>> likey caught or we may be joined by a few others but decided to move forward withstanding the activity on the floor. this is a hearing on transatlantic issue in central europe and eastern europe. i would like to welcome to assistant secretary of state

vi vitoria nuland and also derek chollet. and on the second panel and julianne smith and ian brezezinski. the winding down of the afghanistan mission has led many to wonder if nato, which is the cornerstone of transatlantic reliance would be relevant. instead russia may reinvigorate to violence. nato has stood the test of time and mr. putin isentia -- is just ensuring it will continue to do so. it is unclear what putin's next

move is. recent events have crit crystalized many things including increased defense spendic, and the need to pri prioritize defense at the center of this conversation when we talk about the securities and vulnerability in central europe. we called this hearing to get an update and discuss how our allies can be reassured and become strong independent democracy. our goal is to make europe free and at peace. let me suggest a few steps we can take to increase security and have our panelist comment on them. first, i think the united states should consider increasing troops in the region. secretary hagel said a third

brugade is being forward and it is time to reevaluate our strength there. a small increase will send a notice. as brezezinski said a trip wire has the same affect as a fence. and second, the united states and our european allies should suspend armed sales to russia. i have called to end the business relationship with the state arms agency and i hope france will not delivering the warships developed specifically what happened. and third, it is time to build a plan for georgia. imagine the message it will send to mr. putin that not only will he fail to achieve this threats

and that it is count counterproductive. i will turn to senator johnson now for opening comments. >> thank you, mr. chairman. when we were over in ukraine we saw the sobering situation hey were in and they were facing the reality and nat was the primary thing we have to do here in the united states. we have to face harsh reality. tough talk is fine. but putin only responds to action. and i am gladia are laying out concrete actions we can take to change vladimer putin's calculus. we need to deter him and do it in a forthright and resolved way. the sooner the better because as you spoke early ms. nuland.

we have a short-term problem and need to change vladimer putin's calculus now so he doesn't go any further. so with that, looking forward to the testimony and appreciate you coming here to give that. >> i will not trouble you to read you your own bios as you are well known. thank you both. >> i am honored to be here to testify on the security challenges facing the transatlantic communities in central europe and eastern europe. before that, i would like to say congrats to secretary chollet on his newest member of his family. for over 20 years, the united states and our european allies have worked to integrate russia through organizations like the

wto and the nato-russian councils. but russia's actions in ukraine are an afront to this and changed the landscape of eastern and central europe. i am happy to be hear to talk about why we are there and what our plans are. russia's rubber stamp conducted at the barrel of a gun has tarnished its ability. this week's violation of violent demonstrations deepen are concern. today ukraine is a struggle fr freedom. the united states stands for ukraine as they work for a free

and peaceful future. we are thankful for the chairman and their support for the people. we have bilateral and multi lateral support for ukraine, second is the cost we are imposing on russia, third the efforts to de-escalate the situation and our unwavering efforts of the people. we support the ukrainian people and the transitional government in the steps they are taking. they are passed reduction measures and taken difficult step to steps to reform the energy sector. many of these will be painful

for the craneian people but they are necessary and open a package of $18 billion in support. our $1 billion loan helps funds this and cushion the most vulnerable members of society. we thank you for that support. and we are using more than a $100 million in bilateral support to strengthen anti-corruption efforts and helping the ukrainian people prepare for free, fair elections on may 25th. second, russia is paying a high price already for its action and that cost will go up if the pressure on ukraine doesn't abait. the sanctions a biting at them and we are considering more. but at the same time we want to try to de-escalate it without

going that route. russia has agreeed to sit down with the ukraine, eu, and the united states to discuss constitutional reform and the elections. we will see how that gose. we are concerned about the pressure is putting on moldova and other areas. moldova has been the victim of intense propaganda and renewed accept seperitist efforts. we are very glad you going to travel to moldova. they will appreciate the support. we have intensifyed support to moldova and this effort will be

sustained. the ukraine crises highlights another deep growing challenge. one of the most galvanizing across crane ukraine was the corruption that has infused the society. as secretary kerry highlighted we are seeing a disturbing trend in too many parts of eastern and central europe and in the b balkins where people's dreams are being stifled by people who are buying media outlets and weakening the rights of people. we are seeing a growing league of these corrupt politicians who are working together including across national lines to help

and promote and keep the cash flowing. corruption like this doesn't just rot democracy from the inside it makes them vulnerable to people outside the of state. in other words, in many parof europe, fighting corruption needs to be a higher priority to protect and defend democracy and state sovereignty. as we look for the vital aspiration of a free europe, fighting crime must be the central effort. the ukraine crisis is a wake-up call to promote a stronger transatlantic community.

secretary chollet will talk about the renewed need for vigilance along the eastern boarder needs our allies bus must reduce the defense budget and strengthen our economic trade agreements. and we must do more together as a transatlantic community to strengthen europe's independence with ensureing greater diversity of supply and interconnectors throughout the continent. we are very grateful for the bipartisan and very active

support of this subcommittee and the whole committee in that effort. i look forward to your questions. >> thank you. secretary chollet. >> thank you for having me here to do discuss the transatlantic issues we have. after the illegal operations in crimea we took steps. we sent additional air craft and deployed air craft to poland. third we extended the ussr truck stay in the black patience sea and we will deploy another ship, the uss donald cook to build inner upability. nato has dispatched platforms to fly orbit over russia and arman

ia. in addition to resuring our al lies we have taken prompt action to security ukraine. we are working to them to grant their request for materials and supplies. the first rounds was completed last week with the delivery of 300 mris who have been in the field and needed to be refilled. the united states has maintained senior level dialogues with ukrainian counterparts. secretary hagel talked with the ukrainian counter part on the phone. we are working with georgia and

moldova as well who feel threatened. russia is challenging the idea of a europe that is whole, free and at peace. it was said this is the greatest threat to insecurity and instability since the cold war. nato has played a huge role. president obama said it is the most important commit: and this alliance that celebrated their 56th anniversary last week represents our common values. whatever other missions nato al lies agree to, collective defense, the article five commandment remains the glue that holds the alliance

