[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]





                            

 
   BUILDING BLOCKCHAINS: EXPLORING WEB 3 AND OTHER APPLICATIONS FOR 
                    DISTRIBUTED LEDGER TECHNOLOGIES

=======================================================================

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON INNOVATION, DATA, AND COMMERCE

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 7, 2023

                               __________

                           Serial No. 118-42
                           
         [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
                  


     Published for the use of the Committee on Energy and Commerce

                   govinfo.gov/committee/house-energy
                        energycommerce.house.gov
                        
                        
                          ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
 56-505PDF          WASHINGTON : 2024                     
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                    COMMITTEE ON ENERGY AND COMMERCE

                   CATHY McMORRIS RODGERS, Washington
                                  Chair
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
ROBERT E. LATTA, Ohio                  Ranking Member
BRETT GUTHRIE, Kentucky              ANNA G. ESHOO, California
H. MORGAN GRIFFITH, Virginia         DIANA DeGETTE, Colorado
GUS M. BILIRAKIS, Florida            JAN SCHAKOWSKY, Illinois
BILL JOHNSON, Ohio                   DORIS O. MATSUI, California
LARRY BUCSHON, Indiana               KATHY CASTOR, Florida
RICHARD HUDSON, North Carolina       JOHN P. SARBANES, Maryland
TIM WALBERG, Michigan                PAUL TONKO, New York
EARL L. ``BUDDY'' CARTER, Georgia    YVETTE D. CLARKE, New York
JEFF DUNCAN, South Carolina          TONY CARDENAS, California
GARY J. PALMER, Alabama              RAUL RUIZ, California
NEAL P. DUNN, Florida                SCOTT H. PETERS, California
JOHN R. CURTIS, Utah                 DEBBIE DINGELL, Michigan
DEBBBIE LESKO, Arizona               MARC A. VEASEY, Texas
GREG PENCE, Indiana                  ANN M. KUSTER, New Hampshire
DAN CRENSHAW, Texas                  ROBIN L. KELLY, Illinois
JOHN JOYCE, Pennsylvania             NANETTE DIAZ BARRAGAN, California
KELLY ARMSTRONG, North Dakota, Vice  LISA BLUNT ROCHESTER, Delaware
    Chair                            DARREN SOTO, Florida
RANDY K. WEBER, Sr., Texas           ANGIE CRAIG, Minnesota
RICK W. ALLEN, Georgia               KIM SCHRIER, Washington
TROY BALDERSON, Ohio                 LORI TRAHAN, Massachusetts
RUSS FULCHER, Idaho                  LIZZIE FLETCHER, Texas
AUGUST PFLUGER, Texas
DIANA HARSHBARGER, Tennessee
MARIANNETTE MILLER-MEEKS, Iowa
KAT CAMMACK, Florida
JAY OBERNOLTE, California
                                 ------                                

                           Professional Staff

                      NATE HODSON, Staff Director
                   SARAH BURKE, Deputy Staff Director
               TIFFANY GUARASCIO, Minority Staff Director
             Subcommittee on Innovation, Data, and Commerce

                       GUS M. BILIRAKIS, Florida
                                 Chairman
LARRY BUCSHON, Indiana               JAN SCHAKOWSKY, Illinois
TIM WALBERG, Michigan, Vice Chair      Ranking Member
JEFF DUNCAN, South Carolina          KATHY CASTOR, Florida
NEAL P. DUNN, Florida                DEBBIE DINGELL, Michigan
DEBBIE LESKO, Arizona                ROBIN L. KELLY, Illinois
GREG PENCE, Indiana                  LISA BLUNT ROCHESTER, Delaware
KELLY ARMSTRONG, North Dakota        DARREN SOTO, Florida
RICK W. ALLEN, Georgia               LORI TRAHAN, Massachusetts
RUSS FULCHER, Idaho                  YVETTE D. CLARKE, New York
DIANA HARSHBARGER, Tennessee         FRANK PALLONE, Jr., New Jersey (ex 
KAT CAMMACK, Florida                     officio)
CATHY McMORRIS RODGERS, Washington 
    (ex officio)
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Gus M. Bilirakis, a Representative in Congress from the 
  State of Florida, opening statement............................     1
    Prepared statement...........................................     4
Hon. Jan Schakowsky, a Representative in Congress from the State 
  of Illinois, opening statement.................................     6
    Prepared statement...........................................     7
Hon. Cathy McMorris Rodgers, a Representative in Congress from 
  the State of Washington, opening statement.....................     9
    Prepared statement...........................................    11
Hon. Darren Soto, a Representative in Congress from the State of 
  Florida, opening statement.....................................    14
    Prepared statement...........................................    16

                               Witnesses

Carla L. Reyes, Associate Professor of Law, SMU Dedman School of 
  Law............................................................    17
    Prepared statement...........................................    19
Hasshi Sudler, Professor, Villanova University College of 
  Engineering, and Chief Executive Officer, Internet Think Tank, 
  Inc............................................................    34
    Prepared statement...........................................    37
    Answers to submitted questions...............................   106
Ryan Wyatt, President, Polygon Labs..............................    42
    Prepared statement...........................................    44
    Answers to submitted questions...............................   109
Ross Schulman, Senior Fellow, Decentralization, Electronic 
  Frontier Foundation............................................    51
    Prepared statement...........................................    54
    Answers to submitted questions...............................   111

                           Submitted Material

Inclusion of the following was approved by unanimous consent.
List of documents submitted for the record.......................    94
Letter of June 7, 2023, from Amir Haleem, Chief Executive 
  Officer, Nova Labs, Inc., to Mr. Bilirakis and Ms. Schakowsky..    95
Report by Electric Capital, ``U.S. Share of Blockchain Developers 
  is Shrinking,'' March 2023 \1\
Article of February 1, 2022, ``FDA Official Says New Rule Could 
  Boost Blockchain-Based Food Tracking,'' by Suman Bhattacharyya, 
  Wall Street Journal............................................    98
Letter of June 7, 2023, from Janay Eyo, Director, Financial 
  Policy, Chamber of Progress, to Mr. Bilirakis, Ms. Schakowsky, 
  et al..........................................................   102

----------

\1\ The report has been retained in committee files and is included in 
the Documents for the Record at https://docs.house.gov/meetings/IF/
IF17/20230607/116065/HHRG-118-IF17-20230607-SD003.pdf.


   BUILDING BLOCKCHAINS: EXPLORING WEB 3 AND OTHER APPLICATIONS FOR 
                    DISTRIBUTED LEDGER TECHNOLOGIES

                              ----------                              


                        WEDNESDAY, JUNE 7, 2023

                  House of Representatives,
    Subcommittee on Innovation, Data, and Commerce,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:01 a.m., in 
the John D. Dingell Room 2123, Rayburn House Office Building, 
Hon. Gus M. Bilirakis (chairman of the subcommittee) presiding.
    Members present: Representatives Bilirakis, Bucshon, 
Walberg, Duncan, Lesko, Allen, Fulcher, Harshbarger, Cammack, 
Rodgers (ex officio), Schakowsky (subcommittee ranking member), 
Castor, Dingell, Kelly, Soto, Trahan, and Clarke.
    Staff present: Michael Cameron, Professional Staff Member; 
Jessica Herron, Clerk; Tara Hupman, Chief Counsel; Peter 
Kielty, General Counsel; Emily King, Member Services Director; 
Tim Kurth, Chief Counsel; Zane Mandle, Intern; Brannon Rains, 
Professional Staff Member; Teddy Tanzer, Senior Counsel; Hannah 
Anton, Minority Policy Analyst; Ian Barlow, Minority FTC 
Detailee; Camden Burk, Minority Intern; Anthony Choi, Minority 
Intern; Daniel Greene, Minority Professional Staff Member; Lisa 
Hone, Minority Chief Counsel, Innovation, Data, and Commerce; 
and Joe Orlando, Minority Junior Professional Staff Member.
    Mr. Bilirakis. The subcommittee will come to order.
    The Chair recognizes himself for an opening statement.

OPENING STATEMENT OF HON. GUS M. BILIRAKIS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Good morning, and welcome to today's subcommittee hearing.
    Cryptocurrencies and certain financial aspects of 
blockchains have hijacked the public's attention when it comes 
to this emerging technology. Today's hearing will highlight 
that blockchains are not just impacting Wall Street but are 
also changing Silicon Valley and the internet as a whole.
    It is essential that Congress accurately understand what it 
is regulating before it does so. That would be nice. This is a 
complicated topic, which is why I am looking forward to the 
superb panel of experts educating us here today, and welcome.
    The core issue is about how data is organized, preserved, 
and protected, which is the jurisdiction of this subcommittee.
    As I understand it, a blockchain is a linked list or ledger 
of transactions stored on a network of computers. Blockchains 
are composed of building blocks of data chained together 
cryptographically.
    We will walk through these technical components today and 
discuss what it means for blockchains to be decentralized, 
immutable, and open.
    But to step back from these terms, what we are really 
discussing here is a new foundational technology that can 
provide individuals and businesses new ways to access, record, 
and validate digital activity online.
    Web 1.0, the original world wide web--and I remember it 
well--lasted from roughly 1993 to 2004 and was characterized by 
dial-up and AOL. I remember those days well because I am old 
enough.
    It was replaced by Web 2, which is the current internet we 
know well and has been characterized by smart phones and Big 
Tech platforms.
    Web 3, which encompasses the nonfungible tokens, the NFTs, 
and other use cases, is the emerging internet built on top of 
blockchains and is characterized by increased user control, 
decentralization, and transparency.
    Using these technologies, developers are building new 
decentralized social media, new messaging apps, new ways to 
stream music, and new privacy-enhancing technologies, just to 
name a few.
    Blockchains are not a crypto casino. In fact, according to 
one report, despite crypto prices falling roughly $2 trillion, 
a 70 percent decline, blockchain developers have only declined 
10 percent.
    There are respected developers who are not trying to make a 
fast buck, but rather, they are building a new evolution of the 
internet.
    But this technology goes beyond just Silicon Valley. 
Blockchains, Web 3, and other distributed ledger technologies 
are just tools. Like the internet, blockchains will impact many 
areas of our jurisdiction and can help address challenges with 
our current internet ecosystem, bolster supply chains, verify 
information, and increase efficiencies for businesses.
    However, we should not treat this technology as a cure-all. 
There are still technical challenges, such as scaling, data 
availability, and cybersecurity.
    There are also human challenges, such as fraudsters and 
compliance with law enforcement. As with any new technologies, 
scams do exist in a blockchain ecosystem, unfortunately.
    As this committee knows well, the number-one Federal 
regulator of scams and fraud is the Federal Trade Commission, 
and that is where we want its focus, OK, on scams and fraud.
    Instead of diverting resource to fight legal battles over 
possible competition theories, the FTC should focus on 
protecting Americans from fraudsters as these bad actors 
migrate from older technologies to these new technologies, 
unfortunately, again. We see it all the time.
    Last Congress, my bill, the Ransom Act, was signed into 
law. This legislation requires the FTC to increase cooperation 
with foreign law enforcement and report on ransomware and other 
cybersecurity-related attacks.
    When international hackers target Americans using 
blockchains, the FTC should take a lead role in ensuring they 
are made whole.
    Blockchains present an incredible opportunity but also come 
with unique challenges. Regardless, the United States must lead 
on the international stage so our adversaries do not have an 
opportunity to set the rules of the road. That is why we are 
having this hearing to educate all of us.
    We must lead with our values for freedom, human rights, and 
human dignity.
    I look forward to working with Members on both sides of the 
aisle to ensure these technologies are anchored here in the 
United States and we are central to that discussion.
    [The prepared statement of Mr. Bilirakis follows:]
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
  
    
    Mr. Bilirakis. I now recognize the gentlelady from 
Illinois, Ms. Schakowsky, the ranking member, for 5 minutes for 
her opening statement.

 OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman.
    You know, I have had the privilege of being on the Energy 
and Commerce Committee, which has the absolute broadest 
jurisdiction of any committee, and the subcommittee which I 
think of all the subcommittees has the largest jurisdiction as 
well.
    Mr. Bilirakis. I agree with that.
    Ms. Schakowsky. But today we are exploring some new 
territory. So here is the title of this hearing, ``Building 
Blockchains: Exploring Web 3 and Other Applications for 
Directed Ledger Technology.'' Pretty wonky, I would say, but 
good for us that we are heading into this territory.
    So we are here today to discuss blockchain, which is a 
relatively new technology. The blockchains are being used to 
solve problems like supply chain management or creating digital 
contracts and even wills.
    However, this technology has some significant shortfalls. 
Some blockchains have large energy and environmental 
implications that we need to be concerned of.
    But the biggest downfall, I think, is the use of this 
technology by scammers and fraudsters and extortionists. Real 
people are actually being hurt right now. Some have lost even 
their life savings because of the problems they have 
encountered.
    Just this week, the SEC alleges that two of the largest 
cryptocurrency exchanges were absolutely scamming consumers, 
and criminals often are demanding--and you were talking about 
your legislation--that ransom be paid, and sometimes that even 
has affected hospitals in a really negative kind of way.
    Between 2017 and 2022, Illinois residents--that is the 
State that I am from--allege that they have lost $45 million to 
the currency scams.
    So we have the tools. That is the good news. We do have the 
tools. We have the Federal Trade Commission. And like the 
chairman has said, we want to make sure that the Federal Trade 
Commission has the resources that it needs to make sure that in 
this new developing technology, that they are going to--they 
have the tools, but now are they going to have the resources?
    And so I look forward to hearing from our witnesses, the 
people who really know what they are talking about, and I hope 
that you will educate us to the extent that we need to do our 
part as Members of Congress to make sure that we can partner 
with you and the information that you give us to make sure that 
this is a safe environment for consumers and for our economy.
    So I want to thank you very much for being here. I look 
forward to learning a lot from you today.
    Thank you, and I yield back.
    [The prepared statement of Ms. Schakowsky follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. Bilirakis. The gentlelady yields back, and I appreciate 
that.
    And now I will recognize the Chair of the full committee. 
She gave me the opportunity to chair the subcommittee with the 
broadest jurisdiction, and I appreciate that very much.
    So I recognize Mrs. Rodgers for 5 minutes for an opening 
statement.

