are a number of facilities everyone should be aware of. number one, we have a full, full-scale, i want to repeat that a full-scale test grid that can be used to verify and validate modeling and research which is being done on the grid. and that is being done there. we have a test bed. this is a joint program with sandia national laboratory. it supports industry and government efforts to enhance the cybersecurity of control systems being used throughout the electric industry, not only the electric industry but also oil and gas industries. thirdly, they have a wireless test bed and indeed we started improvements on the wireless test bed and we're going to continue to do that. and as we all know, there are more and more every day components that are being connected to the grid that are wireless. so this wireless test bed is extremely important. , as we move forward with grid

security. and, lastly, and this is important particularly in light of the metcalf incident, that has been talked about here, and they're in the early stages of this but the, they are working on working on a project to develop security, security protections, physical protections and others for substations. so that's going to be extremely critical also. we're very proud of the work that is done at the idaho national laboratory. like i said they are reknowned when it comes to nuclear energy but there are these new areas that they are developing and grid security is certainly one of the things that they're going to be focusing on. the reason i wanted to say what i've said about this is i want to make sure that everyone in the industry, everyone in the government agencies, knows that these facilities are available because sometimes they have a tendency to fly under the radar. so i want to state that for the

record and thank you for making the time available, madam chairman. >> thank you, senator risch. following up on that if i could, i definitely -- >> you were there. >> i definitely believe technology is one of our friend here in this solution. when you look at the spectrum of things we've tried to do, whether it's encouraging cooperation on voluntary standard or requirements i think, obviously things like relay equipment, single phasers, storage capacity so you can move around problems, what do you, what do you think panelists, that we need to do to encourage more of the development of these smart grid technologies that give us the capacity to deal with these outages? so in the context of that framework, is it more tax incentives? is it more regulation?

is it more cooperation? >> i would first respond by echoing the comments of senator risch. i have actually been to the, both the pacific northwest lab and the idaho national lab and they are very rich resources for the industry. our industry, isac information center is plugged into them. we know of the scata testing and security capability. we use those resources for training purposes and behind the scenes analysis of threats. the grid is becoming more modernized, particularly in the west. there is the sincrophaseers have been deployed widely. i don't know there is any particular incentive that i would point out but we're working to encourage industry to get better visualization, situational awareness, recovery

tools, out of that increased capability and visibility into the grid through smart grid technologies and syncrophaseers. >> anybody else? miss kelly or miss lafleur. >> that technology is one of the main things fcc is working on partnership between industry and government to try to improve the tools we have to address these threats. i would note there is an emergency transformer program that the electric power institute is working with the department of homeland security and apb that con develop a more portable transformer that can be brought in quickly. we look for technological advances to assist us to deal with these issues and more r&d money would always be he welcome. >> miss la fluor -- lafleur. >> most of regulation is care at and sticks. phaser measurement unions and

help people meet the standards because they make the grid more reliability. so the carrier's rate regulation in 2005, congress gave us the section 219 of the federal power act that allows for incentives and we have rules allowing greater rate incentives for advance technologies to encourage people building transmission to put the latest technology because they can get a little higher return on equity if they put better technology on their line. we recently adopted a rule, for example, in pjm allowing them to require phaser measurement units for certain types of line so the rate regulation helps support those invests. >> you're talking about new deployment and this is, if we're talking about issue de jure and apparently we are because right now the 9/11 service in washington state is down in part of our state. so it is the issue de jure. so if it is, why not look at ways to further incent, not just on new deployment but on the

resiliency of the grid? to me the security measure is smart grid technology and figuring out why we don't see a faster deployment? yes, some of the technologies created in washington state but then again, we've lived and breathed and benefited from an electricity grid with cheap hydropower for a long, long time. so it is more of an ethos for us. so my question is, isn't there a faster way? but unfortunately i have to go and vote. thank you, madam chair. >> i would like to hear the answer to that so please continue. thank you, senator cantwell. who would like to answer the senator's question? >> well, i'm going to take that as a challenge to go back to look how we do our rate regulation for existing transmission but most of it is governed by formula rates. as people invest in those things they can recover if it's a prudent investment on their line. the question is whether we need to do something to better insent those. some of it is happening through

market rules, through rules that encourage storage technologies. one of the things senator cantwell mentioned. but we'll look at some other rules and give a complete answer for the record. >> thank you. let me follow up on that question. i didn't catch all of it but i'm putting two and two together about what it might be about. it is an issue that has come up several times in conversations with the industry about federal and state requirements for distributive generation or distributive generation. and how that can both postively and sometimes negatively affect the price of electricity, for the ability and requirement for utility companies to buy back power at a certain price. could some of you comment about the current status of some of that out west, particularly but also perhaps maybe, chairman

honorable, you should start. i like you to comment. as members come back we'll finish line of questioning to this panel and start the next panel in about 10 minutes. take that, if would. >> madam chairman, thank you for that question. there is wide array of stakeholders in this issue of generation. weariededucating ourselves he learning about the importance of being innovative and allowing customer choice but at the same time it is important, particularly from an economic regulator perspective balance the interests to avoid cost shifting. to insure that reliability is maintained in the first instance certainly distributed generation is an important innovation, quite frankly happening all across the world but from an economic regulator perspective it is something we continue to be challenged with, making sure that all interests are balanced,

pardon me, the interests of the industry. that does have to be able to receive back this energy at anytime. the interests of consumers from all walks of life, from all ratepayer classes and insuring the inherent equities of permitting those who would like to put solar panels on their rooftops, while insuring that the least of these isn't carrying the cost of that. these are issues we're exploring. we're educating our commission. quite frankly our commissions are leading the way in being responsive. >> i will come back to that question. now that senator portman and senator manchin, i think senator portman is next. are there scheduling conflicts i should know about, senator manchin with you? >> not now. >> okay, senator portman. >> thank you, madam chair. that u thank you for holding this hearing. i really appreciate it. this is focus of this panel on cybersecurity but we also talked about reliability real quick and i know the next panel will focus

on that. i appreciate moving forward to this hearing so quickly after your taking the chairmanship. i like to ask reliability questions because we have great experts on this panel that will give us a preview what we'll hear next and compare and contrast what we'll hear from some. industry folks. first i guess, chairman lafleur i would like to hear from you a little bit what you think we ought to be doing in terms of reliability and price spikes. at a ferc technical conference last week you were quoting having said, i'm also very concerned about the price. both absolute magnitude of the price spikes an creases we saw this wouldn'ter and variability when. when you see the price spikes symptom protecting reliability is causing this issue. can you elaborate a little on that? by the way is that an accurate quote? you never know. >> yes. the quote was in the context we had, somebody said we're here mainly to worry about reliability and not about price. i made the comment they're closely related. when you see the extraordinary

price spikes we saw in some regions of the country in january and february, that means the grid operator is doing very unusual things to keep the lights on. and that ultimately goes into customerrer's pocketbooks. we need to say why is that happening and what can we learn from it? we're in the middle of one of the biggest power supply changes we've ever seen, particularly increased reliance on natural gas to generate electricity and what we looked at very much in the tech conference last week was how we can get the rules right to make sure, number one, we have the gas infrastructure in place so the pipelines are there and constraints don't cause the gas prices to spike up. secondly, market rules, sometimes geeky specific rules are written in a way to allow people to buy their gas at more economic time of the day to avoid some of the spikes we saw this winter. and ferc has a number, we're

trying to change the timing of the gas/electric markets to make that happen. more fundamentally one of the things i've been leading is a look at the capacity markets. these are the forward markets. we look three years or five years out to say what capacity is needed on the system. and we have to make sure that the rules are written so we're properly rewarding the base load facilities that are very stressed by the short-term gas prices. we're seeing a lot of retirement of base load that could ultimately be detrimental to reliability. so we're taking a very focused look at our base load and what it needs to survive at the market to make sure the market price is right for both new resources and old. a very geeky answer but that is very much what the tech conference was about. what can we learn and get the rules right next year. >> i don't think it is very geeky. i think it is an answer that goes to a lot of the important issues. we'll discuss these further in the next panel but one thing you