together. keeping them strong means they can respond to the issues over the last decades. russia is underlining this point very well. at this summit, allies have to balance priorities. we must transition the alliance from the combat in afghanistan to the train advice and submission. we must work to strengthen the relationship between nato and capable partners from libya to afghanistan. and we must reenergy the polit will of our allies to invest. this goal is complicated by the evolving threat picture and the european economic crisis that has forced too many allies to cut spending. but the ukraine prices is a

clear proof point of why we need nato to step up. russia's action in ukraine are reminding us of the importance of the transatlantic alliance. and the benefit to make sure this remains strong. this is stemming from many years of bipartisan support from congress and if nato didn't exist we will have to invent it. as we head today nato summitwy look forward to working together to make sure we are doing everything we can to stregthen the relationship. >> i will start with you secretary chollet and ask you to respond to the three points i made at the end of my opening statement. the first was a suggest that now is the time to mount a serious defense in congress as to why we need serious troop presence in europe. i voted on a number of

amendments when i was a member of the house to hollow out our remaining force in europe. and of course at the time it made sense to people. today obviously circumstances have changed. as you look at the troop numbers deployed throughout europe over the course of the decad decade,understanding that sequestration is still a reality, what are your thoughts? >> as you noted secretary hagel said a few days ago we are looking at troop presence in europe going down significantly as you know. we have about 57,000 or so troops permanently stationed in europe. and the ucom commander was tasked to come up with further reasurance steps we can take with our european partners to help reassure our central and

eastern european allies. so whereasi don't foresee a manager change in the permanent fo footprint in europe. but we are trying to use the poland aviation detachment which is very significant for our polish partners to help with their training and ways week augment and build on that. a way we can have a forward presence and work closely but be efficient. >> poland has requested for two na

na nato brigades. what is your response? >> we are waiting on an assessment for that >> the second point was regarding military sales with russia. difficult to understand how the french can continue to sell ships to russia that are identical to the ones that were useded into the illegal invasion and occupation in crimea. do we think they are serious about curtailing the issues in the wake of this crisis? >> it is something we have very frank conversations with our european colleagues about. you mention suspending the suspending of all weapons and those are the things we would consider. we have not done that yet. about we have the authority to

do so. department of state and defense have had very frank conversations with our french colleagues and about their relationship with russia >> i will ask you this secretary chollet and then to secretary nuland. i will ask you what you thought would be a successful russian summit. let me ask you about the question of enlargement. i understand the position georgia is in. i know they have serious steps to be taken before they are a candidate for full admission into the nato. but there can be lots of hoops to jump through and it would seem to be a strong signal to both russia and our allies that we are serious about keeping the

open-door policy in nato if we were to give a map to georgia. i know other countries are interested in getting that status. but if you could comment on the issues of enlargement and then specifically georgia. >> i will take the first answer. the door remains open. it is something we strongly support. we support georgia's euro transatlantic ambitions. georgia is a terrific partner. they are in the fight with us in afghanistan. without cavats and taking risk. they have committed to remain with us post-2014 in afghanistan. they are a strong partner. we the united states are supportive othe membership action plan and we have expressed that. as you know very well, this is an alliance decision.

this isn't a decision the united states makes alone. we work with our georgian partners and it will be a converation as we lead up to the wales summit. >> the georgians are well aware they don't have concensus in the alliance and have work to do particular to convince our westewest al lie'. we have been supporting them. they are on-track to sign an association agreement and that will deepen their relationship with many of the same countries so we hope that has a positive impact on how it assesses that. >> i will say outside ukraine

and use the second round to talk about that. second nuland you were in moldova and secretary johnson is going to be there so maybe i am preempting a question from himment but as we try to learn what the alliances did, and i am not suggesting anyone could have foreseen his, what do you think are the most important steps to strengthen the transatlantic agreement with moldova and perhaps prepare them for the potential of offensive action from russia? >> well, thank you, senator. we are intensified our cooperation with moldova. secretary kerry was there in december and i was there a week ago sunday. our primary effort with moldova

has been to support their preparation for an association agreement signing with the european union and the deepened comprehensive trade agreement because both strengthen trade and travel and length to russia and give them more options than the russian marx market. we are working with energy security and investing with romania and helping them diversify their trade market. they are trying to export some of their wonderful wine into the united states and we are linked them up with a number of key distributors. they have a project that

supports bringing water to the people and we are doing those things and supporting their path to elections at well in the fall. a very important of set elections for them. it is a key moment. we are also trying to help them -- one thing that was somewhat distressing on my last trip was whereas there is strong support in moldova for tighter links with russia the russian propaganda is throughout the russian speaking area and the moldova government and the eu haven't done a good enough job of explaining the benefits of what it will feel like when people can have visa-free travel to europe and tariffs for the goods and this is a job that needs more attention and we will put more effort into that

ourselves. >> i hope that our friends in brussels heard your answer to that last question. there is nothing untoured about advertising yourself. we know the russians don't play by the same things we do but in moldova there is a battle whether they will orient toward russia or europe. and the eu isn't doing a good job. they need to explain the benefits of that alliance because the russians are investing clean and dirty money. there is a war being fought and only one side is at a true level fighting it. we can be partners in that but

this isn't a patter of people in the united states convincing the people of mul moldova if they should or shouldn't join the union. >> are we doing anything, secretary nuland, to provide an alternative view to ukraine, moldova and the other baltic states? >> thanks for that. this has been a major line of effort led by secretary kerry but supported by the president as well thoefover the last two s two -- one can't match the kind of money and effort in a closed society that russia is putting into this but we can help debunk lies and get the straight story out. we are redirected a great amount of public diplomacy funds to

mounting our own truth-telling campaign when we are pushing out in ukrainian and russian and a lot of european languages and in english across the united states and allied territoryiarritorter. the united for ukraine campaign on twitter. if you are not on that link up. that was started at the state department and has thousands of users now. we have a product called the daily playbook where twice three times a week, sometimes daily, we put out all of the positive news about what is happening in ukraine and we debunk falsehoods from the russian federation including the most recent ones where they accused us of having