      OPENING STATEMENT OF HON. CATHY McMORRIS RODGERS, A 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

    Mrs. Rodgers. Good morning. Good morning, everyone. Welcome 
to today's hearing.
    This committee, and this subcommittee, in particular, play 
a vital role in advancing American competitiveness and global 
technological leadership with our values, as you stated, Mr. 
Chairman: freedom, human rights, and human dignity.
    Blockchains, Web 3, and other applications of distributed 
ledger technologies represent a new technological shift, 
comparable to the breakthrough of the internet, and we need to 
ensure that America, not China or Europe, is charting our path 
to lead in the deployment and standard setting of these 
technologies.
    Our mission on Energy and Commerce is to help foster and to 
promote innovation and American technological leadership. We 
led on passing the Telecommunications Act of 1996, which was 
foundational to the evolution of the internet. The innovation 
and entrepreneurship that followed represented some of the 
greatest accomplishments in American history and the world.
    We must ensure that we can lead the next era of American 
innovation and entrepreneurship with a regulatory environment 
that keeps pace with the constantly evolving tech sector. That 
is especially true with blockchains.
    For this reason, in 2016 the Energy and Commerce Committee 
held one of the first congressional hearings on blockchains. In 
the years since, the technology has continued to advance as 
entrepreneurs have found new and exciting applications.
    Additionally, at the end of 2020 my legislation with the 
help of the then-Chair of the subcommittee, Chair Schakowsky, 
the American Compete Act, was signed into law, which required 
the Department of Commerce to study ways the U.S. can advance 
several emerging technologies.
    Part of the legislation in the package, led by 
Representatives Guthrie and Soto, requires a study on 
blockchains and ways for the Federal Government to promote 
American leadership and adoption.
    We continue to wait for this forthcoming report from the 
Biden administration to provide the committee with pro-
innovation recommendations. Unfortunately, the report is now 
far beyond the statutory deadline, as well as the requested 
extension we allowed.
    As with any new technology, we must move quickly. While the 
U.S. led in the creation of the internet, we could easily fall 
behind with Web 3, the next generation of the internet. 
According to public filing data, less than 40 percent of 
blockchain companies are headquartered in the United States, 
and that number continues to decline.
    As we saw with Huawei and 5G, when we do not lead, our 
adversaries fill the void. It is critical that America leads, 
especially given the implications of these new technologies.
    Big Tech has developed tools that interact to track 
Americans both online and offline. Technologies like 
distributed ledgers can align with the goals of comprehensive 
data privacy legislation--I am excited about that--by enabling 
people to reclaim control of their personal online data and by 
limiting any one company's ability to control and collect the 
information that we share online.
    As these technologies are deployed, the U.S. develops 
standards to regulate them, and we have a responsibility to 
ensure entrepreneurs and small businesses can continue to 
thrive.
    We have often celebrated they are the engine of our 
economy. While larger companies can navigate complicated 
regulations like GDPR in Europe or a patchwork of State laws, 
smaller businesses cannot afford the high compliance cost.
    Embracing innovation, entrepreneurship, and free markets is 
what has made America a global technological leader, not overly 
prescriptive regulation.
    While securities and commodities are just one of the many 
uses of blockchain technologies, there is reason that the 
Gramm-Leach-Bliley Act does not regulate--nor should it--the 
use of Americans' personal information outside of the financial 
sector.
    Congress needs to have a conversation about what 
blockchains are and are not to ensure that the heavy hand of 
government regulation does not force blockchain startups to 
reevaluate if America is the best place to begin their 
business.
    When this committee worked on the Telecom Act, we never 
could have predicted the power of the internet. Now, as then, 
we do not know how powerful blockchain technologies will be.
    But we do know America should lead the way. So I look 
forward to an informative discussion today.
    And I yield back.
    [The prepared statement of Mrs. Rodgers follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. Bilirakis. I thank the Chair.
    And I now recognize the gentleman from Florida, my good 
friend Mr. Soto, the designee for Ranking Member Pallone, for 5 
minutes for his opening statement.

OPENING STATEMENT OF DARREN SOTO, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF FLORIDA

    Mr. Soto. Thank you, Chairman.
    I know issues like blockchain can be so dizzying for so 
many Americans, and at its essence it is a fixed electronic 
ledger. Once you add information to it, you cannot take it 
away.
    And why is that important? Because it adds integrity to 
technology and to the internet. We add transactions in the form 
of cryptocurrency, which was discussed already. Information, 
think of the most complex data that we have added together like 
for healthcare or for climate change.
    Even Chinese dissidents have added protesting language to 
blockchains to protest maltreatment in China.
    And then what is Web 3? It is basically a decentralized 
version of the internet where you utilize blockchain technology 
rather than the centralized version that we have right now.
    This is much discussed about cryptocurrency, and I want to 
focus on the information part to it.
    As the co-Chair of the Congressional Blockchain Caucus 
along with Congressman Emmer, we are pleased to work on a lot 
of these issues, and in Central Florida, for instance, in my 
district, looking down the line we see blockchain technology to 
help local producers and retailers track produce shipments and 
quickly trace contamination of foodborne illnesses.
    Digital assets can be used for remittances, especially a 
lot of immigrants in our community that send money back to 
their families abroad, perhaps in countries where the economy 
and the currency is destabilized.
    Travel agents in Orlando can work with tourists from around 
the world and have less transitional costs.
    I agree with my colleagues that we need to remain a digital 
leader here in the United States, and so it is important that 
this committee continues to promote innovation and research 
into applications of blockchain technology and protect 
consumers from this very complex yet critical technology.
    That is why we pushed for the Blockchain Center of 
Excellence within the Department of Commerce to coordinate 
Federal use of blockchain technology.
    Here is just a sample of some blockchain initiatives that 
we have gotten into both the budget and the National Defense 
Authorization Act over the last few years.
    Remembrance, making data secure because you cannot change 
it afterwards.
    So veterans' electronic health records, we secured 
amendments in the NDA for data management to study blockchain 
technology to help secure our veterans' health records.
    Department of Defense, it is helpful in communications so 
that whether it is through computer-to-computer or even on use 
in warfare with encoded messages using the blockchain.
    Department of Energy, using blockchain in the energy sector 
to help out with communications between computers and to assess 
complex sets of data, such as the nuclear or other uses.
    And funding the blockchain for grid modernization.
    So there are a lot of ways that we could utilize blockchain 
beyond cryptocurrency, which gets a lot of the conversation 
going, like our Chair and ranking member mentioned.
    Lastly, one that has started working really well is food 
traceability through blockchain. By utilizing the blockchain to 
trace food and if there are issues like contamination or 
others. The FDA is already starting to use effective controls 
to track all of this.
    So there is a lot to do, and I look forward to working with 
the committee on these complex but critical issues to the 
future of American innovation.
    And I yield back.
    [The prepared statement of Mr. Soto follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. Bilirakis. I thank the gentleman.
    And I now will call our first witness, who is Carla Reyes, 
associate professor of law at SMU, Southern Methodist 
University.
    You are recognized for your 5 minutes.
    Thank you.

 STATEMENT OF CARLA L. REYES, ASSOCIATE PROFESSOR OF LAW, SMU 
                      DEDMAN SCHOOL OF LAW

    Ms. Reyes. Chairman, Chairwoman, Ranking Members, and 
members of the Subcommittee on Innovation, Data, and Commerce, 
thank you for inviting me to testify regarding blockchain 
technology and its nonfinancial use cases.
    It is an honor to be here, and I applaud this committee's 
persistent and consistent efforts to demystify this technology 
for your colleagues, for your constituents, and for the public 
and, indeed, to thereby encourage thoughtful policymaking in 
the arena.
    My name, as you said, is Carla Reyes. I am an associate 
professor at SMU Dedman School of Law, but I am not--I should 
make clear at the outset--testifying on behalf of SMU Dedman 
School of Law or for Southern Methodist University, but rather 
I am testifying in my personal capacity, and the views that I 
express here are entirely my own.
    In this initial statement, I intend to keep my remarks at a 
pretty high level to anticipate the discussion that we will 
have the rest of the hearing and because of the short time.
    But to begin with, it is worth a note perhaps, perhaps a 
footnote in my line of work, as to what a blockchain protocol 
is. At the absolute highest level of generality--and I cannot 
emphasize that enough, but at the absolute highest level of 
generality--a blockchain protocol is one type of distributed 
database known broadly as distributed ledger technology.
    A blockchain protocol uses a specific type of data 
structure, namely, a blocked group of data linked together by 
one-way cryptographic pointers to thwart malicious efforts to 
manipulate the network.
    Ultimately, though, blockchains track changes in data, what 
we call transitions in state, in order to allow participants in 
the network to reach agreement about the existence and 
evolution of shared facts between them without relying on a 
third-party intermediary.
    As discussed more fully in my written testimony, a 
blockchain protocol is often referred to as Layer 1 of the 
blockchain technology stack.
    Another computer program can be layered on top of the 
protocol, often referred to as Layer 2 programs.
    In my research, I focus specifically on the uses of smart 
contracts to build applications and decentralized, autonomous 
organizations layered on blockchain protocols.
    In that regard, smart contracts can be used to build 
regulatory technology tools, or ``regtech'' tools, to help make 
regulatory compliance more efficient and transparent and to 
experiment with innovative methods of economically productive 
activity.
    In particular, decentralized autonomous organizations are 
building productive organizations in communities with flatter 
governance than what is typically found in, say, corporations.
    This has the democratizing potential of returning control 
over business activity and entity conduct to the owners rather 
than requiring trust in the corporate machine.
    To ensure the ability of U.S. entrepreneurs to harness the 
democratizing, transparency-enhancing power of blockchain 
protocols, policy, I think, should embrace three important 
principles.
    First, the principle of technology neutrality should 
predominate. Law and policy should target specific activity and 
actions irrespective of the technology used to undertake those 
activities or actions.
    Second, in the case of blockchain protocols and, frankly, 
in the case of any emerging technology, the only way to 
understand what activity is being undertaken is to understand 
how the technology itself works.
    For someone who has just said this law should be technology 
neutral, perhaps that is counterintuitive at first. However, 
understanding how blockchain protocols function, including 
their limits, is the only way to identify how people are using 
it and whether that use requires legal or policy attention, in 
the first instance.
    As a result, when it comes to policy, technical precision 
is required in the way we talk about what blockchains do, in 
the way we understand what they accomplish, and when crafting 
law to effectuate that policy, technology neutrality should 
prevail.
    Third, blockchain protocols are not monolithic. The 
technical details of blockchain protocols and the applications 
that are built on top of them vary widely, and those 
differences matter for law and policymaking in this arena.
    Precision in how we talk about what a particular blockchain 
protocol does or the features of a particular cryptocurrency or 
token prevents the creation of one-size-fits-all policy in 
legal frameworks that leave industry confused and clamoring for 
deeper clarity.
    Finally, it is my view that, if we keep these principles in 
mind, the law itself stands to learn from blockchain technology 
and its use cases. Blockchain technology, like other emerging 
technology, acts as a mirror for law.
    Yes, we ask how does the law apply to the technology and 
its use cases, but the technology itself can reflect back to us 
places where there are gaps in our law, not just as it applies 
to the technology but more broadly as it applies to the thing 
it was originally intended to regulate or govern.
    And with that, I will end my remarks. Thank you very much.
    [The prepared statement of Ms. Reyes follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. Bilirakis. OK. Very well done and right on time.
    Our next witness is Hasshi Sudler, professor at Villanova 
University and CEO of Internet Think Tank, Inc.
    You are recognized, sir, for 5 minutes.
    Thank you.

  STATEMENT OF HASSHI SUDLER, PROFESSOR, VILLANOVA UNIVERSITY 
 COLLEGE OF ENGINEERING, AND CHIEF EXECUTIVE OFFICER, INTERNET 
                        THINK TANK, INC.