didn't discuss is the impact of federal regulations on the system and i think that's, that's also not geeky but it's important. and in your testimony you said that ferc should help epa better understand some of the implications of individual regulations and, what their impact might be on electricity particularly and reliability. you mentioned that you had worked with epa on finalized mercury and air toxic standards and ferc should follow the development of epa greenhouse gas emissions rules. let me just ask you this. as you know epa is currently working on a lot of rule-making. that would include, it affects the utility sector. certainly the 316-b cooling water intake rule, the ozone rules, the particulate matter, 2.5 rules, regional haze, coal ash, let me ask you this with regard to those regulations what is ferc doing to help epa

understand how these rules might affect grid reliability? >> well, we tried to be a source of reliability, expertise to epa. a lot of our work has been focused on mats because that has such short timelines. my colleague commissioner molar who is behind me will be on the next panel. >> next panel. >> co-chaired a forum that nate with naruc and epa and we had meetings on 316-b and coal ash and now a lot of focus is on greenhouse gas. i think as rules are developed we need to be come mentors in the -- comment ores in the draft stage, in greenhouse gas rules coming out on june 2nd i had believe to make sure the rules achievable while reliability can be preserved. look at our knitting, if you look at the greenhouse gas rules they could potentially make changes for the markets and infrastructure. make sure we're doing what we need to do to support reliability as those rules come

in. so commenting to the epa and looking to make sure the infrastructure is keeping up. >> i hope on the front end you will do not just commenting but analysis for them as to what the impact is. kind of like this cost benefit analysis, we talk about a lot. this is certainly a cost. reliability is a cost. as you say to consumers. you talked about the price spikes. you didn't talk about potential for brownouts which is also there and blackouts. and we've gone through tough winter admittedly and we really stressed system. now we're looking at a potentially hot summer too. so we're, we are at a point where we need your input on the front end here to give them comments but also to be sure these regulations are not going to make it even more difficult for to us have reliability with all the issues. in the historic regulated model, states in conjunction with regulated utilities were responsible for insuring the construction and maintenance of

adequate generation, adequate reserves. who is in charge now? who do you think is responsible for insuring adequate generation reserves are constructed and maintained in so-called organized competitive market? >> well the states still play the critical role in deciding where the generation goes. and. and a lot of generation permitting and siting. 2/3 of country including ohio rely on competitive markets. we're relying on the competitive markets to send a signal that the generation can be paid so that it will stay on line or get built. and that means ferc has a big role to play. that's why the competitive markets have done a very good job over the last 12 to 15 years in deploying a the assets already built before we went into the system but now we're in a major investment cycle and we need to make sure that they draw the investment we need to keep

the resources online, or bring resources online for reliability. i think ferc has a big role to play. >> i know my time is up, we need to get into the issue next panel on base load. i'm sorry pass ask miss kelly and chairman honorable and others on this because i think this grid reliability issue is critical and look forward to following up with you personally but also with the panel on this issue. >> thank you. >> thank you, senator. senator manchin. >> thank you, madam chairman, and to ranking member murkowski, she will be back, she is in voting now, as you know my colleague, senator portman, who just spoke and i wrote to you both last month urging the, having a hearing on the group reliability and stability. i want you to thank you diane, did it in expedited manner. that is important considering what we came through this winter. there are two fuels to keep the lights on, just two right now, keep lights on 24/7, 365, nuke

and coal. gas will get in that position but not in the position yet but they will get there. these two base load fuels provide almost 60% of the power this country demand. and without these baseload fuels our grid can't function. we know that and you all said that and we can not keep the lights on. here's, i'm having a difficult situation. you can imagine in my side of the aisle with the administration's attitude towards what we're dealing with. i just want the facts to come out. that's why i asked for this today. i want you all on the frond line, people relying on their life basically depending on can we have electricity, keep the lights on when they turn it on, when they need it for, rather air-conditioning heat or for vent late tore or their oxygen, withwhatever it may be. what we come through right now, coal is still 30% of our power on national mix, 30 plus. as you're doing, you think about nearly 20% of the coal fleet is

being retired. 20% of the coal fleet is being retired. add to the fact that epa proposed new source performance standard what it is going to do will effectively ban the construction of any new coal plants. so then you start looking at reliability. how do we maintain the system? how do you keep it running? that is all i'm asking this administration to look at. how do we keep the lights on so people's lives will not being in danger and we not lose people. coal isn't the only baseload feel you know, nukes too. in the current market condition unlikely we'll build any nukes. yet we may need to replace 100 nuclear units by 2050 if the licenses are not extended again as you know. how can the system continue to work for the long haul under this sort of strain? any expert i asked they say it can't. and we're setting ourselves up for a major reliability crisis. during the polar vortex this winter a whopping 89 of aep, i

have two providers in my state, aep and first energy. aep said 89% of the coal units slated to be closed are going 100% just to keep up with the demand. pjm is the rto that handles our area as you know. we spoke to them and they are here represented. i appreciate they came and spoke to me. they are saying this is critical time. you knew, chairman, that they were taking emergency action to keep the system up. they have done a great job. they're johnny-on-the-spot. i appreciate all that. even they can be strained. they were down anywhere 500 to 750 megawatts out of 140,000 plus megawatts they're responsible if the system went down. they had another tool in tool books reducing voltage on the line 200 megawatts. you have 200,000 megawatts of coal-fired power coming off-line. what happens? you're growing to be short next

year. i would like to know and i will start with you chairman lafleur, your view of this. and should ferc be pushing certain kind of fuel or should it be looking at basically the portfolio and mix that our utilities have? >> well -- >> ferc, you touched on it, ferc's proper role. >> yeah. well, thank you for that question. i do not think it's ferc's job to pick certain kinds of fuels. the whole concept of a market is that it uses a generalized product that allows different fuels to compete fairly and so, if there are preferences for certain kinds of fuels that is not a fair market by definition. i think ferc should try to keep the, be guided by reliability and what the customers need, not by a preference for a particular

fuel. >> let me ask, because i know time, we'll go through in a second round, right now, just explain, as simply as possible, any of you all want to jump, the system way it works now. you have producers such as aep, first energy in mine. they're responsible for producing the energy that is needed that goes into the transmission which is what we're calling the grid. then you have an rto such as pjm whose responsibility is to make sure it's reliable and affordable and dependable. who makes the decision what goes on and what the reimbursement rate would be? so if you're saying that we think your portfolio is out of, out of balance and we don't think you can continue to give us what we need, who makes that decision to say i want another coal-fired plant or i want to get rid of that coal-fired plant. i want more gas generation or we need more renewables? i believe, in west virginia, we're been blessed. we have got it all.

we got coal. we got wind, we got solar, we've got it all. we are using it all. they just doesn't like it. >> pjm does analysis three years out and says how many megawatts will we need to keep this system on? then they run an auction where resources bid in. they say, i have so much coal, i have this, i have nuclear. some of the existing plants say i will run at any costs. >> hike mass the decision on price, if they say i'm only going to reimburse you what a gas turbine or gas plant would cost even though i know you need coal, i can't do that, i'm only going to do this, who makes that decision. >> those what you're referring to is embedded in the auction rules. so i would say pjm but those rules have been approved by ferc which is why we're looking at, are the capacity markets -- >> can you overrule pjm if you think they're not, their portfolio doesn't have a good mix? >> if they come in and say we want to do this, and somebody comes in and said if you do that that will happen to my plant.