mer mersey around the state. we are doing a lot. and we will redirect money to moldova as well >> what about broadcast and tv and radio? it came to my attention that there was a station that was being discussed to purchase >> we are supporting ukrainian companies that are broadcasting in russian and ukrainian and we are supporting the media center the government set-up to help them exploit available opportunities and we have the rfl that is active in this space. we have not looked into buying tv ourselves. i am not sure that is the best use of resource rather than trying to partner with folks in

ukraine and in europe who are active in this space. >> okay. secretary chollet,congrats first of all on the new addition. you mentioned secretary hagel talked to the ukrainian counter parts. can you tell us what that was about? >> this was the forth defense minister he talked to in the last several months. this is to ensure we have at the highest level a chain of communication at the crisis and so we can hear from them directly about their needs and ways to help them >> are they specifying needs? >> yes and no. ukrainian military wasn't an extroidinary army before this and it has been over significant

hardship over the last several weeks given russia's behavior. so the most urgent need they have identified to us have been in the more non-lethal humanitarian spaces. we are working to accommodate those. >> i know there was a request for small arms and ammunition that was turned because and part of that was because we didn't want to do anything to provoke vladimer putin and this was before the vote and an exxation. are we rethinking our willingness to help ukraine from the standpoint of supplying them the small arms and ammunition they requested back then? >> we are constantly in a dialogue about what they need. >> that is great.

dialogue is great. are we rethinking if we will provide the support they requested and need if vladimer putin moves forward >> their own priority is mainly non-lethal at this point. as we look out of this immediate crisis we are in and think about the long-term and they seek to further mordernize their military, efforts we are tried to work on with them for years, and they have a long way to go on professionalization and modernization. >> you mentioned that nato is augmenting their presence along the boarders. how many personal are we talking about? >> we can get you the exact numbers of nato. i can tell you from a united states perspective, for example in poland, the aviation

detachment with a couple hundred folks and similar to the baltic ships and that. and part of what general love breed will be coming back to nato and briefing next week is his proposal next year for how whether by land, air and see whether nato can be positioned differently. >> so our response to the russian build up of tens of thousands, hard to say the exact number, but tens of thousands along the border is a couple hundred and cousins. do you think that is going to thank vladimer putin's calculation? >> i think what is most likely

going to stop him is with sanctions. >> isn't it true the russian officials mocked the sanctions? >> i think secretary kerry said initially there was chatter and mocking. but these sanctions pinch and hurt. there is no doubt. and as the president made it clear, it isn't the limit of what we can do. but the further we go, the greater ramifications it could have on us. that said, we made clear clear to the russian government we stand by article five commitment when it comes to our allies and their behavior it not acceptability and we are rethinking many thinks about their posture in europe. >> i would in general associate myself with the remarks of senator johnson. i think we are beyond the point

of treading lighting and provoking russia. they are going to make decisions based on their own security needs. and as one neighbor of russia came and told senator johnson and i should be to do everything that russia doesn't want us to do. i have talked about providing small arms but i think a successful nato summit with a membership action plan to georgia and continued increasing the sanctions. can you give an updates on the election schedule, second nuland, on may 25th? what is russia's capability to undermine these elections who today they don't have a

candidate that is polling at any level that would suggest they are a true threat. what do we worry about and what are things that we and the ukrainian al llies have a choic. if they get a vote, there is no way the next president is going to give putin the time of day in the next administration. >> thank you. as you may have seen there are more than 25 candidates representing every color of the political spectrum. so the ukrainian people will have a broad choice and it is likely to throw to runoff which is healthy. the media environment and the basic conditions were the election at this moment, absent

the security situation, are as good as they have ever been in crane with a supportive transitional government and vibra vibrant public debate going. and a response from o-dear who is planning to film a thousand monitors from across the country. and they are making prevision for crimea citizens to vote. it will not be in crimea because russia will not allow it. so that is part of the answer to have eyes all over this process so that it can't be manipulated. we have efforts to destabilize

ukraine and calling it too difficult to have elections or a larger move into the ukraine to protect citizens. this is the real threat these moves in these areas pose. the interesting thing is that none of this has any kind of significant support among the populations including the pop playi popilations of the piece. there is polling that shows less than 15% in the east want to join russia. they want to stay in ukraine and have a choice for their future. there are canadidates to vote fr across the spectrum including peal that want a closer

relationship with russia but not to join with them. the number one risk is the security situation and this aggressive effort with an address back to moscow to destabalize. >> and the more successful we are about making sure the vote is smooth we have to worry about russia once they see the writing on the wall. and back to united states military support for ukraine. it seemed one of the logical programs we could undertake whether it is the united states or nato is a longer-term project to rebuild the ukrainen arms forced. they were hollowed out. and what about a long-term

commitment to help them rebuild their miltitarmilitary? >> senator, absolutely agree. i think this crisis provides an opportunity to think about how we can continue the efforts we started and augment them further. our military relationship with ukraine is important and they e deployed with us is modest at $4 million a year. part of the decisions we had in kiev were about the important need and the long-term making sure they continue on the effort we help. >> i think the noisier we are about the longer term commitment the better. senator johnson >> i have been hearing a term finland realization.

is that something our nato partners or are we using those terms in any way shape or form. >> senator, we are not. that term has different meanings to different people but it implies a constitutional new tr newtrality of one find or another. as you know the transitional government in ukraine doesn't have any plans while they are in power it change the quote non-block status of the country. but it is matter for future leaders of ukraine and the ukraine people to decide how they want to associate in the future. it isn't a decision the united states can make or any other country. >> we are standing by the

assurance of doing everything we can to maintain the border control? >> that was signed saying we would support and defend the sovereignty and integity of ukraine. our own commitment remains solid. but russia didn't have any trouble trampling on that. if i can go back to your point about whether sanctions are biting. it is easy if you are sitting in moscow to mock them. but more than $25 million spent by the russian federation to prop up the ruble and defend it. capital flight in the 1st quarter of 2014 was greater than

capital flight throughout all of 2013 which was a significant year. a great shrinking economy. downgraded of russia by the major rating organizations. this is pinching. but you are not wrong we have to maintain the pressure >> thank you to both witnesses. we appreciate your time and late start. you are dismissed and as you leave we will seat the second panel. thank you very much. [captions copyright national cable satellite corp. 2014] [captioning performed by national captioning institute] [inaudible conversations taking place]