    Mr. Sudler. Thank you very much.
    Mr. Bilirakis. Thanks for being here.
    Mr. Sudler. And good morning. Thank you, Chair Bilirakis 
and Ranking Member Schakowsky.
    And I would like to also thank all members of the 
subcommittee and staff for inviting all of us to discuss this 
rather important topic about blockchain technology.
    My name is Hasshi Sudler. I am the chairman and CEO of 
Internet Think Tank, a technology and science research 
institute based in L.A. with research offices in Philadelphia.
    I am also the adjunct professor at Villanova University, 
teaching in both cybersecurity and blockchain technology.
    I am a contributing author to two books in cybersecurity 
and blockchain: in cybersecurity, ``The Handbook of Research on 
Counterfeiting and Illicit Trade,'' and in blockchain, the book 
``Blockchain Impact,'' which outlines a variety of use cases 
for blockchain technology.
    Over the course of my research at the university and both 
in my company, we have looked at a variety of use cases for 
blockchain, particularly nonfinancial applications of the 
technology, to really explore its potentials.
    Two of those technologies lie in healthcare and in space 
sciences, both of which I would like to share with the 
committee today.
    In April 2020, I presented to this very same committee an 
innovative technology using blockchain for contact tracing to 
address the pandemic led by COVID-19. We used blockchain 
technology in cooperation with cell phone devices, where the 
cell phones would detect proximity between two individuals and 
would push that contact information to a blockchain which can 
be global in nature. Its very architecture is very global.
    Also it is anonymous, so it masks the actual individual who 
may be infected with COVID, but it delivers the critical 
information of who has come in contact with someone with an 
infection.
    This was particularly beneficial when we look at the fact 
that COVID not only spread in individual countries, but you had 
individuals moving between countries. So infections were being 
spread between countries, yet the technologies that countries 
were using typically were very local.
    Japan had its own contact tracing application, the U.K. had 
its own, and the U.S. actually had State-based contract tracing 
applications. So we were even further subdivided in the United 
States.
    So even if a person moved from one State to another, it was 
very difficult to trace how that person may be taking COVID to 
a different region in this country, let alone different regions 
of the world.
    The blockchain had a very important benefit to contact 
tracing because it could be global. Therefore, if individuals 
had the same application on their cell phones and practically 
everyone in most regions have cell phones, we would be able to 
detect contact between individuals who came within close 
proximity.
    And if one of those individuals later were found to be 
COVID-19 positive, regardless of where they were in the world, 
others who came in contact with that individual would be 
notified that they may have been infected themselves.
    The work itself was very well received. We did some case 
studies and reviewed the technology with Presbyterian Senior 
Living in Philadelphia. That is an assisted living facility 
with aged individuals, obviously a very critical population 
that we wanted to protect.
    So the technology certainly was very useful, and for that 
particular age group, individuals did not like using cell phone 
devices. They were rather hard to see.
    The other usefulness of blockchain technology is that you 
can have different types of devices hanging off of it, whether 
it be laptop computers with broader views or mobile devices. 
The blockchain itself is device-agnostic, and therefore we can 
have various input devices, whether it is thermometers or other 
camera scanners, looking at large populations coming together, 
and you can read it off the blockchain in a variety of other 
devices as well.
    The challenges that we found is that there was no global 
technology strategy for COVID, and obviously, we were all 
figuring out ways and solutions to address the pandemic, but I 
feel that given that the virus has no respect for borders, we 
need a technology that is also able to work across borders as 
well.
    So I would encourage for future regulation that we look at 
ways in which we can ensure that a technology goes across our 
borders between States, but also encourage the Government to 
cooperate with other governments and collaborate on perhaps a 
standard where we can address such a critical issue such as 
COVID in a unified way.
    I want to talk a little bit about a second technology that 
we are working on and since we are a little short on time, I 
will be brief, and that is the application of blockchains on 
space satellites.
    My company, in particular, is working on building 
technologies that will put blockchain on space satellites, 
extending it beyond the Earth's surface.
    And the benefit there is that now we can have satellites 
communicating directly with other satellites and be able to 
transfer useful information or the unique information to each 
other, enrich the data of other satellites, and to be able to 
solve problems based on what those satellites were able to see 
and deliver that to individuals on earth in need of that data.
    In combination with technologies like zero-trust 
technologies, we can encrypt the information on those 
satellites and ensure that even the nodes that they are passed 
across, the very satellites they move across, it is private 
until it reaches the individual it is designated for.
    Just to close, the blockchain, yes, is a young technology, 
and we would like to ensure that over the coming years that we 
have more legislation that helps to encourage the nonfinancial 
uses of blockchain technology and to also clear the way in 
certain industries that may be a little hesitant to accept 
blockchain.
    So I look forward to working with the committee on ways in 
which we can do that.
    Thank you very much.
    [The prepared statement of Mr. Sudler follows:]
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    Mr. Bilirakis. Thank you.
    Our next witness is Ryan Wyatt, president of Polygon Labs.
    Sir, you are recognized for 5 minutes.

        STATEMENT OF RYAN WYATT, PRESIDENT, POLYGON LABS

    Mr. Wyatt. Good morning, Chair Bilirakis, Ranking Member 
Schakowsky, and members of the subcommittee. Thank you for the 
opportunity to testify here today.
    My name is Ryan Wyatt. I am the president of Polygon Labs, 
which is an international software development company that 
builds blockchain infrastructure. Prior to joining Polygon Labs 
a year and a half ago, I was an executive at YouTube as a 
global head of gaming for almost 8 years.
    I am here to speak to you today about the evolution of the 
internet, one that is based on blockchain technology. I will 
discuss how this enhanced internet, what we call Web 3, can 
benefit users and consumers and why it is important for this 
technology to be built here in the United States.
    Over the past four decades, the internet had been built 
primarily by large, centralized corporations. The companies 
have been true innovators, creating technology far beyond what 
the inventors of the internet could have ever imagined.
    That being said, 95 percent of traffic goes to the top 1 
percent of sites, and 85 percent of mobile app usage goes to 
the top 1 percent of publishers.
    This means that large corporations who control these sites 
and apps accrue the value of our time, our data, and our money, 
and it leaves the average user at a disadvantage. The growth 
and innovation from Web 2 have come at a steep cost to the 
consumer and everyday user.
    This is not only in the form of fees but also in the form 
of companies extracting all forms of user data. For example, 
maps applications record users' location, social media requires 
the user to give up personally identifying information, and 
your browser is collecting and sharing searches with other 
applications to provide you targeted advertisements for 
products and services.
    Today, online identities are stored in silos within company 
databases. This is how these companies create value for 
themselves, by wielding the data for their own benefit and only 
sharing the least amount of value to users to ensure continued 
use. For this reason, user privacy is inherently compromised in 
Web 2, and we have become totally accustomed to it.
    A blockchain-based internet corrects this issue. 
Blockchains inherently democratize the internet. They are not 
run by large corporations but a group of people or entities 
running individual computers who receive incentives for 
verifying information transmitted to the blockchain and for 
securing the network.
    Web 3 applications are developed by third parties and built 
on top of these networks separate and apart from the original 
developers of the blockchains themselves.
    Due to the way blockchains work, without intermediaries, 
users can connect to Web 3 applications through their own 
personal software and decide when, how, and whether to share 
any information about themselves, their own data, their 
content, their works of art, and their assets.
    Users never have to provide any personal information to use 
these Web 3 applications. For that reason, instead of 
extracting value from users and consumers, Web 3 creates a 
value layer of the internet where users are able to control all 
of the aspects of their interactions on the web.
    The new Web 3 applications being built on Polygon Network 
are not only created by startup software developers but also by 
a number of other actors who are familiar to us, such as large 
American brands like Nike, Starbucks, Coca-Cola, the National 
Football League, and even UNICEF for making its various forms 
of aid relief more efficient, expedient, and transparent, and 
that is just to name a few.
    Blockchains are powerful tools that can help us reclaim 
control of our online lives. That is why I am so excited about 
it, and it is one of the reasons why I believe it is critical 
for this technology to be built here in the United States.
    This country has long been a leader in technological 
innovation, and we should not lose out now. The U.S. is ceding 
space to countries like China who are promoting all aspects of 
the technology but without any of the privacy and data security 
that would be afforded to users here.
    A great number of companies and the strong accompanying 
jobs are already being lost to countries that have created or 
are creating strong regulatory framework, such as the EU.
    What we do now is critically important in determining 
whether the U.S. users and consumers will have benefits of Web 
3 accompanied by a robust and comprehensive consumer protection 
framework.
    Thank you again for the opportunity to testify before the 
subcommittee, and I look forward to your questions.
    [The prepared statement of Mr. Wyatt follows:]
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    Mr. Bilirakis. Thank you very much.
    Our final witness is Ross Schulman, senior fellow at the--
decentralization--Electronic Frontier Foundation.
    So, sir, you are recognized for 5 minutes.