we try to balance all that and make the fairest decision based on the law. >> aep can come to you, and say we shut all the coal plants down, supercritical, they shut down couldn't get reimbursed. >> prices are not working and they come to us. >> they will need the power. okay. madam chairman, can i ask? >> [inaudible] >> can anybody aide to me the price spike and power gouging what the people of west virginia will get hit in their bills? i'm hearing unbelievable, double bills, double the cost of their utilities. can you give me a reason why that happened? >> the simplest to explain it during periods where power was really short, there was successive days of night and day unusual cold. >> gotcha. >> generators relying on gas spent a lot of money to get emergency gas -- >> why did the cost -- did the

gas companies take advantage of them? is the pricing structure so that we can't adjust quick enough. >> to the best of our knowledge of our analysis so far there was no market manipulation. it was actual supply and demand forces for demand for gas versus how much there was. >> nobody has long-term contracts for gas? they can spike the price every day? because of demand? they don't do that with coal or nukes? >> some people have long-term contracts but the price spikes by, if more people bid, then there is gas. and then that is what made the price go up. >> so gas, it's, not -- >> more variable than a product like with a coal -- >> yet we're putting all of our eggs in that basket? so that means consumers in west virginia and around the country will be held hostage? is that fair, mr. cauley? >> well, in 2010 we predicted, to an independent study that 76 gigawatts of coal would be retired. we updated last year to 83

gigawatts. >> at that time, epa said only four gigawatts, something like that, sir? they were off by a couple thousand percent. >> we've been working with epa they have been cooperative with us, trying to get the message outover dependence on one fuel, gas is volatile pricing and not as reliable. the other concern there is not any discussion in the value proposition of the reliability services provided by baseload units, coal and nuclear units, such as inertia, balancing of frequency, voltage control. the more we move this out into distributed and undispatched and, not centrally controlled resources, the harder and harder it is going to be to manage reliability on the grid. so that, what we're seeing in these recent evens is units that are allowed to operate whenever they would like to operate are creating the price issues and not adding to reliability. so our role is to get that message out there and make sure the state regulators --

>> difference what you're saying basically you can bring in a peaking plant on, turn on and as far as renewables but you can't turn off nukes and coal, once it is goes it has got to go? that is the where the base comes. >> senator manchin -- >> i'm sorry. >> that's okay. >> [inaudible] >> we have a second panel that will focus on this as well. we really, yes, this is a warm up. we really appreciate that line of questioning. i just want to, when we, as we close this panel and again, thank you. it's obvious there are many more questions, many more subjects to talk about, we have a second panel that will add some light and illuminate the subject even more. but i do want to put in the record, senator manchin, that coal is a very significant baseload. gas is now almost 30% and nuclear as well. and, you know, it has shifted

quite a bit over the last, you know, 15 years. some of it regulations. some of it are market driven. we'll look forward to drilling down more -- >> madam chairman, one quick thing on this. >> yes, go right ahead. >> you know, i come from west virginia. we've been a large coal-producing state. we've been blessed with natural gas, the fracking. we've been really blessed with everything. if someone came to me in west virginia and citizens of our state and said listen, we have a new super fuel out and it is commercial hydrogen, we'll be ready, three, four, five years to go and you know what? that it would be tough we would adjust. i'm not here trying to push a product that you don't want. but when we hear from people like you, professionals says we've got to have it and i've got an administration fighting me every way they can to get rid of it, you got to have it but you don't want it but you know you need it, somebody has to put the facts out. that is what we're doing today. >> thank you very much. because you've been a leader and

we appreciate your leadership. let me as we end the panel though, chairman lafleur, express to you in the strongest possible terms my opposition to the application filed at ferc for, by american midstream to abandon the midla pipeline. i know you can not discuss this publicly. i want to call this to your attention. the letter is in your file. it needs to be responded to. and again, this is, gets back to the whole issue of getting fuel to people when they need it, to keep lights on. this is about pipelines. we talked about electricity generation. but it is extremely important issue for both generators, middlemen and middle women and consumers. so thank you, and i'm looking forward to following up. thank you all. if the second panel will come forward we'll start momentarily.

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administration or the commission on the realignment during my think the clinton administration. and outside groups with integrity, former members of congress, no for elected complete free model from top to bottom. every government has a piece of legislation or charter that created it. if it's not fulfilling that purpose were doing it within a reasonable budget it should be cut or eliminated. let's take a head start this came with the highest motivation. there are now three head start. there is early head start, enhanced and regular. why do we have the other two? because the first one wasn't working. why do we have the third one?

next, the atlanta council hosts a discussion about this bit claim has fluctuated greatly and a number of websites conducting transactions have been targeted by hackers. lawmakers have expressed concerns about bit coin and

activity like drug smuggling. reports say the platform makes it easy and cheaper to transfer funds and is less susceptible to fraud and a credit card system. while we wait for this event to start in about three minutes at the atlanta council we are going to show you a portion of an interview on yesterday's contempt of congress resolution against former i arrest official lois lerner. >> our guest this segment is john malcolm a senior legal fellow a at the adage foundatio. thank you for being with us this morning. yesterday the house oversight government refund committee voted to hold lois lerner in contempt of congress. explain what that means. i understand that was along party lines? >> guest: it was 24-12 but a straight vote. lois lerner and the irs for a number of years in the tax section she's in the middle of the scandal involving the targeting of conservative organizations who had applied for tax-exempt status.

she's appeared at couple of times in front of the congress. once she asserted her fifth amendment right. the other time how much he did something a little bit different. she gave a statement about her background. she had proclaimed her innocence of any wrongdoing, and then she asserted her fifth amendment right and the house has taken a position to buy asserting her instance and making certain statements that she had waived her right to refuse to answer questions. another thing that has happened is of significance is that her own attorney in the council has made statements that ms. lerner has given statements to the government in connection with this investigation, and it's the house majority opinion that by making the statements to the government at least with respect to the statement she's made to the government, she has waived privilege and has to answer

questions about that. >> host: for the viewers that may not be as familiar with this issue you are, explain how we got to this point. >> guest: well, there is an investigation going on. it's into a much wrongdoing at the irs. the allegations are essentially that a number of conservative organizations applied for tax-exempt status either under the section 105 c. three switches for the charitable organizations or 501c4 which is for the social welfare organizations and that they were singled out because of things like they contained the name t. party or progressive or the 9-12 project, and they were subject to extra scrutiny. the applications were delayed. all sorts of information about an incredibly intrusive nature was required to be produced by these organizations with the idea of th of the naim or delayn other applications another thing is that it is known that this is beyond a doubt that the

confidential tax information from conservative organizations was leaked to several organizations that then publicized that information. so the house convened an oversight hearing with respect to ms. lerner who was at the center of the storm by being in charge in the section of the irs i was doing all of this and obviously would like to get questions answered from her. >> host: the chair of the oversight government reform committee talked about this action yesterday and says it's not one he takes lightly. we are going to take you live to the atlanta council discussion on bitcoin. >> with his events on bitcoin and the implications of the virtual currencies also other block chain-based applications for the future broadly and i will get into what i mean in a little bit. we are a nonpartisan organization that promotes constructive u.s. and european leadership in the world and who meets today's challenge is

working with our allies. but we also serve a public education function. and i really can't tell you how many people from what i would call that traditional constituency of the atlanta council, which is a long-standing institution in washington. how many people have come to me and said what is this thing called this claim -- bitcoin, will it be here tomorrow or will it be here in 2050, and that is part of the reason i decided we should have an event that sort of performs these functions but i try to bring together a nontraditional panel with a lot of distinctive experts from distinct as the plans. i'm thrilled and honored that they are here today to explain what bitcoin is, what it means for the future of currency and finance and what it might portend for the future of our society and for our security as well. and so come our focus today on virtual currencies is one area

of a body of research that we have done on disruptive technologies, particularly those that empower individuals relatively more than for nationstateinformationstates thf centers strategically cite initiative here at the council. in the last year we've published analysis on such issues as the impact on robotics on the issues of manufacturing, how the big data will influence decision-making by corporations, individuals and companies and government. a major report last december on how the united states can harness the technological revolutions that are ongoing -- including biotechnology, three-dimensional and four dimensional printing and other technologies that are really changing our operating environment and our world. and pretty soon we are going to publish a new concept on how the uniteunited states conceived ite in this dynamic world and a new concept for national security strategy. there will be a major conference

right here on may 14 on the defense policy aspects of these issues. the discussion will be kicked off by the chairman of the joint chiefs of staff, general martin dempsey whom i've been discussing these issues within there will be an interesting presentation by him as well as the rector of darpa which is the research project agency and a number of other important and interesting speakers. we hosted also in this room what we call the foresight for the top thinkers to engage in very deep conversations and again at the harness in the technological disruptions to be better prepared for trends. it's much more scarce and the individuals and small groups have power to do things that are

very good and bad advance the society and strengthen our security but much of the technology has darker applications that can cause significant new security and military threats and a number of other sources of instability. as it is a positive and a negative about that with all of these technologies. now, bitcoin itself as a marker of yet another innovation that empowers individuals and really democratizes the second task but traditionally has been reserved for the government, and here i'm talking about the regulation of currency. it's something i think we couldn't even fathom just a few years ago. and now it is upon us and we will talk about how this is upon us today significant number of questions we will try to address on the panel with the peer-to-peer engagement is displacing government in such