let me >> let me welcome our second panel but senator cardon is on his way and will be taking over the chairmanship of this portion of the hearing in about 20 minutes or so. i unfortunately have another obligation and we will try to wrap this up as quickly as we

can given what is happening on the floor. but we are very excited to have our guest, enter for a new american security strategy and statecraft program director and a senior vice president at beacon global strategy. she was the principal advisor for nato. ian brezezinski brings more than two decade said of service and serving assistance secretary. and edward chow is our last panel guest. welcome to all of you and we will go into the order i

introduced you. >> thank you for the opportunity to testify today on transatlantic security chalching challenges. as you know, russia's an exation has caused a lot of talk. and europe and the united states shares three objectives when this crisis and one is isolating russia and two is reassureing our allies in europe and third is supporting the new government in kiev. you heard from secretary chollet about the things the united states was able to do in the early days from providing baltic

state ship and poland ships and other plans we have for the region to help our allies feel safer. europe was slower to answer the call. they have had a number of concerns about provoking the russia. they are looked at public opinion data that doesn't support initives that would support our friends. we have a number of western european countries step forward so that has changed. as you heard general breed will present other option on tuesday that i hope will be supported not just by the united states but the alliance as a whole. moving forward, i think the challenge for the united states and europe is to keep the momentum going and get to a

point where we don't allow policy differences to lead to paralysis. we don't want additional over confidence on the russians or allow the russians to put a wedge through nato. i suggest three things europe and the united states should be focused on and the first is provide a united front. you know there is cracks on the transatlantic relationship on this issue. we have disagreed and had public airings over this dispute and i think that wasn't wise. as we disagree and weigh the pros and cons of moving forward, we have to keep what is at stake in the back of our minds and remember that crimea isn't a bump in the road. this isn't a hiccup or a

short-term incident. what happened in crimea will have lasting impacts on transatlantic and the are region as a whole. we are not going back to business as usual and it is important to keep that independent mind as we think about a long-term strategy that has economic, diplomatic and military measures. the second thing is getting the nato piece right. you heard about the nato sign-upment coming up and we'll need united states leadership to drive initiatives forward on difficult issues. nato enlargement and you are well aware of the differences inside the alliance on this issue. if we don't take on cyber, missile defense and other tough issues, nato is going to be unprepared to deal with what is

coming at it in the 21st century and beyond. and not just with this crisis but others. the secretary of nato has been optimistic saying ukraine is a game-changer and will hopefully lead to increases in defense spending. i am not so sure but i would like to count on washington to move that debate. and talking about article five versus expeditionary operations. the last think i think the europe and united states need to focus on is not leaving a gray zone between nato territory and ukraine. we need to look at countries like georgia and moldova. and in many ways these countries need more aas circumstance circumstance s than those not eu already. we will have to put everything on the table and make sure there is a united front between europe

and the united states. it just can't be the united states alone. in term of the european efforts to support the new team in ukraine we are trying to support the elections, working to provide them financial assistance and address their security needs. i think we are done all right in the first categories. we are trying to make sure they have the tool for a free and fair election. we are provided billions of dollars and promises of loan assistance and technical exp expertise and everything else. but we have not done as good of a job with security. we are relying on the ukrainian military and i don't think we can count on that in the long-term. we are not sure how much longer we will see restraint particularly given some of the

protest we have seen in eastern ukraine. so i think the united states is going to have to ramp up the efforts to review the request of non-lethal and lethal and see if we can provide additional training and look at things like ammunition. to close, i want to say i think europe and the united states deserve credit for the work they have done in multiple categor o addressing this crisis but what they have done should be seen as the opening act. we have to sustain this momentum, have a long term strategy and make sure it is paired with real resources and capabilities. and we might have to think about what happens if russia goes into the eastern ukraine or what happens if the may 25th elections don't happen. we need too those conversations

now. >> mr. brezezinski? >> i am honored to speak at this hearing on eastern and central europe. to date, the west has yet to generate a response that is likely to deter moscow from further aggregation. the actions of the united states should be guided by three objectives: to deter russia from going into the other countries, to assure ukraine has the capacity and support the ukraine people. we need firmer economic sanctions against russia.

the current set is creating badges of courage against the crony elite rather than the pain necessary to make them rethink their action. second, the west economic and dip all lomatic sanctions need to shore up nato allies in the crane. nato response has been limited to a reinforcement of airspace. and this is showing concern about their able to react and the reduction of combat capability in europe. the united states nato should reinforce central european allies with deploying now and

special operations contention to the baltic states and recend the nato funding act. the united states should freeze the reduction of united states forces in europe and direct u-com to make options permanent the deployments i just suggested. these steps would help generate security and con fidencconfiden. and we need to provide security to ukraine. we are drawn a red line that is leaving kiev military isolated. we should grant ukraine's request for military equipment immediately and include anti-tank and aircraft weapons. united states equipment would

help them remember when soviet forces encountered them in afghanistan. we should deploy military trainers and this would force moscow to consider the reprecushions of action they took. the invasion into georgia afterwards contributed. and we should deploy now. waiting until may, late may, or june as planned, only ince incentvises russia to take action earlier. this would introduce issues in the planning for mosco. forth, the west need to respond to the aggressive propaganda which is the worst since the

cold war. this campaign threatens ukraine's ability to conduct free and fair elections and weakens their ability to undertake economic reform and creates opportunities for the people moscow sent to the country. fifth, we need to support ukraine moving into the european country. we can do more with diversifying their energy supply and free up exports in eastern europe would serve as this priority and finally the west needs to reanimate a vision of a europe whole and free. the situation shows that nato made clear its open door policies was flow empty slogan. this is an important way of securing committee and no decision or recommendation

should be committed or advanced that would limit to any country. senator johnson, that is why i think your concern is warranted. it would reward putin for his aggregation and bring us back to a day when great power decided the future other other countries. articulated their desire to be part of your. those wings should not be clipped at this point. we could not trust putin to live ... up to any agreement regarding a neutral country, because it would encourage him to pick away at them. let me conclude by saying the most effective way to counter their operations -- the presence of a secure and prosperous to miami in their neighborhood is not threatening, but can help their focus toward resting internal problems. it may provide momentum to russians who have grown wary of authoritarianism.