 STATEMENT OF ROSS SCHULMAN, SENIOR FELLOW, DECENTRALIZATION, 
                 ELECTRONIC FRONTIER FOUNDATION

    Mr. Schulman. Good morning. Senior Fellow for 
Decentralization at the Electronic Frontier Foundation.
    I thank Chairmen Rodgers and Bilirakis, Ranking Members 
Pallone and Schakowsky, and members of the subcommittee for the 
opportunity to share EFS' views on blockchain today.
    One of the first classes that an aspiring computer 
scientist takes at the beginning of their undergraduate studies 
is usually called something like Data Structures and 
Algorithms. These are the fundamental building blocks of every 
computer program.
    And blockchains are at their core simply a relatively new 
data structure. Like most technologies, they are not inherently 
good or evil. They are simply tools that provide particular 
features and have particular drawbacks.
    They do not require much in the form of targeted regulation 
beyond the standard consumer protections, although I will note 
that our country still desperately needs a consumer-driven, 
enforceable, general privacy law.
    Nor do they need particular nudging or assistance in order 
to be innovative. They are also not the only route to 
decentralization.
    Many barrels of ink have been spilled in the quest to sort 
of explain how blockchains work. So a full description here, I 
think, would be repetitive, but it is nevertheless worth 
delving into what exactly they are meant to accomplish.
    The biggest problems that blockchains solve is providing a 
means for two or more parties to agree on the value of a piece 
of data when they do not trust one another or, for whatever 
reason, cannot trust a third party to keep track of it for 
them.
    In a nonblockchain system, those parties might rely on a 
bank, a legal contract in the courts, or even just a handshake 
and a belief in one's fellow human.
    Blockchains instead distribute the necessary trust across a 
network of peers in such a way that as long as 51 percent of 
the network acts honestly, the result can be relied upon.
    In the context of a currency, this is often referred to as 
solving the double spending problem. This feature is useful in 
more circumstances than blockchain detractors claim it is but 
in fewer situations than the past few years of hype may have 
led one to believe.
    In addition to solving the double spending problem, 
blockchains have a few other strengths that might suggest them 
as solutions to particular problems. For one, blockchains make 
it easier to provide transparency and auditability of their 
contents, which could lend itself to government recordkeeping, 
tracking business documents for auditing purposes or in legal 
proceedings where chain of custody is of the essence.
    Another area where blockchains provide value is where they 
are tied into a system where they provide compensation for a 
service provided by the network itself. For example, the file 
claim blockchain uses a unique validation system called proof 
of storage in which nodes in the network are compensated, 
providing hard drive space to the network.
    They also have a few limitations that we should keep in 
mind. First of all, they are not inherently good for people's 
privacy. In fact, in their most basic form, such as with 
Bitcoin or Ethereum, they are affirmatively bad for privacy. 
Every transaction must be publicly posted so that the whole 
network can analyze them for their correctness.
    And while it is true that identities on these networks are 
not tied to real names, researchers as well as law enforcement, 
including the FBI, have shown that transaction analysis can 
easily pierce that privacy.
    Indeed, to the extent that there is privacy, it is because 
it has been bolted on after the fact by projects such as Zcash. 
We have to be very careful in assessing the use of blockchains 
where personal data is involved.
    The second limitation is relative inefficiency. As many 
probably already know, some blockchains require every node in 
the network to expend large amounts of resources in an effort 
to solve meaningless mathematical equations just to validate 
the next group of entries to be included in the ledger.
    This proof of work system is used in the Bitcoin network as 
well as a number of other networks and leads to waste of energy 
and also absurdly high transaction costs, sometimes up to $60 
to conduct a single transaction.
    This purposeful inefficiency also leads to 
recentralization. The research group Trail of Bits reported in 
a paper commissioned by DARPA last year that many of the 
largest blockchains are susceptible to attacks based on the 
fact that only a handful of entities comprise the majority of 
the deciding power in many of the largest blockchains.
    There have been efforts to solve these problems, most 
notably the move to proof of stake by the Ethereum blockchain 
in September of 2022, which eliminates those large efficiencies 
and, it is claimed, lowers the barrier of entry for validators 
by eliminating the large capital costs.
    In light of all this, what should Congress be doing? You 
should rely on the regulations that already exist to protect 
people. Much, if not most, of the harms that may arise from use 
of blockchain are going to be well covered by existing 
protections, such as the FTC's unfair and deceptive practices 
prohibition.
    Congress should also focus on two things to protect 
Americans from blockchain-related harms. First, as I mentioned 
earlier, pass consumer-driven, comprehensive privacy 
legislation, and second, adequately fund the FTC so that it can 
hire technical and legal experts it needs to properly 
investigate and prosecute these harms.
    Since the subcommittee is focused on innovation, it is also 
worth noting that regulation which targets people who write 
code in an open-source system is going to cause more harm than 
it is going to cause good. It will stifle innovation, and 
further development would grind to an immediate halt.
    There can be no doubt that blockchain is a clever solution 
to the problem it was originally developed for: preventing the 
double spending problem. But the overwhelming hype that this 
advancement has generated over the past years has blinded many 
to the fact that its usefulness extends to one or two other 
cases, but not much further.
    And that is OK. Hammers will not help you tighten a bolt, 
but there are great when you need to drive a nail. And just as 
with other tools, regulating blockchain because it is 
blockchain would largely be counterproductive.
    It is nearly always more appropriate to regulate harmful 
actions than the tools used.
    Thank you again for the opportunity to provide this 
testimony, and I look forward to answering your questions.
    [The prepared statement of Mr. Schulman follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. Bilirakis. Thank you very much. I appreciate it.
    I really appreciate all of your testimonies. It is very 
informative.
    So what I will do is I will begin the questioning. I 
recognize myself for 5 minutes.
    The first question is for Ms. Reyes. The blockchain 
ecosystem is incredibly complex, obviously. A few minutes 
researching the topic quickly leads to an alphabet soup that 
the public will not understand in some case, probably in most 
cases.
    Help us boil this down. At its most basic form, is this a 
new protocol database?
    Or in other words, we are really talking about a new way to 
send, organize, and preserve, verify, and protect data. Is that 
a fair characterization?
    We would appreciate a response there.
    Ms. Reyes. Thank you so much for the question.
    So I entirely agree that if you were to Google it, you 
would get an alphabet soup of words that is difficult to 
understand. Indeed, I have a series of papers looking at how 
different constituents in the ecosystem talk about the 
technology themselves and noting that they often talk past each 
other. The technical experts use different words. The lawyers 
use different words, et cetera.
    But so you are absolutely not wrong. But as to the 
characterization of it being a new way to store, send, 
organize, preserve, verify, and protect data--kind of. So I 
think honestly it depends on the blockchain and the purpose to 
which it is put. Many blockchains are not general purpose 
databases, right?
    So take the Bitcoin blockchain, for example. The Bitcoin 
blockchain is very good at tracking which UTXOs have been spent 
and which have not, and that is what it does. It tracks which 
UTXOs have been spent and which have not been spent and who 
controls the UTXO.
    I should say a UTXO, being one of those alphabet soups, it 
is an unspent transaction output. It is essentially what people 
refer to as the Bitcoin, right?
    Other batches can, however, enable decentralized file 
storage. I think Filecoin was already referenced, and another 
example might be IPFS.
    But generally, I would say the extent to which you can view 
a blockchain as a data storage service, it in and of itself 
depends a little bit on the architecture of the blockchain 
protocol, the purposes to which it was intended to be put, and 
a lot of it about understanding the technology stack that a 
blockchain operates on.
    So the blockchain protocol itself is just the base layer, 
right? It is the mechanism by which the nodes communicate with 
each other about a specific thing--in the Bitcoin blockchain 
context, the transmission of UTXOs, the spending of unspent 
transaction output.
    On top of that, you can layer other things, but often when 
you have to actually host the data, unless you are using 
something like Filecoin or IPFS, you may be hosting the data on 
centralized servers and simply anchoring that data or 
connecting that data to the blockchain protocol, right? So you 
can track changes to the data rather than tracking the data 
itself, if that makes sense.
    So it is often----
    Mr. Bilirakis. Let me go ahead. I know it is hard to 
explain in a couple of minutes, but you have done a great job, 
and maybe we can get together and talk one-on-one on this 
particular subject because it is so very important and 
complicated.
    Ms. Reyes. I would be very happy to submit written answers 
for the record if that would be helpful.
    Mr. Bilirakis. Thank you.
    So let me get to Mr. Sudler, if you do not mind.
    As you know, I am from the State of Florida, the home of 
space exploration. It gives me an opportunity to elaborate on 
what you were saying.
    So I was specifically intrigued by your discussion on 
satellites in your testimony. In addition to chairing the 
subcommittee dealing with innovation and data, I also sit on 
the sister subcommittee on telecommunications, where we focus 
on broadband internet development.
    Can you explain how blockchains apply in this space or how 
it will protect security and resiliency?
    If you can, elaborate.
    Mr. Sudler. Absolutely.
    Mr. Bilirakis. How will it further, again, innovation above 
our atmosphere as well?
    Mr. Sudler. Yes, absolutely. So carrying the blockchains 
into space is essentially taking it into a new region of 
computing. We are simply taking it higher.
    It is the same blockchain, but we have to think of a few 
differences in terms of how blockchains exist on Earth and how 
they would exist in space.
    One major difference that you would see is that servers on 
Earth are sitting still in data centers. Blockchains in space 
are basically sitting on satellites that are moving very 
quickly. They do not see each other for very long. So they have 
to synchronize with one another in very short spaces of time.
    And you also have this latency issue. The distance between 
the satellites may be quite far, and if we kind of think a 
little further to how we might use blockchains for the Artemis 
Project in sending them as far as lunar orbit, now we are 
talking significant distances that might increase latency even 
further.
    But to the point of why this would be important for our 
security is that movement of satellites, in general, is moving 
from having individual satellites performing a mission or some 
operation to having constellations of satellites that are able 
to talk to one another.
    This creates greater resiliency, particularly in the light 
of any type of cyberattack that may happen by our adversaries 
against any of our satellites. In a blockchain network, if one 
of our satellites is lost, that is not a problem, because the 
other satellites are aware of the transaction history. They 
understand what that one particular satellite was tasked to do, 
and they can take over the activities of that lost satellite or 
disabled satellite.
    So we see certain resiliency in having blockchain 
structures, and we also see immutability, the ability to store 
this information and assure that it is not tampered with. It 
becomes more tamper-proof. So if someone wanted to cyberattack, 
in particular, a satellite and change information, the 
information on the satellites are quite resilient to change 
because of the mutability of blockchain.
    So we see some very unique cases where blockchain plays a 
very nice role in helping to secure the security of the 
satellite itself, but also national security because a lot of 
our satellites can be tasked for national security purposes.
    Mr. Bilirakis. OK. Thank you very much. I appreciate.
    My time has expired. I yield back.
    And I am going to recognize the ranking member for her 5 
minutes of testimony or so. If you want to go over a little 
bit, that is fine because I did. So we have got to be fair.
    Thank you. We recognize you.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    So I see myself as someone who really wants to protect 
consumers against scams. So, Mr. Schulman, I wanted to ask you 
if you could describe what blockchain scams look like, what 
tactics are used, and if you have any advice, aside from what 
we can do as Congress to protect consumers but are things that 
consumers ought to be watching out for.
    Mr. Schulman. Certainly. Thank you, Congresswoman.
    In many ways the scams that we see in the blockchain space 
are as old as time itself, right? They have a new sheen on 
them. They involve oftentimes paying the scammer in a new way, 
using a Bitcoin or some other cryptocurrency, but 
fundamentally, you know, they rely on the same human failings 
that people have had forever, the fear of missing out, the 
ability to see only the upside of risk instead of the downside, 
and, you know, the promise of great riches.
    And scammers that are operating today are using those same 
human failings, but they are using, you know, a better, perhaps 
faster method of getting the money out of their target than 
perhaps you could have done in an older timeframe.
    People today should keep their head on their shoulders in 
the same way that they did 10 years, 15 years ago before 
blockchain. I think, you know, the FTC has some great resources 
that people should absolutely look to in terms of ongoing 
scams, the things that they are seeing on a regular basis, and 
people should definitely check those out.
    I think, generally speaking, unless you are really 
expecting it, I think the number one piece of advice would be 
if someone tells you to send them cryptocurrency in a way that 
you were not anticipating, just do not. That is a good sign 
that it is probably a scam unless you really already know what 
you are doing, I think.
    Ms. Schakowsky. You know, even though we have seen some 
dramatic failures, I think that the promises that you can make 
a lot of money or that there is zero risk is really a lure, 
still continues to be a lure. And I appreciate your warnings.
    Now, the FTC has issued reports on crypto, and the report 
was that consumers report of $1 billion in losses in 2021 and 
2022, and we know, we all read about it, and this is really, I 
think, the tip of the iceberg.
    But, Mr. Schulman, in your testimony, you mentioned the 
importance of the FTC consumer protection work. How would you 
elaborate?
    If you were on the FTC, what do you think that we need to 
do?
    Mr. Schulman. Well, I want to first take a moment to laud 
the FTC. They do amazing, incredible work, and I would hesitate 
to tell them their business. I think honestly the biggest 
issue----
    Ms. Schakowsky. Well, tell us our business to tell them. 
OK?
    Mr. Schulman. I also hesitate to tell Congress their--no, 
that is not true.
    You know, I think the biggest issue for the FTC is not 
necessarily that they do not know what to do, but they just do 
not have the resources to do it. I think more of the same is 
probably what is necessary.
    I know a few years ago the then-Chairman of the FTC, 
Simons, sent a letter--actually to you, ma'am--talking about 
the resources that the FTC had available to it, said at the 
time that they had about 40 full-time employees or full-time 
equivalents devoted to privacy and data protection, and then 
compared that to some of the other nations around the world.
    For example, in the UK the Information Commissioners 
Office, which is their equivalent of the FTC, had about 500 
employees dedicated to that.
    Ms. Schakowsky. So we need more technologists. We need to 
hire more people who really know what they are doing and what 
they are looking for.
    Mr. Schulman. Yes, ma'am.
    Ms. Schakowsky. OK. Thank you so much. I appreciate it.
    And I yield back.
    Mr. Bilirakis. I thank the gentlelady.
    And now I recognize the gentleman from South Carolina, Mr. 
Duncan.
    Before I do, Mr. Duncan, I want to clarify. These are not 
Clemson colors.
    Mr. Duncan. It is Clemson orange.
    Mr. Bilirakis. These are Gator colors.
    Mr. Duncan. Clemson orange.
    Thank you, Mr. Chairman. I want to thank you for your 
leadership on both blockchains and on name, image, and 
likeness, and I especially want to thank you for releasing your 
NIL discussion draft, which I am sure we both hope will 
ultimately lead to certainty in this space.
    My question centers on the overlap between NIL and 
blockchain. Student-athletes have a unique platform to create 
business opportunities for themselves, and we could potentially 
see a case where a student-athlete uses their NIL to create a 
digital sports collectible through NFTs.
    So, Mr. Wyatt, how are you seeing NFTs being used by 