tasks what other government functions that were used to them performing might also soon be disruptive. what does this mean for the security of the finances, how might the international affairs be affected, how might national security be affected by the digitization of the services like this and a number of other questions. so, i would like to introduce the experts as a really excellent panel. i'm thrilled as george washington university, homeland security policy institute, he has held a number of increasingly senior positions with the cia. so yes, he could kill you. as an intelligence council for the former senator bob dole during his cia career he was a special assistant to the associate director of social intelligence for military support he was at the state department as the director for law enforcement issues and the senior director at the

reconnaissance office. since leaving government, he's been a senior defense contractor at the software executive he testifies before the congress. he comments extensively on a range of defense and intelligence issues on television and radio. so i'm thrilled to have you with us here today. to his immediate left is mr. kevin who is already an established bitcoin minor. he studies risk analysis and a e cybersecurity and he will be working for block chain info this coming summer. he serves as the captain of the air force association cyber patriot competition steam which he led it through the nationwide competition with 16 teams competing to test how well one can secure from viruses, trojans, etc.. his team was a 16th place. so not a bad for the work that

he did. in 2012 with the northrop grumman corporation on the cloud research, which i won't even ask about. we also have mr. jason healey who is here, the director of the cyber statecraft initiative. as the director for cyberinfrastructure at the white house from 20032005 he helped advise the president and coordinated critical infrastructure immediately after the attack as the vice chairman of the financial services information sharing and analysis center created bonds between the sector and the government have remained strong today. and i think most recently he edited a book called the fierce domain conflict in cyberspace 1986 which is the first history of cyber conflict. it's an interesting book with a lot of anecdotes in addition to

analysis which is favorable by the economists. when it came out. certainly last but not least we have doctor chris brummer who is a fellow here at the atlanta council business and economics center. he is also the product counsel in the trans-atlantic finance initiative and he leads the council on the regulatory trade policies and provides bipartisn analyst is on the trans-atlantic economic cooperation issues. he serves on the delisting panel for the national adjective for a council beginning in 2013 he received his jd from columbia law school and a phd in dramatic studies from the university of chicago. i'm going to turn to ron. please join us on twitter using the hash tag we use for events like this, a c. disrupt. and i will turn to ron.

>> let me be disruptive. i was trying to think of what i was going to say that would still allow me to be friends with berry, maintain my relationship with the council and something i think is the truth. let me relate you a little family history and context. i come from a long line of people who have a slightly questionable reputation. >> my grandfather was someone who was from boston and was originally part of something called the ponzi scheme and he made a lot of money out of it. i was born in 1966 and my dad was born in 1906. in the first years of his life he lived through three depressions. you think the last one was bad.

in 1907 in world war i and 1929 u.s1929to more than double digit unemployment. the banks fail. people do not necessarily trust the government which wasn't necessarily all that involved. so, growing up with my father and listening to him talk about the banks and the depression come an and by the way he was a lobbyist in washington. the opinion as you can imagine it wasn't high to begin with. it was an interesting experien experience. my memories are of post-world war ii. 1944 near new hampshire and washington hotel people from the united kingdom, the u.s. and other countries gathered together to figure out how in the world we will survive after world war ii because we had gone through ten years of depression,

ten years of paraphrasing etc. in the 1930s which pretty much stipe is the world economy. he was representing the british anand trying to hang on to whateveonto whatevershred of die marketplace. they were bankrupt. they went bankrupt just after world war i. they almost went bankrupt in the 1930s and by 1944, they were broke again and living essentially on our money. the largest empire in the world was essentially living on the u.s. dollar by borrowing on the u.s. dollar. so this conference in 1944 was about how the united states and others were going to rule after world war ii. some of these delightful buildings that you see around at

the bank, inf o imf and all thoe places, this all came out of that. the british found convenient to world war ii it was about $4.60 and it went down at the end of the war it was $2.60. it was going to reign supreme. we had roughly half of the world's gdp and pretty much called the shots. by the way the decision was made at that point to have a dollar which was not only hold the value throughout the world but was actually exchangeable for something. $35, it was amazing. some are higher than others. and if you aragain if you are ae and in old spy to be leaving james bond. do you remember goldfinger, the movie goldfinger? it was about gold arbitrage.

you can move at $35 an ounce and if you have the right you can move to europe with $9,042 albums were into the middle east like pakistan where it would be $300 an ounce. there are pleas of working around the system and i've also added that my father and my uncle after world war ii and living in paris i wouldn't be surprised when the stories were related to me how they used to take suitcases of dollars and exchange them there for other things. we grew up in a stable time. the last 70 years of our existence has been based. the u.s. dollar has been dominant in that period of time. i've been to 50 some on countries and no one turns down. even the russians when the currency wasn't exchangeable, wouldn't turn down a dollar because it was considered a value. now, by 1971 we went off the

gold standard. why? because there was a tremendous desire to have the u.s. dollar overseas and those people wanted to convert to that in the 1960s it demanded a whole lot of gold. gold. with contempt again in the 1970s to demand a lot of gold out of fort knox. you don't physically ship it. you put the sticker from one side to another, that it's going to be an article reserve. the united states dollar since 1971 has been based on the full faith and credit of the united states. we have this old certificate with dollar bills etc., etc.. that system lasted pretty much through the 1990s. we won the cold war or as i think of it i won the cold war.

and then between 1991 to 2001, we drifted along fairly well. since 2001, and certainly since the last depression starting in 2008 and by the way if you have a job it is a recession and if you don't it is a depression. we have seen other parts of the world begin to move forward. china in particular. we've also seen the world that has been increasingly allowing itself, more than allowing itself, connecting itself. 2.5 billion people on the internet today. they belong to some 200 countries not all of whom have stable currencies. i can sit here right now and recite which peso and whatever else is promulgated by different countries over the years or who slashed a couple of zeroes off the end of their currency. now ask me what that does to people when they start thinking

about stability. some of you are probably too young to remember that even in the united states i remember parking money at about 19.5% because the mortgages were being charged at 16.5% because the inflation was 12 to 14%. that was unusual in our circumstance. it's not unusual around the world. so, when you start asking other people to have full faith and credit in their money, they look at you, smile a little bit, non- to their head and go on their way thinking i have to do what i have to do to survive. i was just recently spent three weeks in the uae to an enormous amount of bracelets and necklaces and whatever an ounce of gold it comes for me to pakistan, bangladesh or burma

and we don't trust the local currency. we want to get the mind frame of the 20th century american and 21st century where the power of the united states is not as great as it used to be. the cover of the dollar isn't as great as it used to be and we have to start thinking about a way of dealing and communicati communicating. i purchased one by the way because cardin the expression dialect is my money where my mouth is, i've taken a look at this and i think to myself okay is this the be-all and the end-all? is a ponzi scheme? i don't think so. but we will see. does it represent value and ability to exchange across the border's? like money than the answer is yes. does i that represent a threat o the nationstates?

take a look at china. however, and i will probably conclude on this one note. one of the things i spent a career doing is getting around the rules and around the borders and around different places in the world. exchanging value to family and friends you will use money orders you will use a bitcoin if possible. kennedy forged and copiesof visit as it is cracked up to be? take a look at what happened to the regular currency. if it is subject to something besides the regular currency, i don't know.

given some basic aspect of what bitcoin is. >> so basically it might get a little bit complicated, and i will definitely do my best to come up with bridges for you to help understand the process. but basically just keep in mind it's dollars and computers can exchange to one another. and this dollar can be written on the physical paper if you want to. the way bitcoin is revolutionary is that encryption, decryption has been around for a while. they were the first to use encryption for asymmetrical encryption to have the value of money and it' how much people

perceive the value to be. this works on a principle of when somebody wants an address or think of it like a paypal e-mail they click the button on the computer and basically it will create two keys for you. one is called public key and this key you give to anybody that you want to send bitcoin. so they will have the key and send funds to the public key. it's two sides of the same claims when you create a public key you also create private key that you used to unloc use to uf the funds that are sent. if you give anybody your private key they could very well steal all of your money. and so. minors are the things that keep the network going.