in central and eastern europe has always been essential to the forging of a true hardship between europe and russia, and between washington and moscow. thank you. >> thank you. we will turn the panel over to mr. chow. >> thank you, mr. chairman, ranking member johnson, senator cardin. i am honored to return to this committee two years after testifying before you on a serious and growing energy vulnerability of ukraine. this is much in the news today. my fellow panelists have covered the various hard and soft security challenges for central and eastern europe. since my own competence is limited to energy, i will focus on the threats and opportunities that sector presents to this region. the legacy of the warsaw pact left most of these countries relied on russia for their oil,

gas, and nuclear fuel supplies. is conducted under barter and other non-market trading terms. transforming a highly inefficient and polluting energy economy necessitated a painful transition along with overall economic restructuring. historical suspicion and actual use of energy as a political tool by russia gave further impetus to the drive to modernize the energy economy. in general, countries that chose to a speedier path to transition, full privatization of energy assets, and transparent regulation by independent bodies, adoption of european standards in is this practices, are in better conditions today than those countries with state-owned companies that retain old is this practices and relationships with their traditional supplier of imported fuels. state companies in these

countries continue to dominate the energy sector so that politics, rather than market forces cannot determine outcomes. countries that have a coastline and better access to crude oil and petroleum product imports from international markets and countries with significant indigenous energy production, such as poland, with cold, and romania with oil and gas, are less vulnerable to cut offs. preemptive action also mitigated vulnerability to cut offs. the czech republic's decision to build an oil pipeline from is ana in the mid-1990's example of a country that invested early on to reduce the risk of supply cutoffs. refineries tech as were -- decisiond lithuania's to commission a liquefied natural gas receiving terminals are more examples of committed actions to diversify energy's

supplies. the potential for shale gas from a geological trend which extends from southern lithuania across poland and ukraine, romania, to bulgaria offers good prospects for developing energy supplies in the medium turn that are affordable and beneficial. european integration offers the best opportunity for energy marketer and is asian. the pathway to the european union includes reform and restructuring of the sector and to remove energy corruption by adopting european standards and business practices. the eu also offers funds for important infrastructure improvements, such as pipelines capable of reverse flows. market integration is critical for smaller countries in this region to achieve under diversity of energy supply. the energy industry relies on economy of scale to justify

multi-billion-dollar investments. therefore, it is difficult for individual entries to economically justified diverse vacation projects on their own without being connected to the energy markets of their neighbors. with pipeline and for structure, shared storage facilities, connected electricity grids, and arrangements.al unfortunately the process of market integration has been painfully slow them and results have been mixed at best for the free flow of gas and electricity. without market integration, the region cannot afford the energy supply diversity it wants. bulgaria is a prime example of a country which is not a can full advantage of the splendid geographic location and opportunities to connect to their neighbors and energy. fund -- and is today not much better off than in 2006 and 2009 come of the between gas cutoffs

russia and ukraine. since i testified previously before the subcommittee about the sorry state of ukrainian energy economy and this topic came up in my testimony before the senate energy committee two weeks ago, i will not spend time talking about ukraine here, and leave this subject to the question time if senators are interested. suffice it to say ukraine in its long troubled gas relations with russia remain the biggest supply vulnerability for the region. half of russian gas sales to all of europe still transit ukraine, in spite of russia's efforts to bypass ukraine. ukraine is the dominant and in some cases the exclusive route centralimports for most and south european countries. the potential benefits of the energy sector reform and ukraine remain enormous, and is now more urgent than ever. there is much that countries in central and eastern europe,

which has gone through a successful transition to modern energy economy, to offer ukraine in terms of sharing lessons learned and assisting in capacity building. there are also countries which will most be affected by the collapse of ukrainian state. in many of these areas it is natural for europe to take the lead, given its proximity and shared interests. the urgency and seriousness of the crisis in ukraine demand american leadership, and for us to coordinate our efforts with european friends and international financial institutions, while enforcing strict compliance on the current and future government of ukraine to meet commitments to reform its critical energy sector as a condition for western aid. thank you for your attention. >> thank you for your testing. thank you all three of you for your testament. senator johnson? >> thanks, senator cardin. brzezinksi you are

recommending a more robust response. you also recommended a more robust response that was implemented in georgia. can you go into detail in terms of what the u.s. did versus what is being reported in the press nowadays and how that had an effect? thehen i look back to georgia crisis, i cannot and say that was a successful example of the west are sponsored to the aggression by a great power. but some of the things that we did do right include the following. one, we demonstrated a willing to take military risk. for example, in the united states called the russians and to fly back, going the russians threatened to shoot

down aircraft in and so the chairman said that would be a mistake, they are coming in. that was a signal to the russians we were serious. the second he we did to help provide greater assurance to the georgians, we provided some military equipment, some arms, we provided trainers on the ground, so the marines were not whichir deployed, increased the prospect of them getting caught up and it was the actions that the russians would take against the georgians. >> do you recall the numbers? >> no, i don't. they were not high. it takes demonstration commitment. today we have not done that. as you pointed out, at the beginning of ukraine crisis, the russians over lysed 100,000 troops -- the russians mobilized 100,000 troops in the front it.

what has the was done? westernor so f-16's poland, and offensive flights on the poland frontier. also a company of marines to romania. that is about it. not as not significant, demonstration of resolve, that is a communication of hesitancy to the russians. >> in your testimony you are talking about the types of military support you would provide ukrainian military. can you speak to that now? >> ukrainian military is about 129,000. 80,000 our ground forces. they are not the most highly equipped. they are not the most highly ready. they should not be underestimated. the event 20 years of independence. they have been in nato operations.

a have a battalion of th brigades with poles. they're capable of taking on western equipment. i think they should be given equipment that would hit russia's current strengths, in armor and aircraft camusso antitank weapons would be useful, antiaircraft weapons would we useful. i would not guarantee the ability to survive a massive onslaught, but it would make it painful for the russians, and that should make the russians think twice. right now they do not have to think that way. smith, would you disagree? >> as i stated earlier, i do think the administration needs to ramp up its review of the defense requests that come in to date. a mix ofote to date is lethal and nonlethal requests. i have not seen specific requests for antitank weapons.

i have seen in addition, small arms, as you mentioned earlier, as well as some of the nonlethal support. i think specifically what would be extremely helpful would be on the intel sharing side them and training will be absolutely indispensable. is fromof the problem the prime minister himself, they are reluctant to ask for something they know would not be supplied. their intelligent enough about that. that is part of the problem. esthemr. chow, i read an intereg op-ed talking about permits and applications for them here, and the point being made is allowing the application process to go through on thosel and g terminals. would send a pretty strong signal and have effect, even though the l and g would not be flowing for a while. would you agree or disagree?