athletes in the digital sports collectibles space?
    Mr. Wyatt. Thank you for the question.
    Yes, I mean, even Nike has participation in this space. So 
I think it is good for athletes that are moving forward.
    One way, it is a way for them to uniquely offer 
opportunities through their community events. And so what we 
are seeing right now is people using almost NFTs like a 
membership pass.
    So people can come in. They understand that there is a 
finite amount of them. It is access, and then the athletes can 
use them to do whatever they want, whether it is meet-and-
greets, if they want to do autograph signings. There are a lot 
of different opportunities for them.
    But it really clarifies when somebody buys this NFT 
membership what they are getting from that athlete, and now it 
has opened up a whole new monetization stream for them because 
these blockchains are open protocols and public goods for 
everyone. Anybody can deploy.
    So it is great for athletes to be able to really start to 
think about it and a unique opportunity with NIL as well.
    Mr. Duncan. Thank you for that.
    Professor Reyes, how could blockchains be used to track am 
athlete's engagements with an agent in NIL deals?
    Microphone.
    Ms. Reyes. I think this is an excellent question.
    I am not sure I would want to speculate entirely, but I 
think the first question to ask is whether the athletes, the 
agent, and if there is anybody overseeing the whole thing, 
whether they trust each other and whether they can trust the 
information being passed back and forth.
    Otherwise, I am not certain a blockchain is necessarily 
needed.
    A blockchain, right, is generally, I think, as other folks 
have mentioned already this morning, generally used when folks 
in an arena do not know each other necessarily and do not trust 
each other and do not trust a third party to handle the 
information for them. So they use the technology to do the 
thing they are not sure of.
    Mr. Duncan. Would it not also help the people that oversee 
the activities and help them track and monitor the deals, 
whether it is the conferences, the universities themselves, or 
some other governing authority?
    Ms. Reyes. Maybe. Again, if there is an information gap or 
a difficulty in getting the information from the participants 
in an NIL activity, but otherwise a centralized agency can 
always use a just distributive database.
    And maybe it is the distributive ledger rather than a 
blockchain right of permission distributed ledger that is not 
necessarily energy intensive linking blocks of data in 
cryptographically linked chain.
    It could just be as much of a use case for a distributive 
ledger like a permissioned one where you cordon off who can 
participate and what kinds of entries they can make into the 
system.
    Mr. Duncan. Thank you for that.
    I want to shift gears. How can blockchain technology combat 
fraud, corruption, intellectual property infringement? And I 
will go to Mr. Wyatt for that.
    Mr. Wyatt. Yes. The one thing that is really beautiful 
about blockchains is the inherent transparency for it, and so I 
believe because it is a transparent protocol, unlike these kind 
of wall gardens that we see databases sitting in today, it 
allows us an access that we did not have before.
    On the privacy side, you are now moving away from all of 
that sitting inside of corporations where you have to rely on 
them, big and small corporations, to now taking your own data 
and being the controller of that privacy.
    So this is now a shift where you have to rely on others, 
where you can now rely on yourself, and I think that allows for 
a whole other level of privacy and data that we have never had 
before.
    Mr. Duncan. That is great.
    So, Mr. Sudler, in your written testimony, you state that 
the U.S. Air Force is using a blockchain-based supply chain 
called Base Camp.
    You also noted that the Department of Defense has 
commissioned a project, Almeda, to support DoD logistics. This 
seems like something we would want to be kept highly 
classified, yet the DoD is using blockchain to keep track of 
everything.
    Are there different types of blockchains that can serve 
different purposes?
    Mr. Sudler. Yes. Different blockchains are created for 
different reasons. There are essentially three parameters that 
blockchains try to work with.
    First is security and how long it takes to secure new 
transactions on the blockchain.
    The other is speed. How fast can it actually commit those 
new transactions to the edge of the blockchain?
    And the other is fees. In terms of how large the 
transaction is, that can translate into larger fees.
    So different blockchains are driven by their consensus 
model. The Bitcoin blockchain, which is driven by proof of 
work, uses energy to ensure that transaction----
    Mr. Duncan. Is the military using a different blockchain 
technology?
    Mr. Sudler. They are most likely not using proof of work. 
They are perhaps using proof of authority or proof of stake, 
but for the military they would be using some form of a 
permissioned ledger because this is not something that is open 
to the public. It is something that only classified individuals 
should be able to have the access to, and therefore, their 
consensus model would drive that purpose.
    Mr. Duncan. Thank you.
    My time has expired. Mr. Chairman, I yield back.
    Thank you.
    Mr. Bilirakis. Thank you very much. I appreciate it.
    Now, I will yield 5 minutes to the gentlelady from New 
York, Ms. Clarke.
    Ms. Clarke. Thank you very much, Mr. Chairman.
    Mr. Bilirakis. My pleasure.
    Ms. Clarke. And to our ranking member for convening this 
hearing.
    And to our panelists for joining us today.
    The jurisdiction of this subcommittee often requires us to 
attempt to address the challenges of tomorrow with only the 
information available today. While our collective understanding 
of blockchain, distributive ledger technology, and 
cryptocurrency has come a long way since this committee first 
held a hearing on these issues in 2016, it is apparent that we 
have a long way to go to enhance our knowledge as we consider 
legislation in this space.
    That is why this hearing and others like it are so 
important. We as policymakers need to ensure that we have a 
deep understanding of this technology in order to be create a 
regulatory environment that protects consumers, while fostering 
American innovation and leadership.
    With all that in mind, I will be keeping my remarks and 
questions brief and to the point. My first question is to Mr. 
Wyatt. I am interested in cybersecurity implications of 
distributive ledger technology as we transition to Web 3.
    Can you speak to what impact, if any, this technology may 
have on future cybersecurity, both from a defensive and 
offensive perspective?
    Mr. Wyatt. Yes. Thank you for the question.
    I believe right now we do have a lot at the application 
layer that we can continue to protect consumers with, both on 
the protection and privacy side. I believe with the 
transparency that there are a lot more things that we can be 
doing as far as just overall making sure that the networks are 
secure.
    I also think we can do things like standardized code 
auditing so that we have a baseline that we adhere to for these 
protocols to ensure that these continue to be very secure, very 
private.
    Obviously, in addition to that, users do own their own 
data. So there inherently is more privacy because of that, but 
I think these are critical steps that we need to take because I 
actually do believe we are behind relative to other countries 
on these matters.
    Ms. Clarke. Are there any other witnesses that have 
anything to add in this regard?
    [No response.]
    Ms. Clarke. OK. Thank you.
    Mr. Schulman, you mentioned in your testimony that 
blockchain could have some exciting potential use cases but 
should be treated as just another tool in a software 
developer's toolkit.
    Could you elaborate on that?
    Are there limitations of this technology we should be aware 
of?
    And how should members of this committee think about what 
blockchain is and is not?
    Mr. Schulman. Absolutely. Thank you. It is a good question.
    I think the biggest thing to keep in mind whenever we are 
thinking about whether blockchain suits a purpose is, as 
Professor Reyes sort of alluded to earlier, is that you need to 
look for what you might call a trust gap. Blockchains are 
useful where two parties, or more than one party, are trying to 
get together to agree on something but cannot trust one another 
for some reason and cannot trust a third party to sort of serve 
as a middle person and, you know, in a way that, you know, 
banks or escrows often do, for example.
    In those circumstances, blockchain can be quite handy. It 
can be quite useful.
    It has drawbacks that we have talked about as well that 
makes them unsuitable to other situations where you need, for 
example, speed. Blockchains are not the fastest way to figure 
out an answer to a question, for example.
    They are not great--although they can be messaged to make 
privacy useful, but they are not great at privacy because of 
the inherent transparency that is necessary in a blockchain 
situation, and so those are situations where you would want to 
reach for a different tool.
    But, yes, I think that is more or less----
    Ms. Clarke. And to the entire panel, there has been a lot 
of discussion about energy use with respect to blockchain 
technology. Would you opine on that?
    You know, we are in the midst of a real struggle around, 
you know, how we will transition in energy, and clearly, as we 
expand and Web 3 becomes sort of the dominant use of the 
technology, what would you say to those who are concerned about 
energy consumption?
    Mr. Wyatt. Congresswoman, I would like to weigh in here.
    You know, Polygon Labs is a blockchain software company. We 
are incredibly passionate about this topic. It is worth noting 
that 19 of the top 20 protocols are proof of stake and not 
proof of work, which means they are not as energy intensive.
    And, in fact, Polygon Labs ensures that we remain carbon 
neutral. It is a big part of our mission. We report third party 
audits with maintaining that integrity, and I think this is 
something that a lot of people that are building in this space 
are quite passionate and care deeply about.
    And so I just want to say that we share that importance, 
and I think it is an integral part of kind of growing and 
scaling this technology.
    Mr. Sudler. I would like just to add to that.
    We all started with a Bitcoin blockchain which used proof 
of work, very energy intensive, and in some countries, the 
largest amount of spend is actually on energy due to Bitcoin 
mining.
    So obviously that is unacceptable and unsustainable.
    But as a global society, we are evolving from that. We are 
moving to proof of stake. We are moving to proof of authority, 
other consensus models that do not use that type of energy.
    And certainly as we are applying blockchains into space, it 
would be impractical to have proof of work that is so energy 
intensive weighing down satellites. It would drain the 
batteries of those satellites very quickly.
    So we are quickly realizing that there are other 
alternatives to how we are doing these consensus models with 
blockchain that do not use as much energy. So I am pretty 
confident going forward we will all see the future of 
blockchains using less energy consumption.
    Ms. Reyes. I know the time has expired, but I hope I might 
be permitted to comment briefly.
    I would say that it is important to note that protocols 
that use proof of work versus protocols that use proof of stake 
have different technological architecture value propositions.
    So Bitcoin blockchain is very focused on the security and 
integrity of the blockchain itself, and proof of work is viewed 
to maximize the security of the protocol, versus proof of stake 
values throughput and scalability.
    And so it is not only about energy consumption, but it is 
also a technical architecture choice that is made given the 
value and proposition of that particular protocol.
    Secondly, I would say I think that----
    Mr. Bilirakis. We have got to move on. Thank you very much, 
and we can have further discussions.
    I appreciate the gentlelady yields back.
    And I will recognize the Chair of the full committee for 
her 5 minutes of questioning.
    Ms. Clarke. Thank you, Mr. Chairman. I yield back.
    Mr. Bilirakis. Thank you.
    Mrs. Rodgers. Thank you.
    Mr. Wyatt, I appreciate you being here today to tell your 
blockchain story, and you captured well in your testimony how 
Big Tech companies silo our data and create value for 
themselves.
    Can you explain to us how your company or other similar 
services can provide an alternative solution to the 
concentration of this data that has led to abuses and breaches?
    Mr. Wyatt. Yes. Look, I think largely when you look at 
corporations, they may have not had other solutions on where 
some of this data can be held, and really if you look at what 
blockchains have been doing on the past decade, they finally 
have gotten to a point where this technology can meaningfully 
scale to really support hundreds of millions if not billions of 
individuals building on top of it.
    And so I think the big thing about it as I see the movement 
moving over into this space is that people now owning their 
privacy and owning their data is really critical, whereas 
corporations were owning that. We trusted them to own that, and 
they monetize it, right? It is how a lot of these businesses 
make money that are in the space.
    And so just because of that shows that there is an inherent 
value of having data, right, or having someone's individual 
information.
    And so we should be bringing that back to the individuals 
where they should be making those decisions on what they own, 
how it is used, and what they want to do with it. And that is 
what I think the beauty of blockchains do.
    Mrs. Rodgers. Thank you.
    Enacting a Federal data privacy standard is a top priority 
for me, and in some ways it is counterintuitive that 
decentralized data could be private because one would think 
that one's information is available to everyone.
    I know that you referenced zero knowledge proof in your 
testimony. Would you explain the concepts of that and how it 
can coexist?
    Mr. Wyatt. Yes. Without getting too highly technical on the 
concept, you are right. One of the things that we tout often 
here is the transparency of the blockchain. That is true. There 
is a lot that you can do with it, and that is in the beauty of 
it. But I think without having the ability to have more 
ownership of your privacy, that can, you know, have its own 
shortcomings.
    And so what zero knowledge does is effectively let you have 
the best of both worlds. You can have the transparency of the 
blockchain, but you can self-select as an individual what you 
want to share with any of these applications that you are 
interacting with.
    And zero knowledge allows that ability to happen through 
cryptography in a trusted way.
    Mrs. Rodgers. Thank you, thank you.
    Ms. Reyes, you provided a lot of information on smart 
contracts in your testimony, as well as the fact that it does 
not require mining or more information to complete a 
transaction. This has clearly not been the approach Big Tech 
has taken historically.
    You noted an example of mortgage alerts, which you see this 
as being applied to a compliance mechanism when a company 
changes its privacy policies to alert users.
    Would you speak more about smart contracts?
    Ms. Reyes. Sure. So briefly, a smart contract simply, just 
by what folks may have said about it being an artificially 
intelligent, legally enforceable contract--but that is not what 
it is, right?--it is just a computer program that says if X 
happens, then Y, execute.
    And in the context of privacy policies, for example, I 
think your question, Chairwoman, speaks to whether it could be 
used as an alert system to indicate to the SEC that a company 
has changed their privacy policy.
    I do think that that could be an area looking back to, 
like, when is the good use case for blockchain technology, 
where the SEC does not necessarily trust privacy policy 
compliance of the corporations. The users do not always know 
when the privacy policies have been updated or even when they 
push ``I agree,'' they did not really realize what they did, 
right? They did not read it.
    Certainly this could be used to alert folks that it has 
happened.
    I think it could go farther. I am working on research to 
think about using smart contracts as the basis for privacy 
policies so that you could have granular permissions over how 
your data is used in a specific context.
    At the moment, I am thinking about that in the context of K 
through 12 education, actually.
    Mrs. Rodgers. Great. And you mentioned the alerts, the 
alerts to the FTC, but it also could be the alerts to the 
individual when the privacy contract is being changed because, 
right now, I think we all recognize that these people do not 
really know what they are agreeing to.
    Ms. Reyes. Absolutely.
    Mrs. Rodgers. Mr. Sudler, thank you for providing your 
insight again today as you have previously done during COVID.
    How important is it for the United States to lead on this 
technology?
    Mr. Schulman. I think it is incredibly important because 
essentially when you have the world facing a huge crisis, that 
is when leadership is shown. And if the United States is going 
to lead in blockchain technology, then it really should 
demonstrate that during a point where the world needs it the 
most.
    So I think what this does is when we are facing situations 
like COVID, if the United States shows its power economically, 
militarily, and through technology, we demonstrate to the world 
that we are not here to just say we are leaders, ee are here to 
show it.
    So when we can demonstrate technological innovation to 
solve very serious problems that affect the world, then the 
world sees us as leaders for that very act alone.
    So I think it is very important for us to continue 