there is no central bitcoin like paypal. everything is distributed. it's something that gives more power to the people. and this works on basically they will take ten minutes worth of transaction so i will send a bitcoin to my mom and whoever will be sending bitcoin and all of the transactions are floating in the namespace. and then in the meantime there's people running programs on their computer that basically check the transactions across the network. so the way that they do this is called the block chaining that bitcoin gives to the world. that's the way that you don't need a central authority.

it is a large ledger that tracks transactions. so if i were to say that i have one it would say okay you have fewer bitcoin from fred and he got his from bob and so it's like okay you do have a bitcoin to send. the key is valid. i will send that to you. so the way that they do that is if they race to find out which one is going to solve the puzzle. so imagine a very large puzzle and the only way to solve it is for a minor to through random numbers in the puzzle, check to see if it's right and then if they are doing this a million times a second they will try another one so they will throw a combination of numbers into the

sudoku puzzle and then they will broadcast that answer to the world. so when you have a solution is relatively easy to check. hard to find the answer that easy to check. when the network confirms you have found the answer, the one that sounded is awarded the first work. the bitcoin reward is decreasing. so a couple of years ago, as great minor was given 50 big claims for solving the puzzle. today the reward is 25 bitcoins until the cap of 21 million is hate. once that is reached, there will be no more reward for finding the answer to the sudoku puzzle. so once they find the answer to the puzzle it does one last check with these ten minutes of transactions in limbo to make sure nobody is our return late saying i'm going to transmit

100 billion bitcoins because they will check and see that you are wrong. so they go through the transactions and use answers they've gotten from the puzzle and they will compress all of these into a block and add it to the chain and then once the confirmation page and they add it to the block chain, they work all over again and the puzzle will change every single block. to keep the program itself designed to be every ten minutes that compression will hit and they will be minted. it wanted to be ten. if they take more and more people come if they take five minutes to nine what they will do is make the sudoku puzzle harder. it will make it bigger so you have to spend a little bit more time throwing out random numbers

in order to find the answer. so once this is confirmed, then you've successfully made the transfer of bitcoins. once they are added, the transaction becomes more and more final and etched into stone because the further chain in the transaction is the more that this transaction basically is as good as gold. tell me why 21 million is the magic number. >> like i said what the time being ten minutes that's the way the program is designed. i don't want to blow your mind much, but they introduced the currency and so there is a bunch of different other currencies like the claims current value i think it's $11 a coin.

it's capped at four times as big and it's block time is two and a half minutes so it is basically created by a graduate he got his claims excited about it. there are so many. >> we have two more informational passions i'm going to move on to the panelists. when we had this 21 million, is there anybody that has bought about 1has foughtabout will thaa discontinuous sort of milestone or will things keep going the same? has anyone thought about that? >> yes the program is very clever in that every transaction it's recommended that you tip the minor as you tip a waiter. it doesn't matter if you are making a 20-dollar transaction or a million-dollar transaction

you can tap the miner a penny or less than a penny and that is more than enough because all of the text between the ten minutes of transactions that adds up to be a lot. so that's the way as opposed to paypal which will take a percentage of what you're transacting that they don't care. we could honestly be transferring $100 million or 1 dollar. the transaction fee will be less than a penny and after 21 million have hit that is the incentive for the miner. but the reward decreasing in the way to be finished rewarding than about 110 years. >> my understanding is that it's not like we will run out of money. we can just say we can keep using smaller and smaller. we can keep chopping up the piece into fewer pieces. >> a lot of people will refer to them now as micro bi bitcoins.

if i'd had $100 in, i don't want to be getting .1. that's kind of demeaning. [laughter] >> last question. what is it about the inventor, where does he live, does he exist? the person that wrote the code explaining what the code does and what he feels like it should accomplish, this person doesn't actually exist. there was a story among or two ago about a reporter saying that they found him. he was using the name in california, that they just really poured through his life and he was just the guy on the model train.

but the thing is in my opinion i don't think that this figure could have revealed himself. i don't think that it would be viable for something like this because if i had a guy or an organization if we knew who did it, than the first response would be it is going to profit them. they created it fo for themselvo no matter where it goes they are just basically doing it as a ponzi scheme. so i think the reason that he did it anonymously was to try to just really a sure people yes, this is a new technology. i am not trying to game you. just do with it what you will. i think that you have quadrupled my knowledge. what is your take on this? >> your central question was what are the implications between now and 2050?

i'm going to pick up two aspects of that. one is confusion and security. and the second is how this fits into the larger government battled over the last i would even go back as far as 30 years and maybe even a little bit further. the part of answering the 21 million is it was sort of arbitrary. 21 was kind of fixed and maybe it's not completely arbitrary but there is a lot to it, and that bothers a lot of people. but, dollars are arbitrary. a lot of financial instruments have arbitrariness built around them. the true financial professionals will tell you even gold is arbitrary. and over time we introduce a new financial instruments of any kind whether it is a currency or

a commodity there is often a lot of confusion about it, confusion by government, confusion among the public and even confusion among the professionals. this is no different than when we were introducing paper money when the united states was going to paper money folks could be rolling out all sorts of different dollars. the greenback was the federal government trying to come in and that's why we have the secret service. they rolled it back in the 1860s and the secret service was there to nick sure this was the one currency that we had about the different banks could be printing their own u.s. dollars. and we had lots of other confusions when we rolled out the instruments. the archery stocks. they were in this piece of paper entitles you to a portion of this company. just like we had security issues for thi bitcoin, the stock

certificates saw all sorts as one of the classic incidences. i watch a lot of turner classic movies and it seems like every other movie is about someone perpetuating some stock fraud. i worked in hong kong for a while and you would see the way that the modern chinese are dealing with the stocks that are coming out and it seems very familiar to those movies in the 1930s. the new financial instruments on its confusion about it. a lot of arthur train us david christie si -- arbitrary. on bitcoin i think it might prevent bitcoin from being around in 2050. sorry. the issue of the crypto currency these are all completely solvable if there is a pointer

to it. the amount of security that you have to put in to make sure that they can be secure or outside of what i would even be willing to deal with with a masters and computer security. you have to really protect your self and its best to have a laptop, separate computer that you keep off line that you are only using to keep your wallet. there are some other ways to do it, but as it shows there are a lot of issues in the exchanges. we are still new to this and trying to figure out how it is entirely solvable but it has to be usable for people. there has to be a demand that we are not getting through paypal or credit cards or other things that is going to make it as an exchange for you and me. as far as the brought a change this might be familiar to some of you. this was written in 1996 the

declaration of cyberspace. the governance of the industrial world, giants of flesh and steel i come from the new home and i ask you in the past to leave us alone you are not welcome among us and have no sovereignty where we gather. cyberspace does not live within your borders. you have not engaged in our conversations nor did you create the wealth of our marketplace. there are problems that we need to solve. many of these problems don't exist where there are conflicts we will identify them and address them by our means. the concepts of property, expression, movement in the context do not apply to us. they are based on matter and there is no matter here. even as we continue to consent to the rules over our bodies.

he was a later assist for the grateful dead and that was representing a trend from the writings of the third wave and others in the 70s and 80s coming out of the industrial age into the information age and the government are going to have less power. it's one of the trends that we talk about in to disrupt. the governments used to have a monopoly on a lot of areas and on the force and monopoly on other areas like currency. this is particularly strong now in the post snowden era and we are pretty sure he is not behind bitcoin. where you start to see people come and especially geeks,

silicon valley, the younger generation say the stuff the government is doing come enough already. we can have our own stuff that is separate. we have our own rules that apply. your bureaucracies, we have our own social contract with is sharing media were communicating or having a strong cryptography. if there are problems, we will solve them. cyberspace occurs across the borders. so, to me bitcoin in general is a part of this larger trend of the geeks and i mean that as a term of endearment, the technical change this diffusion of power away from government to say there are problems we can solve on our own without the government being there to have

to solve them themselves. this is a really strong trend. you are going to see it here in the currency and as people say can we invent a new internet that is not so subject to the master surveillance and attacks or are they going to continue to get involved or are other governments going to continue to get involved? i think the money is on the government. it has been in the past when they've had all of their disruptive innovations. sovereignty still matters a lot. so, if bitcoin and other currencies remain something that is kind of difficult to use and kind of arcane and seems confusing for normal people to use then probably the government are going to stay on one side or stay mostly dominant and bitcoin like other things that start with crypto will remain for

those people that are willing to try to figure out how to use it. if it does turn out to be stronger, if privacy turns out to be stronger and we want a more secure and private intranet, bitcoin and crypto currency could fit in with that and we could imagine off to 2050 the 2020 that these could be very much stronger. so i'm a big fan of bitcoin the system of the ledger that says here's a smart way this could get done. it could solve interesting problems whether the actual what gets mine is going to be the solution i think it is too early to tell. >> let me follow up on one issue that you pointed towards and then we'll have a conversation among the panel and take questions from the audience.