>> thank you for the question. from an l and g policy standpoint, there are plenty of reasons why the united states should pre-existin -- should re-examine its policy and rules given that they were written in the 1970's when a time when was a drivingy motivation for the legislation, and those issues are being discussed in congress and reviewed and should take its course. i am in favor of the idea of looking at the level of l and g and other energy experts. toolncern is trumping up a that is in effect in the short to medium term they have counterproductive consequences.

ukraine does not have an l and g terminal. if it were to have one and the to allow the tankers to go through, it would take years to build. we do not have any capablility until 2016. that thee of capacity department of energy has already approved is quite robust rad. alien cubic85 meters per year, more than the consumption of germany. what we are doing is having an effect. to threaten the russians was something they know cannot happen for two or three years is maybe counterproductive, and my reaction is to say that the russian reaction -- if that is the best you got, then we do not

have anything to worry about. >> thank you for your testimony. >> thank you. let me follow up if i might. you mentioned any solution with ukrainewith regard to would be made term, long term solutions, not short term. can you just review with us what we should be doing in the short term. russia has a double edged sword here. they can absolutely apply different pressure on ukraine by either raising price or cutting off, but it is a very profitable source of income for russian. of course, a lot of the energy goes through the pipelines to other countries. however, ukraine eads to make itself more independent -- ukraine needs to make itself more independent and useless

energy, which is an area that is interesting in energy conservation. there is a lot of wasted energy. the pricing to the consumer has not been reflective of the cost. the imf is instituting certain reforms where there will be better pricing, and some of the to support will go low-income families and make it affordable. do you have other suggestions as to how ukraine to become less vulnerable to russian pressure on the short term on energy? >> yes, sir. ukraine is not without leverage on its energy gas relationship with russia. more than 50% of russia's exports to europe, it's prime market, go through ukraine. the problem in the past 20 some years is that leverage has been used by individual ukrainian politicians for private profit or corruption, rather than for

state and tryst. even today, ukraine has the means, has the leverage to stabilize its gas transit and supply relationship with russia if the old political relations were to come down. in order to do the that, it needs to remove the pervasive corruption in the energy sector in ukraine, particularly on gas. one thing i would do for sure is to completely restructure the national oil and gas companies, which is at the center of that corrupt practice. the other thing i would do in addition to what the imf rightfully has done in terms of getting market-clearing prices on the consuming side for gas is also to increase wellhead gas prices. is thathappening today if you are a domestic producer

of gas in ukraine, year hitting a small fraction of the price that ukraine pays russia, even three months ago. tot is a disincentive produce more domestic energy. my question why it is the way it is. multi-tiered pricing helps create a great market for gas, domestically in ukraine, which toe again privileged access politically connected folks are the ones who benefit from it. the rest of the ukrainian public suffer shortages, even though they are the ones who supposedly are benefiting from the low prices. this,g reform is key to but not just -- but also at the wellhead. >> i think these are all important points of the economics of the issues. still, i would hope we would

look at alternative sources other than russia energy in the event that this short-term strategy deployed by russia to ukraine.crisis in i understand it would also hurt russia, and i fully appreciate the reforms needed in the energy sec are. i cannot agree with you more. i think your points are very well taken. that me shift gears to the security issues, and i followed with great interest the seriousness the that russia takes, the commitment to defend territories , whether it be ukraine or countries in that region. and, yes, one thing we know, russia does not want to see nato expanded on their borders. they do not want to see troops on their borders. they're concerned about that. i was the agreement was reached

that we would not station there. i think, though, they are very much aware of our treaty commitments to nato allies. i really do think the consideration even for a person like mr. putin before he would take action against a nato ally. but there are other countries in that region are not nato allies. georgia is interested in becoming a nato partner. that would present a very interesting dynamic to russia. ukraine is a little bit early. they have not moved in that direction. russia certainly does not want to see ukraine become a nato partner. but i think moving in that direction would be exactly what russia does not want to see happen. it would be interesting from the point of view of trying to counter what russia is doing today if there were more interest in more common defense, such as nato, in regard to that region. i would like to get your views as to nato expansion.

europe has been reluctant on nato expansion unrelated to the russian crisis. there will be a meeting later this year in which there will be considerations of countries who are -- for nato accession. what are your views in making it clear to russia that we are very serious about protecting the territorial integrity of countries in the region? >> thank you, senator, for the question. you're right, one fundamental question is what does russia want, and europe does not want to see any additional rounds of nato enlargement. the other question is what does nato want? the answer that depends on who you ask. this is a controversial subject. there is a divide. party alliance is not prepared to advance forward with nato enlargement. the united states feels passionate about the fact that

the door remains open and we should not give a country like russia any sort of veto over this process whatsoever. there is also the question of what a country like jordan wants and what it deserves great in my personal view, i think we have come so far down this route -- this road with a country like torture it is hard to figure out how we would ever exit. i would not recommend we would exit, but i think you're countries inside the alliance that would be comfortable prolonging this process forever. if you look at this sacrifice is georgian soldiers had made in a place like afghanistan and all they have done as a trueblue partner to the nato alliance and how they have work to meet the criteria for membership, to me it is unimaginable that we could slow down this process. i personally advocate for georgia to move forward with -- at the next summit. i'm skeptical whether or not we will succeed in doing that, because there appears to