leadership in technology, and I think blockchain is a big part 
of that story.
    Mrs. Rodgers. Thank you.
    And in closing, again, I am looking forward to receiving 
the emerging technology reports that were enacted in our 
legislation back in 2020.
    Thank you, Mr. Chairman. I yield back.
    Mr. Bilirakis. The Chair yields back.
    And now I recognize Ms. Kelly for her 5 minutes of 
questioning.
    Ms. Kelly. Thank you so much, Mr. Chair.
    And thank you to the witnesses for your testimony to help 
us better understand these emerging technologies.
    It is clear from witness testimonies that blockchain 
technology has and can continue to add value, but this must be 
done, as you know, responsibly. As the Chair of the 
Congressional Black Caucus Health Brain Trust, my priorities 
include protecting health equity and reducing health 
disparities in all communities.
    So I am interested in the benefits of blockchain technology 
in the healthcare sector, but I think it is important that we 
understand any potential drawbacks.
    Patient healthcare records are very private, and we know 
there are bad actors looking to steal the data. And, similarly, 
we know healthcare services are disrupted when hospital systems 
fall victim to cyberattacks.
    So I wonder if data privacy and security can be negatively 
impacted should healthcare systems broadly adopt and use 
blockchain technology.
    But I am also pleased to learn more about the potential 
applications in the agriculture sector. My district is urban, 
suburban, and rural with recent outbreaks of foodborne illness 
and investigations of fraud in the organic food sector.
    There are weaknesses in information about agricultural 
supply chains. Blockchain technology can have an impact on the 
tracking of goods throughout a supply chain system and even 
applications for reducing foodborne illnesses by tracking the 
prominence of items.
    So, Professor Reyes, as a preliminary matter, can you 
discuss the differences between permissioned and permissionless 
blockchains?
    Ms. Reyes. Absolutely. Thank you for the question.
    So in permissionless blockchains, to some like the Bitcoin 
blockchain or the Ethereum protocol, the idea is that anyone 
can download the software and participate as a node in the 
protocol, and anyone thereby can initiate transactions in the 
network.
    In a permissioned system, it is typically not the case that 
anyone can simply participate as a node in the system and that 
they can simply whenever they want commit transactions to the 
network.
    But rather, it is more--it is often, I should say, and they 
are not all the same, but it is often a consortium or group of 
companies or like-minded organizations that come together to 
build the network, and there is usually some kind of 
application process or screening process to determine whether 
you are an appropriate entity to host a node and to have access 
to initiate transactions.
    Ms. Kelly. Thank you.
    What are some of the benefits of blockchain technologies as 
they relate to supply chain and logistics?
    And are there any potential drawbacks, Professor Reyes?
    Ms. Reyes. Thank you.
    Yes, certainly in the area of supply chain management, 
there is a lot of interest, and the interest stems largely from 
the capacity for increased efficiencies, increased 
transparency, and audibility of the steps in the supply chain.
    The drawback, I would say, is that at any point in the 
supply chain you are still relying on someone to connect 
whoever initiates the entry into the supply ledger. You are 
relying on them to provide reliable data, and they may not 
always be incentivized to provide the reliable data.
    And so a supply chain management system based on blockchain 
will suffer from the same garbage-in/garbage-out problem that 
all computer software has. The data that the supply chain 
management system keeps an audible record of is only as good as 
it was when it was first entered.
    Ms. Kelly. In agricultural applications, does zero data in 
a blockchain represent events associated with a physical 
product?
    These events must be recorded by manually recording data or 
through manual or automated scanning of digital markers on the 
product or its packaging. However, manual data entry could 
introduce errors into the blockchain, and I would ask all of 
you what blockchain protocols could be used to address such 
errors when it comes to manual data entry.
    Whoever wants to answer.
    Mr. Sudler. Yes. I think when you have data entered into 
the blockchain--and there will be errors--the blockchain 
certainly will record those errors quite permanently. So at 
least it can be viewed and there is some accountability as to 
how those errors got in there.
    But you could use things like smart contracts. If there is 
some range of data that is unreasonable, then the smart 
contract itself in seeing that condition can, you know, reply 
and alert that this data is out of range. And so that can be a 
way in which we can capture, you know, certain types of errors 
being put into the blockchain.
    Ms. Kelly. Thank you.
    I do not know if either one of you want to answer.
    Mr. Schulman. I think I would add one small note, and it is 
something that once you say it out loud it sort of sounds 
incredibly obvious, but I think it is important to sort of note 
anyway, and that is that, particularly when blockchains are 
representing real-world goods, such as in a supply chain, a 
change in the blockchain does not actually mean anything 
necessarily.
    Nothing happens in the real world just because something 
changed on a blockchain, if that makes sense, right?
    And this is sort of analogous to the same problem we have 
been discussing about data going in, and particularly if you 
are using a blockchain, again, it is because you are worried 
about a trust gap somewhere. And if you have a trust gap, 
blockchain is not going to necessarily fix that in the 
situation, because if you do not trust the counterparty, you do 
not trust them necessarily to put the right data into the 
blockchain in the first place.
    Ms. Kelly. Thank you.
    Any other comments?
    Ms. Reyes. I would just say I think this is where I get 
nervous when people call the blockchain the record of 
uncensored truth or something similar because that is not 
actually what it is a record of. It does not speak to the truth 
of the data that is being recorded in the chain.
    Mr. Wyatt. I will just add I think healthcare has been, you 
know, a tough one to actually digitalize over the years and 
companies, you know, like MyChart trying to bring healthcare 
together have made tremendous progress.
    But I do believe these ideas of permissioned blockchains 
where you can actually get the United States healthcare system 
on it could actually streamline it in a really, really 
efficient way.
    So I think there is more to come there.
    Ms. Kelly. Thank you so much.
    And I yield back.
    Mr. Bilirakis. Thank you very much. I thank the gentlelady.
    Now I will yield 5 minutes to the vice chairman of the 
subcommittee, my good friend Mr. Walberg from the great State 
of Michigan.
    Mr. Walberg. Thank you, Mr. Chair.
    And thanks to the panel for being here.
    I am encouraged that we are discussing this new and 
transformative technology. That is what this subcommittee is 
especially about, and in fact, my staff today informed me that 
they used AI to look up some information for me for the 
background on blockchain, and so far I think they got it right, 
at least what I have heard from you.
    America needs to stay ahead in all that goes on here. The 
leadership is important.
    So, Professor Sudler, as someone who has seen blockchains 
used in a variety of contexts, how would you categorize the 
primary uses of blockchain technology?
    Mr. Sudler. Sure. Thank you for the question.
    You know, in my course work, I have developed a framework 
that helps my students and other practitioners of blockchain 
understand the categories of use cases for blockchain 
technology, and it is called the APPS Framework, A-P-P-S. It is 
fairly easy to remember, APPS, and what it stands for is asset 
management, payments, public records, and supply chain 
management.
    The A for asset management is essentially representing 
something physical or digital with a token. We more commonly 
know that as NFTs.
    For payments, it all started with payments with Bitcoins. 
So we are very familiar with that use case.
    With public records, it is essentially committing data to a 
blockchain which could be public in nature, such as birth 
certificates and so forth, but doing so mutably so no one can 
tamper with it.
    And finally, supply chain management we have discussed here 
at length, looking at an asset going from start to finish and 
tracking its status along the way.
    Mr. Walberg. Thanks for allowing me to be a student then. 
APPS, OK.
    Blockchain proponents argue that the security of a 
blockchain can be trusted more than we can trust other 
intermediaries, like Big Tech.
    Professor Sudler, I would like to dig into that a bit more. 
Are blockchains really secure is the first question, and can we 
really trust this computer code more than we can trust some of 
the other intermediaries in our lives?
    Mr. Sudler. I think we have to address that in two 
different ways. First, we have to look at the network 
architecture, and then we have to look at the software. So 
there are two components.
    If you look at the network, networks' blockchains basically 
need to be highly distributed, which basically means they need 
to be distributed geographically as well as by ownership.
    And it is important that they be distributed in both ways. 
If you have a huge concentration of blockchain nodes or servers 
sitting in one country, then it is very possible that if that 
country is authoritarian, they can declare eminent domain and 
simply take control of all of these servers. That destabilized 
the security of the blockchain itself. So it is important that 
we do have highly distributed blockchain servers across the 
world.
    The other is the software itself. Now, the software for 
blockchains should be open, should be visible by other 
programmers to inspect it, and if you are presented with a 
blockchain that is not open, that should send off alarm bells 
in a lot of ways, to make sure that people can see it and 
evaluate what it is doing.
    Mr. Walberg. OK. Mr. Wyatt, staying on the same theme of 
security, there are a lot of different blockchains out there, 
and transferring data between them is not simple. For example, 
in 2022, a bridge between two chains was hacked for $325 
million.
    What steps are being taken that you are aware of both in 
industry and in government to prevent these attacks from 
happening in the future?
    Mr. Wyatt. Yes. First, you know, when networks are 
launched, you know, companies are looking at the code itself, 
and there are trusting third-party audits as well, but I think 
it is particularly important that we standardize and streamline 
code auditing.
    We should have a bar, an expectation that we are holding 
people to to ensure that these things never happen, and I do 
think formally legislating code auditing would be really 
important to mitigate these issues.
    Mr. Walberg. OK. Professor Reyes, I appreciated the way you 
described the blockchain as protocol. As you noted, a protocol 
is a set of instructions for the compilation and interaction of 
objects.
    For blockchain technology, this protocol is a set of rules 
that allows network computers to track transitions globally in 
the network without a centralized third-party intermediary.
    Could you explain on other ways you think smart contract 
blockchains are similar to the internet?
    Ms. Reyes. So I think--absolutely. Thank you for the 
question.
    I think, first, it is important to note that the blockchain 
protocols do not work without the internet, right? You cannot 
access the protocol unless you are connected to the internet.
    So it is all part of a technology stack, and as part of 
that technology stack, the parallel to the internet is that you 
can continue to build additional applications on top of the 
blockchain protocol. And those additional applications may or 
may not be decentralized. Some are more centralized in their 
components than others, just like the additional applications 
that can be built on the internet, and it is really an asset 
application layer that consumers tend to interact with 
blockchain technology.
    Few consumers transact with Bitcoin directly through 
Bitcoin Corp. software, for example. They tend to use 
intermediaries because the user interface at the Layer 1 level 
is difficult and a little clunky.
    And just like the internet, most of the time we interact 
with the internet through Google, right? Through web browsers, 
not to name Google specifically, but through web browsers and 
through other applications. That is similar in blockchain space 
as well.
    Mr. Walberg. OK. Thank you.
    My time has expired. I yield back, Mr. Chairman.
    Mr. Bilirakis. Thank you. Thank you very much. I appreciate 
that.
    The gentleman yields back. Now, I will recognize Mrs. 
Trahan for her 5 minutes of questioning.
    Mrs. Trajan. Well, thank you, Chair Bilirakis and Ranking 
Member Schakowsky, for calling this hearing.
    I am glad that the committee is bringing awareness to the 
potential that blockchain technologies have to offer and the 
promising applications of Web 3.
    However, as we discuss the path forward for this tool, we 
must also acknowledge its shortcomings so we can ensure it is 
applied correctly and safely.
    I share the ranking member's concern that we need to fully 
understand how this technology can be used for the wrong 
reasons. In particular, the immutability of a blockchain or the 
impossibility of changing the past makes cryptocurrencies an 
attractive financial avenue for scammers to fleece unsuspecting 
consumers.
    The FTC has repeatedly warned consumers that cryptocurrency 
scams are dramatically on the rise and billions of dollars 
being lost. In fact, the losses of crypto scams did not just 
double or triple between 2019 and 2022. They increased over 25 
times, reaching more than 2\1/2\ billion dollars lost last 
year, according to the FBI.
    Professor Reyes, in your opinion, would you agree that 
blockchain technologies offer some advantages to scammers?
    And why do you think that scammers are making so much use 
of this technology?
    Ms. Reyes. Thank you for the question.
    I would say in my view I do not know necessarily that 
blockchain technology offers particular advantages to scammers. 
I think, as we discussed at length already, many of the scams 
that take place in the blockchain industry are simply echoes of 
traditional scams: promising money that does not exist, taking 
your money to use it for one thing and using it for something 
else entirely.
    I think what makes it so attractive at the moment to 
scammers is the same kind of thing that got people in trouble 
in the early days of the internet: unfamiliarity with the 
technology on a wide scale and what the risks are.
    It is much less likely nowadays to fall for a phishing 
scam. We have internal processes to learn how to avoid phishing 
scams in emails, for example, and it will take time until that 
same kind of education happens around blockchain technology.
    I know I am taking up a lot of time, but one note I would 
like to make--because I am dying every time it is said out 
loud--is the term ``immutability,'' to be precise, does not 
actually mean that the records in the blockchain can never be 
changed.
    In fact, the term ``immutable'' never appears in the 
Bitcoin white paper. It is actually a reference to being 
computationally improbable, that is very difficult to change 
the records in the blockchain protocol. And I think, as was 
referenced by Professor Sudler, what that means is the 
blockchain protocol is tamper resistant, tamper-proof. You can 
tell when it has been tampered with, but not necessarily that 
it is impossible to do so.
    Mrs. Trajan. Well, I appreciate the clarification.
    And also, you know, the recognition that consumers need to 
be careful. Do you believe that consumers, especially 
vulnerable consumers like children and seniors, have the 
information that they need to detect and avoid scams relating 
to blockchain and Web 3 or other types of online fraud?
    Ms. Reyes. I think a lot more education should be directed 
toward seniors. I think that same kinds of scams that target, 
like, going to the go get me Target gift cards and send me the 
code, the same kind of thing that they are falling for in the 
cryptocurrency realm.
    I fascinatingly tend to think that children often know more 
about cryptocurrency and blockchain ecosystems than we might 
expect. They are more sophisticated in it, I think, 
increasingly than other populations, but certainly, of course, 
they always need extra protection.
    Mrs. Trajan. It is a great point about children versus 
seniors, and our job and our objective is to safeguard all of 
them.
    But to follow up, we know that some actors in this space 
have made promises they could not keep, be it a stable coin 
unable to stick to the promised value or a poorly designed 
blockchain platform that is vulnerable to a cyberattack. It is 
not surprising for a new industry based on new technology, but 
it is also extremely difficult for consumers to accurately 
evaluate some claims that blockchain companies make.
    And I want to be sure that our regulators are ready and 
able to address that.
    And, Mr. Schulman, you mentioned in one of your answers 
that these types of scams that are happening are as old as 
time, and you suggested that in order to prevent, understand, 
and remediate scams involving blockchain and Web 3 
technologies, that the FTC requires specific technical 
expertise and resources.
    What makes enforcement against these scams so difficult?
    Mr. Schulman. That is a good question. I think there are 
probably a couple of different factors.
    I think a fundamental one is certainly technical 
understanding. As I think we have talked about many times here 
today, there is a reason you all invited us here, and it is 
because this is hard, right?