the last point you made is this business model what i called at the beginning the block chain basis is already being experimented for in the recent article of the social networks call twister, and encrypted e-mail, alternative messages, domain name systems, so they use seems to be proliferating the encrypted services. where do you see this going in the near-term? as people have heard of bitcoin but don't know much about it. where is the next application of this type of process? can a guy he really think of what i has been needed us can handle clicks the mobile money has made a huge difference because people don't need a wallet. they can use their phone.

you have a technology that has changed that society because it was aimed under society and now they can use their mobile phone not just to get information but to make payments. it's changed society and incredible ways. i'm not quite sure what the need is that we are going to be using bitcoin for. yes it can be anonymous. you don't necessarily know it's going to rob jackie and phil. it's going to need this addressing this address a but te cash already fills that need. it would allow you to do it more easily over the network but how many of us need to have a pseudonym when we are working over the internet? you can't get credit in bitcoin. there aren't any good evidence. you can't say what's the 90 day bitcoin selling for that allows you to hedge.

maybe we can get there in ten years but we still have to find -- it's hugely volatile right now. we will see. >> i don't want to keep chris waiting any longer. he knows the most about that combine appear so we would love to hear your view on the questions. >> thank you for allowing me to go on stage i know fro i'm overe business economics program that you are leadership and scope on this issue is a very important one. i'm a georgetown law professor so i want to take a regulatory stab that i think it is important to think about in very basic terms what does bitcoin do, what is the advantage

because it helps you put your mind about how difficult it is for the regulators to deal. in its essence when you have any kind of transaction between the party, the information relating to the transfer is not processed in a way that one would normally anticipate particularly when you deal with a transaction involving currency. that is quite simply in our modern financial markets, there is an infrastructure for certain kinds of transactions that innocentinessence we have systet allow the parties based in parts of the world to transact with one another and that effectively validates and concerns that a party has what it says it has and that will deliver those

committed currency to the counter party in a transaction. now, what we have in the bitcoin system is very different. instead of having a central clearing mechanism, we have a democratized process whereby all of the participants in particular the miner who receive incentives go out and fact check the transaction to make sure that on the one hand at the party who was given the bitcoin actually has what party a says it has anything closely related, there is a recording process by which the transaction is recorded and is then transmitted to the world so it creates a kind of public good good once te block changes created.

so it is a democratized system people can participate in the information gathering and the information sharing and to a degree is a market based information system. that is what is fascinating and different from the payment perspective. and then they obviously, the interesting part is that it's a string of numbers. it's not just a piece of paper that a string of data created with software that is given value that is undergirded by space that a normal currency is backed by the space but it is generated by certain digital

communities as opposed to national. thof the participants in that community ultimately give that data the value that the other participants in the system agree exist. that is a 21st century phenomenon because on the one hand you have these new platforms and data and young geniuses at penn state sitting around and it's something to create the computational models by which you can continually process the data candidates responding to a world that has a growing skepticism about finance and money, about counterparties and finance. then you have the regulators.

one of the main reasons one goes to all schools because they cannot do the computational models that allow them to the hedge fund. my students grow up to become fancy lawyers and regulators and it is useful to sort of think about what then is the place of the regulator in the world in which. what an algorithm is you have to say what is the infrastructure behind the system and what are the relative weaknesses and how does it relate to your own specific mandate.

the fact we have a 21st century currency in and of itself creates problems because no one really knows if it is currency or not. i just released a book myself this last week that is basically this idea that the multilateral system of the brendan woods era is under stress. the foundations of the international economic diplomacy are under religion. certain aspects or characteristics is that you don't try to aspire to the universalist that everybody is involved. sometimes we have certain communities. second, you don't necessarily rely on the economic affairs with the formal legal obligations that the informal obligations perhaps and finally the last is the fact that we are

losing this dollar that focuses on different kind of blocks but we are dealing with a different kind of block and increasingly the system. no regulators ask themselves what does all of this mean? but could bitcoin be considered to be? because you can't regulate anything if you don't know what it is so what are some of the contenders for what it is? so you could view it as a commodity currency however we have an entire list of what the specific data costs for the commodity. but here you have a theme that has an exchange value but it doesn't necessarily have a value from the perspective of the consumption. you do not consume the same way

that you eat. so this creates a kind of question is this a commodity? a currency was discussed. we use this term in a larger rhetorical sense. those economic and legal. the currency as an instrument of payment. on the other hand we have a payment that is not universally accepted and it isn't backed by any government it is considered a store of value for many of us in the room you know that bitcoin has fluctuated beyond the means of the fluctuation one would associate with other kind of interest. it doesn't need to the traditional concession. the unit i don't go to the store

in which my baseball bat is done nominated in tha bitcoin. if i go online it is rare that i see any object necessarily denominated. i use bitcoin to pay for it that the unit of count is some other currency. so it's hard to think of it as a typical currency. is it an investment? may be security. i see in the background someone that has been in the security. the security lawyers have a definition of what constitutes the security. and there are certain key elements of what the security is with no commonality. you don't have lots of folks partic the same way which one participates in the bitcoin. maybe we will call it an asset and that is what they are going

to say this is property that it is very weird because the property is not always given this anonymity much less pseudonym so then how do you address ss property rights that you have the fluctuations but you don't necessarily have identities created in a typical property-based system and then finally is it a then we will say it's not a currency that it is a payment system. we've already had the different participants in these burly and young miner that create a ledger that has been broadcast to the world and therefore it is a settlement system. that's hard because it isn't centralized. and the different parts in that settlement system don't operate

in anything that we have seen before for the reason that they have tried to call it a money service business. to make them more compliant with the customer money laundering systems. but even here there is a certain question as to what is the integrity of the payment system where you have not only the exchanges themselves, or you have these folks that can create ponzi schemes around the bitcoin system. what happens to when you keep the bitcoin what is the integritbut is the integrityof e digital wallet. it doesn't look like and doesn't seem to pass the same kind of institutional muster that one associates with more established

regulatory systems. so, as a result, each of those questions is a commodity. is it secure in the payment system? is it a currency? how you answer each of those questions leads you to a different answer of who is in charge. once you get to the question of who is in charge, sometimes various regulators can look at any particular aspect and say that's me. then you have possibilities of overlap, confusion and the like. but to top it all off, you have a very dynamic system that's always evil thing and it's deeply international. we run out of tokyo that creates new kind of stresses and challenges for the international regulatory system. so from the regulator's perspective, things are just started in washington, folks are going to obviously b be employig

the young geniuses to help them figure it out, but it's very hard to formulate a response if you don't know what it is or who is in charge. ..