be a great deal of consternation to do that. i recognize that that would add an additional security burden to the alliance. but what better sign of our commitment from europe and united states to a country like georgia and to move forward with that. russia'so you think reaction to nato expansion in georgia would mean? >> it could be quite devastating. emotionally and symbolically, they will raise a complete stink about this, and they will cry foul on all accounts. it is not the same as us stationing ground troops in a place like poland where they will say in 1987 you problem -- you promised not to do that. there's nothing we ever said about stopping nato enlargement. we never made that promise. they cannot claim that. they will claim that we are infringing on their security, that we are trying to encircle

them, trying to contain them. there will be all sorts of complaints. the question is whether or not we would see russian irritation of attention in the relationship, additional further russian aggression if we did not do it. that is the question inside the alliance. half of the alliance and this will provoke additional russian aggression. some say it will prevent it if -- withforward with georgia and i fall into that territory. >> just add a couple points. said iswhat julie accurate, there's great division in the alliance. there is a predisposition in the alliance against larger and for the region she puts. part of it is the administration has not pushed for nato enlargements. in the absence of leadership, it is not surprising it withers on the side of europe. second point i would make is nato is on russia's order. norway is on russia's border. estonia is on russia's border.

nato has not undercut their relationship with those countries. norway has a very good relationship with russia and is proud of its cooperation with russia in the arctic. poland, a country that has a troubled history with russia, had an improvement in its relationship with russia ever since it became a member of nato. there is not a real track record of nato membership undercutting a relationship with russia. what has undercut russia's relationship with the west is president putin and his aspiration for empire. that is the problem that we have. if we are going to counter that those defective --, the most effective way is enlarging eu membership to countries, a toeadily pushing nea

forward. it provides security, nonthreatening to others, a alid foundation for actually context of enduring cooperation with russia. as juliett points out, we want to eliminate gray zones from your. they're like walls. it creates separation. he can ring communities -- we communities together, that will help worship. >> i thank all three of you for your testimony. this is an issue that is going to be around for a while. conflicts in georgia, moldova, azerbaijan. it looks like it is getting pretty cold in the crimea. it looks like we are going to be with his for a wild. there is a lot provided of action by russia in eastern ukraine, and there is concern in other areas that russia is very much planning for additional military options.

andhis issue is very fluid, i can tell you i think there is a very strong support in the congress to make it clear that we will not ever accept the grab by russia, what it is doing by ukraine or other countries. i thank you all for helping the record of this committee. with that, the subcommittee will stand adjourned. thanks.

to the american public, and it's not just about inaccuracies on terms of what the affordable health care act would do. it's the absence of speaking the truth about where we are. where are we? >> we are now at the standard of living the same as what we had in 1988 but,. we now have per family unfunded obligations and pier debt of over $1 million per family. that needs to be spoken so that we can build the context to put the tough things the going to come. the biggest problem that i see in congress is that there is denial of reality did you can still be a good person and deny reality. we all have flaws, and we'll deny reality in some sense in

our lives every day because we don't want to face them. but the fact is is we have not had the in this country in a long time, and i'm talking presidential and congressional, that would stand up and tell the truth to the american public about the situation we find ourselves in. you can debate what caused it. i pretty well have my idea what caused it. >> senator cockburn on his career, politics, and reasons for his retirement from the senate at the end of the session sunday that it:00 off c-span q&a . >> now the atlantic council hosts a discussion on the future of digital currency. the centralized internet base system for conducting financial transactions. since its interaction the value of bitcoin has fluctuated greatly. tom teague of lawmakers in the u.s. have expressed concerns about bitcoin with illegal activity like drug smuggling. this is about 90 minutes. [inaudible conversations]

>> good morning, everyone. welcome to the atlantic council. and the vice-president and director here at the council. thank you for joining us to discuss this, what i would call disruptive technology application, but i may have different words when we're finished with this event on the coin and the applications of virtual currencies, but also other blocked chain based applications for the future broadly, and i will get into what i mean a little bit. the land to council is a non-partisan organization that promotes constructive u.s. and european in the world to meet today's challenges working with our allies, but we also serve a

public education function. i really can't tell you how many people from what i would call our traditional constituency here at the atlantic council which is a longstanding institution here in washington, how many people have come to me and said, what is this thing called bitcoin and what do i need to know about it? how important is it? what parameters, will unveil tomorrow or be here in 2015? was part of the reason i decided that we should really have an event that says performs these functions. a truck to bring to bear a non-traditional panel of a lot of distinct efforts of two experts from different disciplines. explain what bitcoin is and what it means for the future of currency and finance and what it might pretend for the future of our society and for our security as well. and so our focus today on virtual currencies is just one area of a body of research of we

have gone non disruptive technologies. particularly those that empower individuals relatively more than nation states at the cross centers strategic forces in issue here at the council. in the last year we published analyses on such issues as the impact of robotics in the future of manufacturing, how big data will influence decision making by corporations, individuals, and companies. major report last december on hello united states can harness the technological revolutions of our ongoing, including biotechnology, three-dimensional and four dimensional printing and other technologies that are really changing our operating barman in the world. pretty soon we're going to publish a new concept on how the united states can see this role and a new concept for a national security strategy. there will be a major conference right here may 14th on foreign

policy and defense policy aspects of these issues. the discussion on that day will be kicked out by the chairman of the joint chiefs of staff, general michael, dean martin dempsey you will be discussing some of these issues. a number of other very important and interesting speakers. last december we hosted also in this room what we call the strategic forces reform which gathered top thinkers to engage in very deep conversation. again, how to harness these technological disruptions to be better prepared for trends that are really looking to move us toward a very different world where natural resources are much more scarce, or individuals and small groups of a lot more power to do things, to do things that

are very good and that advance society and strengthen our security, but also each of these technologies as part of potential and applications that can cause significant new security and military threats and a number of other sources of instability. so there is always sort of a positive and negative opt out of all of these. now, bitcoin itself, to me, is a clear marker of yet another innovation and empowers individuals and really democratizes the task that traditionally has been reserved for governments. here are talking about the regulation of currency. it's something to my thing, we could not even relief thousand to fathom just a few years ago, and now it is upon us. we will talk about how. a significant set of questions we will try to address with this panel. peer to peer engagement, displacing government in such tasks, what other government functions that were you're used