    It is not that a lot of people are really stupid. It is 
that these are really complicated technologies. They are hard 
to understand. They are hard to explain. They are very 
different from how things that we already know tend to work. 
And so when you are an enforcer at, say, the FTC, just 
understanding how the technology works and where the fraud 
actually happened and who perpetrated it is difficult. And so 
hiring the people that can do that is important.
    Mrs. Trajan. Great. Thank you for indulging me a little bit 
longer than my time, Mr. Chair.
    I yield back.
    Mr. Bilirakis. The gentlelady yields back. Thank you.
    And next we will recognize Mr. Allen from the great State 
of Georgia for your 5 minutes of questioning.
    Mr. Allen. Thank you, Mr. Chairman, and thank you to our 
witnesses for being here today.
    For 40 years I have worked at building a construction 
company in Augusta, Georgia, and when we think about 
blockchains, I would like to know how this will help small 
businesses like construction companies and Mom and Pop grocery 
stores and stores, for example.
    Mr. Sudler, from a supply chain perspective, are there 
increased efficiencies that small businesses can see from the 
adoption of blockchains?
    Mr. Sudler. You know, in some of the research that we have 
looked at that involve supply chains--and they very much impact 
small and medium-sized businesses--we look at the effects of 
how, you know, these supply chains can be very difficult to 
track.
    At MIT, we look at supply chains a lot using a tool called 
the Beer Project. It is a beer game. It has nothing to do with 
drinking beer, but it tracks a beer supply chain. And what you 
find out over the simulation is that, if you change the demand 
at the consumer level just once, all of the other players in 
the supply chain will become very confused. They will 
oversupply, they will underrequest, and this is simply because 
information is not openly shared.
    Now, this is something blockchain could alleviate very 
easily by simply having everyone in the supply chain tied to 
this common ledger, and they can see for themselves what the 
demands are and what everyone is requesting against that 
demand.
    So I think that would tremendously help small businesses to 
really make sure their margins are good, make sure they are 
ordering properly.
    Mr. Allen. Thank you, Mr. Sudler.
    Mr. Wyatt, you know, the small business community created 
almost 70 percent of all the new jobs in the greatest economy 
in my lifetime, which is 2017 and 2018. In your testimony, you 
highlight that some of America's largest brands are using your 
platform.
    How can small businesses like my business benefit from 
using Polygon?
    Mr. Wyatt. I appreciate the question. You know, any 
blockchain, Polygon protocol or otherwise, it is an open public 
good for anybody to build on, and it is actually really easy to 
deploy and start to get up.
    So I think when a lot of these companies are having to go 
through a very cumbersome process of all the work that needs to 
be done to launch in a Web 2 environment, whether it is 
thinking about cloud infrastructure and some of the other 
things, Web 3 and blockchains make it much easier for anybody 
to get on and the cost being very low.
    You know, when we talk about a smart contract being 
deployed on the Polygon protocol, it can sometimes cost pennies 
to do, and so I think the cost efficiencies are a really big 
deal for small developers and small companies in keeping costs 
down.
    Mr. Allen. Right, and the cost benefit could be enormous.
    Mr. Wyatt. Absolutely.
    Mr. Allen. OK. You know, it is becoming increasingly clear 
that blockchain technology is set to play a critical role in 
strengthening our supply chains. In fact, the ag industry is 
already using distributed ledger technology to trace and 
protect their food supply chains, and obviously food supply is 
a big, big issue in our country.
    I think this is a great example for why we should not limit 
the conversation around this technology solely to securities 
and commodities. For example, Walmart has already established a 
blockchain partnership with Kroger, Nestle, IBM, and Dole to 
bolster their food traceability. Sweetgreen, a salad 
restaurant, has used blockchains to trace and trace the origins 
of the produce that it buys.
    In an era where consumers are increasingly concerned about 
the origins and safety of their food, blockchains can offer an 
unprecedented level of transparency and resiliency for 
agriculture-based supply chains.
    Mr. Sudler, what lessons can we take from use cases in 
agriculture blockchains technology that can be adopted on the 
State and Federal level to a regulatory-type framework?
    Mr. Sudler. I think what we have learned from agriculture 
applications is how effective supply chains can be managed 
using blockchains. Now, we can learn from that and apply that 
to other forms of projects.
    What we have looked at is how do we apply some of these 
lessons from agriculture to other projects or even mega 
projects that essentially face the same type of supply chain 
issue. Mega projects certainly at the State and Federal level 
are projects that are $1 billion or more. They are very 
complicated. They have, you know, many contractors and 
subcontractors, and they do not necessarily trust one another.
    So we can certainly learn from the gains we are seeing in 
agriculture and say what are the smart contracts that they use, 
who is allowed to view certain types of information in these 
blockchains, and how do we keep a good flow of the supply chain 
in these large projects that the agriculture group is able to 
do very well?
    Mr. Allen. Mr. Wyatt, I have got about 15 seconds, but we 
have seen Big Tech from inside. As an executive, you saw it at 
YouTube. Why did you choose to leave, and how will blockchain 
impact the way Big Tech extracts and uses our data?
    Mr. Wyatt. I love to go into YouTube because I felt that, 
you know, it was democratizing education and content. Anybody 
around the world could access YouTube, could upload content to 
YouTube, and I felt that that was really important.
    In a lot of ways, blockchains do the same thing of 
democratizing this, and so I felt that this was very aligned 
with my personal mission and excited that it is a place where I 
can do this.
    Mr. Allen. OK. Well, thank you so much.
    And I yield back, Mr. Chairman.
    Mr. Bilirakis. Thank you.
    The gentleman yields back.
    And now I recognize Mr. Soto for his 5 minutes of 
questioning.
    Mr. Soto. Thank you so much, Chairman.
    In the beginning in my opening remarks, I talked about a 
lot of the areas we already were able to pass amendments into 
both the National Defense Authorization Act and to the 
Appropriations Act.
    We got actually a lot of the blockchain advanced under 
Federal law so far, whether it was, as mentioned by our 
colleague, Mr. Allen, the food tracing with the FDA to help 
with public safety, whether it was helping with encrypted 
communications through our military, whether it is protecting 
veterans' records, among other areas that are going forward.
    So we here at the Congress want to make sure we are good 
partners in advancing this critical technology, whether it is 
for economic reasons, security, for advancing critical 
research.
    So I will start with Mr. Wyatt, but I am going to ask all 
of you the same question.
    Mr. Wyatt, if there could be one particular partnership the 
Federal Government could help advance in some of these areas, 
what do you think it should be that we should work on and why?
    Mr. Wyatt. Look, I think the best thing that we could do is 
have clear regulatory clarity on how to operate with the 
nuanced understanding that there are protocols, there are 
wallets, there are exchanges, and there is a lot of nuance 
there.
    So my ask would be to continue to push forward very clear 
regulatory guidance on how to operate this new tech, and that 
would ensure that, you know, tech innovation would stay here in 
the U.S. and that we would continue to foster some of the best 
talent in the world.
    Mr. Soto. But if there is a particular subject matter, what 
would that be?
    I get you all want regulatory reform, and that is cool.
    Mr. Wyatt. I think, in general, decentralization is such at 
the heart of this where we are removing intermediaries, and so 
I think the subject of decentralization is of the most 
important topic.
    Mr. Soto. Mr. Schulman, what would be a great partnership 
with the Federal Government to help advance blockchain 
technology?
    Mr. Schulman. That is an interesting question. I am not 100 
percent sure that the Federal Government needs to partner. I 
guess I will put it this way. I think----
    Mr. Soto. Let me define it more. In the most broadest of 
terms, like funding or laws or encouraging research, not like 
ownership, right, in the strictest sense.
    Mr. Schulman. Sure.
    Mr. Soto. Partnership in the facilitating sense.
    Mr. Schulman. Sure. OK. I think I will offer two then. The 
first, which I have sort of mentioned before already, is the 
Federal Trade Commission has a huge role to play in protecting 
consumers. I think it needs more funding and more people.
    And then I think the other has to do with how the 
Government approaches jurisdiction over blockchain entities. I 
think there is clarity that definitely needs to come about what 
exactly an autonomous organization is, a GAO, how it is subject 
to law, how it is not subject to the law.
    I think those questions are just starting to percolate in 
the courts, and it is going to be very interesting watching 
that and figuring out what the answers are.
    Mr. Soto. Thank you, Mr. Schulman.
    Obviously, neither of you have identified a particular 
subject but regulatory, and I get that. But I know Professor 
Sudler had mentioned space already.
    I represent a district right next to the Space Coast. So 
how can we partner with you all in advancing technology to use 
blockchain in space?
    Mr. Sudler. Yes. I think one of the biggest relationships 
that we would look at is with the Department of Defense. You 
know, space is open for business. There are more satellites 
going into space, and it makes it a target certainly for cyber 
criminals, for bad actors, and for nation states who do not 
share our interests to attack either individual satellites or 
constellations.
    So we are very open to really looking at this type of new 
problem, because it is in a new area that needs a lot of 
solutions, and we would love to certainly look at some of those 
national security issues.
    Mr. Soto. Thank you.
    And, Professor Reyes, where do you think through funding 
and incentivizing we would advance blockchain in America?
    Ms. Reyes. I think it would be excellent to have a funded 
education program for lawmakers and regulators, because the 
nuance really does matter, and all of the regulatory clarity we 
all have been asking for depends on understanding the 
difference between the financial use cases and the nonfinancial 
use cases.
    I would also really love to see the Federal lawmakers take 
a cue from some of their State counterparts where States have 
done an excellent job of pushing private law reform around 
decentralized autonomous organizations, around the property 
rules, for example.
    And it would be excellent to see Federal law to the extent 
that it is inconsistent in any way or somehow getting in the 
way of those reforms being effective. It would be really 
excellent to see those changes take shape as well.
    Mr. Soto. Thank you so much.
    My time has expired.
    Mr. Bilirakis. I thank the gentleman.
    Now I will recognize Mrs. Harshbarger from the State of 
Tennessee, East Tennessee, and I want to tell you how much I 
appreciate your patience. You have been here the entire time.
    Mrs. Harshbarger. Yes, I want to learn.
    Mr. Bilirakis. So I will give you 5 minutes for 
questioning.
    Thank you.
    Mrs. Harshbarger. Thank you, Mr. Chairman.
    Thank you all for being here today.
    I have been a licensed pharmacist and business owner for 
over 30 years, and I guess one of the most challenging aspects 
facing the pharmaceutical industry is the ability to track drug 
components, and the drug supply chain is incredibly complex and 
difficult to trace exactly where everything is coming from and 
where it is going.
    And we as pharmacists have to abide by chain of custody, 
and under the FDA is the Drug Supply Chain Security Act. We 
have to know if the manufacturers are registered, if the 
wholesalers are licensed, if the pharmacies are licensed.
    So, Professor Sudler, you discussed in your testimony a 
blockchain-based contract tracing solution to mitigate the 
spread of COVID-19. In your example you stated that blockchain 
technologies can report infectious contacts instantly and 
anonymously without revealing who is infected. And I am 
interested in how this technology could improve the pharmacy 
sector.
    And how would this blockchain technology help address 
supply chain challenges in the pharmaceutical sector, first of 
all?
    Mr. Sudler. Well, thank you for that question, and I think 
it is very powerful to look at how we can do better at applying 
blockchain to the medical industry and the pharmaceuticals 
because that affects our human health and our human lives.
    Mrs. Harshbarger. Yes.
    Mr. Sudler. I have done research with a colleague of 
Villanova University, Dr. Peggy Chaudhry, which I partnered 
with quite a bit on the counterfeiting of pharmaceuticals.
    Mrs. Harshbarger. Yes.
    Mr. Sudler. Which is very dangerous, obviously, providing 
medicine that actually is not the proper medicine, and we 
looked very closely at how do we encounter some of that. 
Blockchain has played a part in that conversation.
    I think what we can do is look at applying blockchain to 
the supply chain, understanding who these manufacturers are and 
even the actual medications themselves, tracking them along the 
supply chain, making sure they get to the proper, you know, end 
user who should be taking that as a patient.
    So, you know, I am very eager to continue this research 
with my colleague and certainly working, you know, with folks 
here to see how we can apply that.
    Mrs. Harshbarger. That is very good. I will be in touch 
with you.
    Mr. Sudler. Thank you.
    Mrs. Harshbarger. OK. Would these blockchains be able to 
help address challenges like prescribing medication from 
various healthcare providers and verifying identity?
    And if you think so, how so?
    Mr. Sudler. I think this gets into this whole area of 
electronic health records----
    Mrs. Harshbarger. Yes.
    Mr. Sudler [continuing]. And how do we, you know, do a 
better job of having hospitals, you know, be able to 
participate in the prescription process electronically and 
making sure they are getting to the right individuals.
    The electronic health records have been very slow. It is 
maturing to some degree. We have been working with Common 
Health, which is a new technology and organization really 
dedicated to trying to get electronic health records fed into 
by hospitals and health practitioners.
    And we are looking at writing to the API of, you know, 
these databases so that blockchains can play a role in helping 
facilitate those prescriptions getting to the right 
individuals.
    Mrs. Harshbarger. That is huge because we have got 400,000 
companies in China that do the APIs versus 3,000 here. So that 
is a big deal.
    Mr. Sudler. Yes.
    Mrs. Harshbarger. From a consumer and cybersecurity 
standpoint, do you believe that the blockchain is a more secure 
option for securing health and pharmaceutical-related data than 
our current methods? Yes or no?
    Mr. Sudler. I think the way we are currently looking at the 
technology, there is basic security. I cannot say it is 
necessarily bad. We are where we are with the current 
technology.
    But when you start adding blockchain, that adds another 
layer of technology and another layer of security. So, yes, we 
are doing OK cybersecuritywise with what we have, but now 
adding some of that immutability or the ability to keep it 
from----
    Mrs. Harshbarger. Yes. Professor Sudler or Mr. Wyatt, where 
is China with CCP in their line of development of blockchain? 
Do you have any idea?
    It is OK to talk.
    Mr. Wyatt. No, I appreciate the question.
    I think, look, at the end of the day, if China continues to 
be the first mover in this space and innovating, they are going 
to do it in the wrong way and a way that is not conducive for 
our----
    Mrs. Harshbarger. Kind of like AI.
    Mr. Wyatt. Exactly. And so I think they are going to do it 
in a way that does not respect the spirit of blockchains of 
being open and transparent and decentralized.
    Mrs. Harshbarger. Yes.
    Mr. Wyatt. So I cannot stress enough how critical it is 
that I think this will be the most important year for us from 
an innovation standpoint to make sure that we do not cede it to 
Russia or China.
    Mrs. Harshbarger. We have a lot of work to do.
    Mr. Wyatt. I would agree.
    Mrs. Harshbarger. The satellite was very interesting. 
Professor Sudler--and I will hurry up--have you talked to Elon 
Musk and Starlink? You know, we went over and looked at the 
facilities. It is very interesting to know how those satellites 
will communicate if something happens.
    Have you looked at that?
    Mr. Sudler. I have not personally spoken to Elon Musk, but 
I am going up on his Falcon 9 rocket this October.
    Mrs. Harshbarger. Cool.
    Mr. Sudler. So we indirectly do work with each other. He 
obviously is using Starlink satellites. They communicate with 
each other through optical communications. So they are looking 
at the same types of problems in terms of constellations.
    Constellations is the buzzword right now in space. So every 
company that is interested in putting up satellites is really 
considering the network approach to it, which means they are 
looking at how to get satellites to talk to other satellites.
    We are really one of four or five companies that are 
introducing blockchain networks in space. So we are certainly 
of the new era of companies that will bring this technology to 
test.
    Mrs. Harshbarger. Well, best of luck. When you go up, let 