>> that was the greatest set of late 20th century jargon from the government that i've heard, and it's not wrong within the confines of that system, but it is a nation state-based system and it is asking nationstate based rules. and i think all the bit of what jay is referencing and our friend here is referencing, is that there are people now who wish to work outside of that. and the question is in terms of international law, whether or not, in fact, we have those kinds of controls. again which he said is perfectly -- run down the list i can hear exactly what you're saying but those are nice dollar-based, bretton woods system kind of rules. the thing i would say to you is do we need to think more carefully about how those rules are designed? i think you talked about that. perhaps approaching us a little differently. >> i was describing with the regular the response is

currently, as is being developed -- regulatory. let me confirm it. so just how difficult it is to i was simply trying to explain to people what the process is unfolding. to your point, do you then look at a big coin -- a bitcoin as an asset, as a property? sounds interesting enough. well, then that means do you have to figure out a way to tax any appreciation of the bitcoin in any given point in time where there's a wide fluctuation? so when for example, the irs makes it release, tax bitcoin, everyone is saying in his system and there's a large degree of of pseudonymity not mentio mentione are wide fluctuations on a daily basis, not to mention you'll be able to write it off or you can't write out the losses but that doesn't seem like a very viable approach to always be

there looking at it like a commodity. >> precisely so there's this question as to how viable, or how exactly would the iris do this? when you talk the international aspects, germany will i believe, and i'm talking later today with the head of -- called this to a digital commodity, whatever that is. on the other hand, some countries have called it a currency which obviously gets your banking regulators involved. the fcc is worried about fraud. again to your point, tries to come up with an approach that is where the market and technology has outpaced the regulatory infrastructure. you're not going to always end

up with the optimal results. one of the challenges that argue in my book is the snake is sort of update how financial market participants and authority talk to one another even across national boundaries. i will say one last thing though. depending on the size of the bitcoin market, that's where you have certain kinds of issues but as i tell my students, always remember this, you choose, young man. i love the fact i can say young man. spent i'll write it down. [laughter] >> how do you spell that? >> young people twitter. cheese attracts rats. the question is, once you start to create value, once you start you great value you will get lots of shenanigans. lots of jamaican immigrants, all the examples i don't has

mentioned. silk road, ponzi scheme. that doesn't mean it is inherently good or bad but it does mean that where you have certain kind of opportunities, you know, folks -- maybe not always the best of all people with the best of all motives. sometimes hereditary mechanisms are not nearly enough so the question is how do you leverage the power of the crowd actually dealing with crowdsourced information, and how do you model the market and get the market involved in a way, you know, i work into something's with the self-regulatory agency. how to get market participants involved in a way to speak to 21st century problems where the problem outpaces the human capacity, intellectual capacity and regulatory capacity of these. and that is precisely why we are

all gathered here today. >> and to bring it even a more practical perhaps, will governments allow a system that allows money to be moved around, that there's no, know your customer requirements, you've got an address, a mobile phone and you can essentially signed up. governments, especially since 9/11 have been particularly strong in saying you've got to know who's working with you. you've got to know signing up for a bank account. that allows the money to move across borders without salute no visibility by the government. one of the reasons i suspect why russia and china are particularly not like it is, not just because it can be used for illicit purposes, because it completely evades capital control. if i were russia or china would be paranoid about this because of capital. people want to get the monies out of both countries and to get into safer currencies.

and those governments have controls on what monies can be allowed to leave the borders. there are no such controls on the. so to imagine the are a lot of government interest involved in trying to stop something like bitcoin right now. now, can bitcoin really be able, if it roasters becoming important, stand up not just against the u.s. government and the irs try to figure this out, but very dedicated bureaucrats to what extent that any such as the that they can't control speech and what they want to control the transmission of monetary policy. as you say. >> there's a lot backed up against it. >> not all necessarily, not all of that control businesses to the good and in a way i would put it reflective of the values that the atlantic council stands to promote. [laughter] >> i'm giving kevin and little protection here in defense, but he can do it himself.

kevin. >> a couple points i want to give my point -- as was mentioned, it's a lot better than bitcoin view that barry -- bitcoin does have an identity crisis. nobody knows if it occurred to come is it a stock? i don't know a lot of terms who's talking about. [laughter] i haven't taken economics get a, but nobody knows what to classify. the easiest thing to do is to say, to fight tooth and nail come is a currency? is a stock? in reality it's kind of both. as we were talking about earlier, some people just want to treat it like a currency and some people view it as a stock. so it is the best of both worlds where if somebody wants to have a look at the bitcoin and make transactions they shouldn't be penalized as if they were bartering stocks your and

another name that was thrown that there is not docks, the online exchange for bitcoin. they were the people to go to if you want to exchange bitcoins 2-dollar yen the pesos. whatever. and the funny thing is that not many people know where encouraging. it stands for magic the gathering online exchange. it was basically a platform for trading card game. when it first came out and 2011, it sent your password plaintext overcome you could see a password on the url. any script kiddie and his mother could find your password. >> not my mom. [laughter] >> and to basically this was built on a platform that was expecting -- bitcoin was you work and you couldn't avoid bitcoin if you want to but it was worth less than a penny a going. so the build on the platform that was doomed to fail.

as bitcoin start again more and more popular be they just kind of added more servers, packed up, date code. so reached the point where there were so many holes and gaps but they were just too big to stop everything and rework the entire system. of course, eventually they were hacked into and the bitcoins were transferred out, or so they say. a lot of people are like, they just hightailed and ran. so that was something that was favoring early investors. in the day that mt. gox went down i got so many texts saying so, ahead of bitcoin failed. no, it's just an exchange. bitcoin is fine. and so the system really does favor early investors, like if you're to invest in apple or microsoft early on, you'd get rewarded for that. and another thing i wanted to

talk about was, it would be nice if the irs were to talk to a bitcoin expert on where, what points they should keep in the regulatory matter. by now that they have something on paper, something sort of grasping it. i really do believe the bitcoin committee will be able to work with them in educating them on what they should do, what works. it's something that bitcoin people believe is stupid or just outlandish, they are not going to follow it. they just won't pay taxes on it, which is lose-lose because one thing is illegal and one is not getting taxes. they need to work together to come up with a policy that works for everybody. it would be, worst case scenario, the wonderful thing about bitcoin is that governments don't need to approve it. bitcoin can function completely normally without government intervention. so government can ban -- china

has been in the news lately because they banned a going from -- their currency to bitcoin and bitcoin to their currency. at the transacting on in the bitcoin, that's completely fine. and even if the work is said don't even touc touch a bitcoin adopted would still be able to do it. so think it's just a moot point for government to ban anything with bitcoin. because that's up with attraction is moving to direction is moving back towards the power to the people, and the government are having a hard time with it. but it's going to happen anyways so you might as well just not fight it. [laughter] >> tell that to the irs. so now we will open it up for questions. we have a number -- the gentleman here in the middle with his hand up. we will grab everyone over here. >> my name is martin apple and i'm sorry i can't be puffy but i will do it again. i want to look at this as a

different phenomenon. to me, this is an experiment and the alternatives to currency as we have known them. and whether it fails or not is irrelevant. it is going to be probably succeeded by yet another experiment and until people get to the notion that everything that we have always embodied as something physical in the digital world doesn't have to be. secondly, everything that is in the digital world is so universally distributable, that it's out of federal controls of any particular country, and there will always be some kind of a threat. so the question is how do we want to learn to live with this new evolution? because i think trying to stamp it out will not be the successful story. i think it will continue to evolve and create until a successor does occur. >> so, you made an excellent

point i wanted to bring up. when the internet was first coming about and servicing, congress had no idea what to do with it. there was a lot of discussion on just completed stamping it out, making sure it didn't, you, cause any harm or do drug-related activity. than today, you can do anything on the internet. you can do anything, you can get drugs, hitmen, whatever. spent what have you been doing on the internet? [laughter] >> sorry i disagree with you earlier. anything you said is great. [laughter] >> don't mess with me. but basically when it first came out, it was textbased because completely unappealing to the average person who just wanted it for e-mail or just a look at funny pictures of cats but you couldn't do it without knowing whatever coded language it used at the time. and then innovators like google came up, apple, just basically was able to have it, if people

want to get really technical they could, and if people wanted it for e-mail, that's fine, too. i think bitcoin is somewhere in away that right now it is a good point that it's not natural for people to have something need to be so secure because if you have $100,000 in bitcoin and then one day you leave your computer on or you go to the wrong website and to download the wrong things, it's gone. so that's something that in the next khmers i'm sure that developers will be able to help people make it easier for them to make this a viable method of exchange. exchange. >> i think one of the real problems here is that this is a 20th century down with 20th century ideas and 20th century institution. i keep saying that, that's what we grew up in. this is the 21st century. this is about the cutting edge of technology, but it's also about jumping generations here,

too. i'm less concerned about -- not less concerned, but it interest me that many world -- third world countries or underdeveloped countries, -- i could see an unstable countries -- unstable countries in africa. are you kidding me? this is great. so while it's interesting that we are of course the status quo, and we're status quo power and we're protecting ourselves here, that in pakistan is going to go on. i quite agree with you. i think this will go on quite well in terms of the 21st century. the challenge of course would be for these guys down here which is how deregulate this in a nationstate? i don't know how you do that, frankly. >> one of the first things to do is to write up something that you don't understand, or at least be very careful at least when you regulate something in fact you don't understand because you do want to make sure that you the opportunity for that, for technological

innovation to develop. i did want to make a couple of basic points are it's not just the chinese just wanted -- they are really basic power politics, interested about controlling the national mantra supply and the like but there were questions about showed a bank be able to lend -- should a bank able to lend money to a broker giving and bitcoin? in the 2008 posted enterprises will that becomes not a 20% your bubble but because the problem of the last couple of years. what should be the relationship of this new payment system -- was should be the relationship between 21st century payment system with a 20th century payment system? like that is something that you cannot just overlook. and so, and then how does a 21st century -- how does a 21st century exchange deal with a 20th century exchange.

