range of applications in the future.
— Regulators should continue to coordinate among each other to guarantee coherent policy frameworks, definitions, and jurisdiction.
— Policymakers, regulators, and entrepreneurs should continue to work together to ensure developers can deploy these new blockchain technologies quickly and in a manner that protects Americans from fraud, theft, and abuse, while ensuring compliance with relevant regulations.”
— Government agencies at all levels should consider and examine new uses for this technology that could make the government more efficient in performing its functions.
This new report offers an extensive interpretation of the rise and future potential of blockchain technology and cryptocurrencies. Other government acknowledgment this week included the House Capital Markets, Securities and Investment Subcommittee, the House Science, Space and Technology Committee and the Senate Banking, Housing and Urban Affairs Committee.