us know how it works out.
    Mr. Sudler. Thank you.
    Mrs. Harshbarger. Thank you.
    With that, I yield back, sir.
    Mr. Bilirakis. Thank you.
    The gentlelady yields back.
    Now I will recognize Mr. Fulcher from the great State of 
Idaho.
    Mr. Fulcher. Thank you.
    Mr. Bilirakis. You are recognized for 5 minutes for 
questioning, sir.
    Mr. Fulcher. Thank you, Mr. Chairman.
    Mr. Bilirakis. Thank you.
    Mr. Fulcher. Mr. Schulman, one of the topics we have talked 
about a lot in this committee has to do with artificial 
intelligence, and just listening to the joint comments of the 
panel today, we have talked about the helpful side of 
artificial intelligence. There are some incredible 
opportunities with predicting analytics, things like optimizing 
energy generation through increased dispatch efficiency.
    There are some really positive employments for artificial 
intelligence, but frankly, there are some components to that 
that scare me. The potential algorithms that are focused on 
shaping, that type of thing.
    But it all has to draw from a database, and so I am 
wondering with blockchain employing a decentralized data 
storage, is there a role for blockchain when it comes to 
potentially neutralizing some of the--what could be the 
negative impacts of artificial intelligence?
    Mr. Schulman. So it is a good question. I think the thing 
to remember about blockchain is--and particularly when you are 
talking about it with regard to AI--is that blockchain is not 
fast. In most of its forms, it cannot move a lot of data very 
quickly.
    And one of the things that AI fundamentally needs, as it is 
sort of used or implemented today, is a lot of data, and so you 
might be able to envision some sort of blockchain as a control 
mechanism perhaps where the amount of data you needed to 
throughput is not big. It is a relatively minor sort of turn-
on/turn-off or some sort of control mechanisms.
    But I would say that I think integrating blockchain with AI 
is always going to be kind of problematic because of the 
inherent throttling that blockchain has in terms of data 
throughput.
    Mr. Fulcher. Thank you.
    Mr. Wyatt, do you care to weigh in on that?
    Mr. Wyatt. I think there are three things. One, I want to 
acknowledge that AI and blockchain are powerful tools and that 
can go either way, and we need to be very thoughtful about how 
we talk about them and regulate them. But they can be 
enhancements.
    There are three things, I think, that are really important 
with AI:
    Transparent machine learning models so that we can 
understand if there are inherent biases in any of these 
artificial intelligent models. Blockchains can help do that for 
us.
    Verifying source materials so we see people producing fake 
images that can move markets or change people's minds. I think 
it will be really important for us to be able to look and say, 
``Is that a verifiable image that is from the New York Times or 
not, or is it manipulated?''
    And I think, lastly, it could be incredibly helpful for a 
phishing code auditing.
    So I think these worlds will continue to unite, and 
blockchain will be a very powerful part of ensuring the 
integrity of AI.
    Mr. Fulcher. Thank you.
    Mr. Sudler, since we are on the topic: AI, blockchain, that 
connection.
    Mr. Sudler. Absolutely, it is a powerful connection, and it 
is one that we are going to have to take a close look at.
    AI can contribute to blockchain in the sense that we can 
understand how we can make smart contracts smarter so we can 
actually give a little more intelligence to blockchain networks 
and how it evaluates conditions that smart contracts can 
respond to.
    On the other side, blockchains can help AI to give it more 
explainability. Oftentimes we see, you know, AI algorithms 
produce results. We are not exactly sure how it came to its 
conclusion. So blockchain can actually keep track and trace 
immutably in its records where those contacts came from such 
that they came to a decision.
    And so that explainability is very important, particularly 
when you talk about AI applied to very human-sensitive, you 
know, circumstances like, you know, self-driving cars and so 
forth, where accountability is very important.
    Mr. Fulcher. Thank you.
    Ms. Reyes, just as a reminder, I would like to get your 
take on this, and I am concerned about potentially some of the 
negative impacts of AI, and I am wondering if the decentralized 
nature of the data storage for blockchain might insulate that.
    Your take on that issue?
    Ms. Reyes. Thank you for the question.
    I think that my thoughts are more along the line of Mr. 
Schulman insofar as I do not see a blockchain obviously being a 
source of data input for AI.
    That is not to say it could not happen, I suppose, but at 
the moment, the state of technology, I do not see that as being 
how it would be used.
    Mr. Fulcher. OK. Very quickly, as we have seen in China, 
they have got a creation of a social credit system and a 
central bank. I am also concerned about the potential of a 
Federal Government-type blockchain, and I am going to ask this 
of Mr. Wyatt.
    With the Federal Government-generated blockchain, could 
that be controlled?
    I will just leave it at that and ask, is that a benefit or 
a drawback if there is a federally created blockchain database 
when it comes to a social credit system type system?
    Mr. Wyatt. It depends on what you are looking for. I do 
think you have the optionality of some of the topics we have 
touched on today of permission for public blockchains, and 
there are things that you could do in a permission environment.
    But there are other use cases that I would find, you know, 
that are more beneficial and meaningful right now using 
blockchains outside of our current system.
    Mr. Fulcher. Thank you.
    And I am over my time. Mr. Chairman, I yield back.
    Mrs. Lesko [presiding]. Thank you.
    And there are no Democrats to speak, so I recognize myself 
for 5 minutes of questioning.
    Mr. Wyatt, I am delighted to hear about how blockchains can 
improve everyday processes and empower consumers with new 
technology, but new technology often comes with new risks, and 
some of which being made clear only after widespread 
deployment.
    What potential problems could you see arising from 
increased use of blockchain technology?
    And then a followup: What steps could this committee take 
to minimize those problems?
    Mr. Wyatt. I think the biggest risk that we have here in 
our country is not doing anything, and I am not implying that 
we are. This committee is a great example of the work that we 
are doing here.
    But I would say with a sense of urgency so that we can make 
sure that we are leading and we are the pioneers and we are 
placing kind of the consumer protections that we need to put in 
place. So my concern largely would stem around us continuing to 
not do anything or act swiftly enough and what implications 
that could have.
    Mrs. Lesko. OK. And then I guess, Mr. Wyatt, a followup 
question. It is related to this, quite frankly.
    In addition to me being a member of this subcommittee, I am 
also the vice chair of the Subcommittee for Energy and Commerce 
on Oversight and Investigations.
    In your opinion, what balance should exist between 
encouraging innovation by technology startups and government 
oversight and regulation?
    Meaning what role do you see government playing in shaping 
the future of blockchain technology, if any?
    Mr. Wyatt. Yes. I do not know that necessarily I would say 
that the Government is responsible for shaping it, but I think 
it is really important that we establish guidelines, 
regulations, and rules of the road so that there is clarity so 
that people feel comfortable that they are capable and enabled 
to innovate in this country.
    Mrs. Lesko. And then, Professor Sudler and Professor Reyes, 
when trying to anticipate the potential risks of blockchain 
technology and how we can mitigate them, I think it is also 
important to discuss regulatory authority. As we have heard 
from all of you today, blockchains are a multiuse technology. 
So we must make sure that regulatory authority is clear.
    What is the best way to prevent unfair or deceptive acts or 
practices, ensure data security, and regulate a new technology, 
or is it too early to regulate?
    Mr. Sudler. That is a very bundled question.
    Mrs. Lesko. It is.
    Mr. Sudler. But if you take a look at how we treated the 
internet in its early days, we were fairly hands off to allow 
it to innovate, and I think that is very important for the 
blockchain to continue to do that.
    Let's keep in mind that the blockchain is only about 15 
years old. It is a teenager. Let it be a teenager, and let it 
come to some degree of maturity before we talk about huge 
regulations.
    Having said that though, there are industry-specific 
standards that we have to take a look at, things like 
healthcare where, you know, HIPPA laws are in place and the 
privacy of our data is very critical.
    So we need to look at this on an industry-by-industry basis 
to see how blockchains are being used and whether or not from 
an industry perspective we need to put some guardrails on how 
blockchains could potentially threaten our information, our 
lives.
    Mrs. Lesko. Ms. Reyes.
    Ms. Reyes. Thank you.
    So I do want to make sure it is clear for the record that 
this is not an unregulated industry. It is actually quite 
heavily regulated. I have been a blockchain lawyer since around 
2011, and most of my counseling was on regulatory matters, 
right?
    So it is quite heavily regulated. The problem is often that 
the regulations that apply are not entirely clear, at least as 
applied to the specific subset that folks are interested in. I 
think we see this largely in the securities industry at the 
moment, in securities regulation.
    I think the key to making sure that such clarity is 
provided in the regulatory framework is to go through the 
rulemaking process--an open process whereby rulemaking is 
issued, people get a chance to comment on it--and then clear 
rules of the road are provided, because many of the existing 
laws and regulations that we have do apply to the activity 
undertaken using the technology.
    What I think would be a detriment to the United States 
legal system is if laws targeted the technology or the software 
itself and said the blockchain must look like this and you may 
only build a protocol with these features. That would not be 
helpful.
    I also concur with Mr. Schulman's earlier remarks that 
targeting the developers themselves, particularly open-source 
developers, is not particularly helpful, particularly 
recognizing that blockchain protocols are not the only open-
source software that we rely upon on a daily basis.
    If you used a computer today, it is likely that you used 
some piece of open-source software while you did so.
    So those are my comments on your question.
    Mrs. Lesko. Well, thank you.
    And I thank all of you for coming here today.
    Now I call on my colleague Mrs. Cammack for 5 minutes of 
questioning.
    Mrs. Cammack. All right. Well, thank you, Madam Chairwoman.
    Thank you to our witnesses for appearing before us today.
    As you can tell by the attendance in the room, we are all 
here. [Laughter.] Kidding.
    This is something that I find incredibly fascinating, being 
kind of a token millennial, right, in the room. So I am going 
to go in reverse and start with you, Mr. Wyatt, talking about 
the gaming industry.
    So 2019 we were looking at the gaming industry doing about 
$260 billion in total economic output, right? They are 
anticipating $560 billion by 2030. So it is not just the old 
school Tetris and Mario that so many people think of, right? 
The gaming industry is huge.
    How do you envision blockchain changing the game--not to 
put a pun on it--but how do you envision blockchain changing 
the future of gaming and even going so far as, like, say, the 
metaverse?
    Mr. Wyatt. Yes, I appreciate the question, and I am 
empathetic to it, especially, you know, having kids and my wife 
not being particularly keen with video games too much.
    But I think one thing that a lot of folks do not realize is 
the way that we think about video games, Mario, Tetris, it is 
evolved. They are digital worlds. People are learning. They are 
interacting. They are socializing. They are wanting to spend 
their time inside of these environments, whatever it is that 
they are doing, right? And there is obviously a variety of 
things.
    So with this is people want to spend money where they are 
spending time. It is a very natural behavior for anyone to do.
    And so whether you are a kid or an adult that are, you 
know, interacting in these digital worlds, that is important. 
So, therefore, you see a lot of digital goods being purchased 
inside of these games, whether it is a cosmetic item for you to 
have some representation in game or whatever the case may be. 
As you pointed out, that is generating hundreds of billions of 
dollars. YouTube is one of the largest verticals in the 
business.
    I think what this allows people to do is instead of just 
licensing this from the publisher, they can now own it. If you 
spend money on something, you deserve to own it. You do not 
just license the sweatshirt from Nike, you buy it. It is yours. 
You can give it to me. You can trade it to me. You can sell it 
to me. I think that is really important.
    And so these digital goods deserve more rights. People are 
spending a lot of money on it. They deserve more autonomy on 
how these things can be used. There is no better way to solve 
for that than putting these on open blockchain protocols.
    Mrs. Cammack. I appreciate that. Thank you.
    Mr. Sudler, did I say that correctly?
    Mr. Sudler. Yes, that is correct.
    Mrs. Cammack. So I want to shift gears a little bit, and 
thank you, Mr. Wyatt, for that on the gaming response.
    We have talked a little bit here today about the uses that 
can be applicable to Federal Government, and I want to just 
expand that a little bit.
    How do you foresee--and I am running out of time--but 
blockchain technology, how could that be used for, say, foreign 
aid, particularly in countries where we do not have the most 
sophisticated financial systems, we do not have necessarily the 
means?
    How can we utilize the technology today to utilize foreign 
aid for effectively utilizing blockchain?
    Mr. Sudler. I think there are a couple of ways in which you 
can do that, and some of my students have explored that very 
same topic. If foreign aid is being sent to a country, how do 
we make sure it is getting into the right hands, it is not 
getting to, you know, adversaries or people who are wasting 
that money?
    So the blockchain can keep track to some degree of where 
that individual is on the receiving side and whether they are 
receiving that payment or not. There are some complexities in 
terms of, you know, the receiving end and what actually do they 
do with it. You know, that obviously gets into tracking. You 
know, who is actually spending that money at the end of the 
day?
    The other way is helping communities really create their 
own community coin. So if you go into that country and say, you 
know, we are going to help set up some infrastructure where 
maybe there is a community coin, allows for self-organization, 
allows for some particular region to have an internal economic 
system based on a coin that is well structured, has some rules 
in terms of how it is used. That could be a way of aiding some 
group outside of this country without necessarily just sending 
money but actually building, helping build an economy.
    Mrs. Cammack. And to take that one step forward or further, 
how do you foresee us using blockchain to prevent waste, fraud, 
and abuse and cut down cost with Federal programs, things like 
SNAP, EBT, et cetera?
    Mr. Sudler. Yes. If you have something like SNAP on a 
blockchain, now you are starting to track, you know, whether an 
individual is using, you know, those particular services 
appropriately.
    And this does get into identity itself, really tracking, 
you know, the individual who is using all those particular 
programs and income of their activities on the blockchain.
    That does get into a new area of technology of identifying 
a person on the blockchain itself and some unique identifier 
that would track their identity on the blockchain and then how 
they are using some of the Federal programs that they are 
allowed to use.
    So we are looking very closely at identity. Obviously, that 
gets into a lot of privacy and how do we do that correctly, but 
there certainly is that type of use case that has some 
potential.
    Mrs. Cammack. Certainly I have concerns about the privacy 
issues surrounding blockchain and how the technology is going 
to evolve around the sense that we need our constitutional 
rights to be protected. We have a right to privacy, and so kind 
of threading that needle is something that I am very interested 
in.
    But I know my time has expired. Mr. Chairman, I will follow 
up with the remainder of my questions for the record.
    And thank you to our witnesses again, and I yield.
    Mr. Allen [presiding]. I thank the gentlelady for yielding.
    And this concludes our hearing today. I want to thank our 
witnesses for your expertise and your knowledge around this 
technology. It is important for us to understand what you are 
dealing with so that your Congress can deal with this issue 
appropriately.
    I ask unanimous consent to insert into the record the 
documents included on the staff hearing documents list.
    Without objection?
    Mrs. Cammack. No objection.
    Mr. Allen. So that will be the order.
    [The information appears at the conclusion of the hearing.]
    Mr. Allen. I remind Members that they have 10 business days 
to submit questions for the record, and I ask the witnesses to 
respond to the questions as promptly as you can. Members should 
submit their questions by the close of business on June 21st.
    And then, without objection, the subcommittee is adjourned.
    [Whereupon, at 12:08 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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