we are using words like a ponzi scheme very, very -- you know, loosely but how that is an old school problem that works itself out in very interesting ways when you have a potential bitcoin exchange. the only reason why i'm saying this is because, bitcoin offers some amazingly interesting opportunities. on the one hand, one of the drivers behind bitcoin was in an age of what appeared to be western prophecy. you had the opportunity for individuals to create value among themselves where you're not entirely dependent on ostensibly purely politically driven government decisions, right? so you give this opportunity for people to great their own hedge to protect themselves. it creates essentially or in some ways when done right, you know, by cutting out certain

kinds of middlemen and by employing minors it at least offers the potential prospect of being able to make payment transactions in a way that is more efficient and less costly to people in the marketplace. so it's not like it's all coming out of nowhere. at the same time wherever you have the internet and have the opportunity for human trafficking or hitmen -- please don't hurt me -- obviously coming, both of those problems are age-old problems that you a new life when you have the 21st century technology. answered even at the nationstate level there are questions, and to the when the nationstate looks at it, ma they will ask themselves how can we regulate the a lot of times the question is they will never be able to be entirely successful but we just want to make sure. regulators and market

participants are as good as possible and to keep a certain dollar open because they will not be able to cure all the downside with just one for sure. >> let me collect a couple questions. >> please identify yourself. >> charles. i'm from new york. [laughter] >> microphone. >> isn't that right? >> can you speak into the mic? >> yes. i'm a recent graduate from fordham law at am writing an article right now on bitcoin, and i would like to create either a market and law and this is typically. i share your skepticism regarding the regulation. in regulation you're always wondering about the policy behind it. i'm directing my question though to doctor brummer.

you expressed the problem of basically regulated trying to basically fit a square peg in a round hole. that's not a unique issues surrounding bitcoin. is generally anytime something is new you are dealing with the traditional system. i'm wondering whether perhaps the best way for regulators who are facing serious issues, real issues and were unique regulation and good regulation is whether they should look at bitcoin and define it by its function isn't trying to look at is this a commodity? it doesn't fit into the traditional norms of what a commodity is, and what looks like a currency, regulate as a currency. obviously, not just to regulate regulations sake but for serious real issues. >> i think what, i think it's a great point.

and the 21st century of have a much more objective base process we want to ask yourself, what am i trying to do before i get involved. but understand what you want to do again yet to answer basic questions of what it is, what is the nature of the problem i'm trying to deal with. and in a new technology, this is not, bitcoin is a great interesting question but there are other important ways in which technology is impacting finance. you can look at everything from high-frequency trading to crowdfunding to all kinds of related issue areas where you get crowdsourced information and new technology and new platforms that impacting the way people do business. you have to take a step back. in bitcoin i think is particularly difficult because of the math, because of the fact that to do with pure data and it

stretches the human capacity intellectual capacity of lots of folks over at agencies, including myself. what i try to figure out, what would i do? people will call me as well and see what would you do, what we do? i can't tell you exactly how it would come out, i can only give you some basic idea of the process that i would undertake to begin to figure out what i would do. and i think that's the best and the wisest course for most of our regulatory agencies because everyone is try to figure it out the particularly when the market participants themselves, granted the rest of the world is a little dumber but nonetheless actively for the market participants themselves that there is a challenge for them to fully articulate what it is that they are doing. and in that kind of world you have to move to create a smarter dialogue and a smarter process.

and i have ideas of how you would get that up and running but i can't tell you precisely right now. >> take quicker questions because her time is running out. if you can keep your questions short. >> thank you. i'm the treasury of the bank in washington and my very much involved in transactions on a daily basis. go back to the questions about rules and saw. would it be in the bitcoin communities own interest if you mainstream bitcoin? wouldn't you becomes dead of winter, to try to get what it is an regulate, would it be better if you said please, help us move bitcoin into the mention because then you will become a dominant exchange of value? thank you. >> national intelligence university. my question along your lines is it inherently beneficial for the government to get tax revenue and not make its citizens a

criminal win-win situation. how does a government help provide better security and have access to the big paper trail, that ledger you call, that way the irs contract and made when you fire taxes yet to give your public account domain, username so that way they can help track for tax purposes? for you, doctor, can you explain money service manager versus exchange and how that will affect tax filing purposes and how you maintain being a user and not become a money exchange manager? >> let's take those two questions for kevin and chris, and then we will take a couple more. >> you a question is basically how would a government be able to track your funds and, therefore, tax them? summit. >> for social security. [inaudible]

>> i think it's somewhat to the first question which is, is it a useful approach for the bitcoin community to help figure out the regulatory approach that works for all parties. >> i do completely agree that there is a need for coming in a, bridging of the two worlds. as for how they would do this, they could theoretically give the government, your public address and if because bitcoin is based on a public letter they could see exactly who you're paying a two -- not like you but they can see the addresses it's going to come and then where you're getting the money from. so it could adapt maybe to like it or using it as a currency, maybe because i know tiger direct and overstock.com, accepting bitcoin as payment. so maybe if you're doing

transaction like that maybe the tax purposes will be a little different than if you're using an address for something a little bit more substantial, more like a car or a boat or something that would need a little different tax implicati implication. >> hold on a second. spent just to say, the money service is just to do with whether that you look as a payment system and irs is asking module basic questions, is it a property or asset that needs to be tax? want to jump off on one thing. the irs has said that even using the public key, that they can in certain instances backtrack and look at the patterns of certain kinds of payments, even using the pseudonym to be able to identify the real person. the wizard behind the curtain. for each transaction. but the power and the time required for each of this stuff is so extensive that it would be very hard under, in today's

world and to be able to regulate every bitcoin transaction but instead, like the irs and the idea of looking at the money services industry, the idea is how can we better make sure that bitcoins aren't being used for illicit purposes, in particular, money laundering, terrorism, narco trafficking spent which put you in a position which part of the government has that capability. and i'll give you three letters that do. [laughter] after all said and done there's only one that has that kind of computer capability and do you want to do? >> i think it's in a very difficult place to get the bitcoin committed to stand up to the. you can get there a couple of ways but either they're threatened by extinction by regulation, government crackdown so hard that it's an item of last resort. so many folks in that community see anonymity as one of the reasons for this system i if you

have anonymity and assistant, what's the point? why don't you just use dollars? i think they would have to be some value but if you come forward. if it's kyc, an it's easy for an exchange to exchange will be recognized i the authority to kids easier. more safety and security. if you come out publicly to be associated with your private key and associate with an exchange. there are benefits that come from the. you can imagine other ways we have done this that you come out, but it's not like bankers. it's not like you can go to ubs and tell us everyone who ever is because there's no real they are there. as you do in going after other corporate. i mean other sovereign, sal burns that have corporate banking secrecy laws spent unfortunately were out of time for questions or any last comments from any of our panelists before we formally and they see the? >> i must tell you as a member of the intelligence comunity, i

think i would have a numbers problem dealing with his. i think for both a counterterrorism standpoint but also from the standpoint of what this does to nation's currencies, especially beginning in countries where you get unstable perches. are going to get a class of people that are using this in the elites for instance, and has that going to affect their behavior for the government. >> so two things. one after this if you want to see my mining rig, i worked so hard on it, i'm happy to show you. and the second is, you know, we're talking about bitcoin here but like i said before, the greatest get bitcoin is given us is a blockchain.info the way they can do something like this without needing a central authority. so in the next five years is it going to be bitcoin? maybe. who knows? but i do know that there's more and moreeo