to the performing by also soon be disrupted? what does this mean for the security of our finances? , international affairs be affected? , national security be affected by the digitization of services like this and number of other questions. i would like to know introduce our experts. i am really throw. first to my immediate left with mr. ronald marks, senior fellow of the george washington university homeland security policy institute. he has held a number of increasingly senior positions with the cia. yes, he could kill you. as an intelligence council the former senator bob dole during his cia career the things that i can talk about, he was special assistant to the associate director of central intelligence for military support. he was at the state department as a program director for law enforcement issues in russia and eastern europe's and a senior budget director at the national reconnaissance office. since leaving office he had been

a senior defense contractor insult or executive, testified before congress, comments extensively on a range of defense and intelligence issues fed to him immediate left, freshmen and the honors program, already an established bitcoin minor. costa the security my working per block chain end of this coming summer and the company's london office and serves as counsel of the air force's physician sir richard competition team which he lent her a nationwide competition the 1600 teams competing to test how well one can secure computers from viruses, back doors, trojans. his team came in second place among 1600. not bad for the work that he

did. in 2012 he in turn with the northrop grumman foundation connecting penetration testing in, research which i will even ask about. we also have mr. jason healy who is here, the director of the cyber statecraft initiative and the browns field crops enter. as director for cyber infrastructure protection at the white house from 2003 to 2005 to help devise the president and a coordinated u.s. efforts to secure server space and critical infrastructure immediately after the 911 attacks. his efforts as vice chairman created bonds between the finance sector and government that remains strong today and i think most recently he edited a book called a fierce domain, conflict in cyberspace 1986 to 202 of which really is the first history of cyber conflict, are really interesting book with all lot of anecdotes in addition to the analysis.

i would strongly commend it. it was reviewed favorably by the economist when it came out. certainly last but not least we have dr. chris palmer and his messy borden gray felt that the atlantic council global business and economic center. he is also the project director of the council transatlantic finance initiative. he leads the council's work on regulatory and trade policies and provides bipartisan analysis on trans-atlantic economic cooperation issues. he frequently serves on the nasdaq the lifting panel and has been appointed to a 3-year term at fenner as national a judicatory council beginning in 2018. he received his j.d. with honors from columbia law school and his ph.d. in dramatic studies from the university of chicago. i will turn to ron now. please also join us on twitter using the hashed and we use for events like this. hashed tac ac disrupt. with that i will turn to mr. ron mayoress.

ron. >> let me be disruptive. there was trying to think of what was going to say here today that would fill -- still allow me to be friends with perry, maintain my in the atlantic council and tell you something and think is the truth. let me relate to you a little family history and a little context. now, i am a spy. that's when i was trained to do, but i come from a long line of people who had slightly questionable reputations. they rand -- thank you very much they ran booze during prohibition. my grandfather was someone who was from boston and was originally part of something called upon to skin. and human a lot of money in any gun out early. my father who was born in 1956, the born in 1906. in the first 25 years of my father's life lived through three persons. the last one was bad, 1907,

world war one, 1929. you had more than double digit. frankly it was involved. so growing up with my father and listening to him talk about things and the depression and, by the way, he was a lobbyist in washington. you can proudly imagine his opinion was not high to begin with and it did not rise. it was an interesting experience . now, i grew up in a different time. we grew up in different time for the most part. my memories are of post-world war two. 1944, july, a belief. somewhere up in beautiful the hampshire, a place called bretton woods in hampshire, the mount washington until. people from the united kingdom, the u.s., and a few other countries can begin to figure out of the world they're wrong to survive after world war ii. we had just countertenors a

depression. ten years of terror frizzing, accepter the 1930's which pretty much stifle the world economy now, two things happened, one of which, about ready to die. trying to hang on to whatever shred of dignity the british and the marketplace. by the way, the british went bankrupt almost twice before and just after world war one. by the way, they just paid off those loans a couple years ago loss. they almost went bankrupt in the 1930's, and by 1944 there were broken and living essentially on our money. the largest empire in the world was essentially living and the u.s. dollar, borrowing and the u.s. dollar. so that conference in 1944 was essentially about how the united states and others were going to rule after room or to. so some of these delightful buildings that uc around town, world bank and imf, all those other places canada that.

the british pound going into world war ii was about $4.60, down four hours and $0.5 a the end of the more it was $2.60 to $52.80, excuse me. the dollar was going to reign supreme. we have roughly half the world gdp, and we pretty much called the shots. by the lack of a decision was made at that point to have a dollar which would not only held value and was valued around the world but was actually exchangeable for something. $35 per ounce of gold believe it and not was the number. $35. it was amazing. some countries slightly higher than others. again, if you are an ancient air like me you believe in spite corncob to respond. you guys remember go figure? a movie go figure, really it was about called arbitrage which was being done during that time because you could move gold out of england at 35 bucks an ounce

of you have the right to have it and move to europe or might be $42 an ounce or into the middle east like india or pakistan where be $300 an ounce. so there were ways of working run system. i also add that my father and uncle during world war ii or shortly after living in paris, and i would not be surprised how they use to take suitcases were the dollars and go to switzerland and exchange nephron the things. so we grew up in sort of a stable time. the last 70 years of our existence has been based on this. the u.s. dollar has been dominant during that time. fifty some odd countries. the russians in battle dress was not an exchangeable. it was considered a value. now, by 1971 there were of the gold standard.

why? there was a tremendous desire to have u.s. dollar overseas and as people in turn wanted to convert that. they came in to a whole lot of gold. it was attempted in the 1970's. now you don't physical shipping. you just literally put a sticker from one side to another. there's going to be a drain on our gold reserves. president richard nixon made a decision at the time that there would be no more drain on our gold reserve. the united states dollars since 1971 has been based on a full faith and credit of the united states. so it is not an exchange of thing in terms of silver or gold the have these old silver certificates on the wall, dollar bills. that system lasted pretty much through the 1990's. we won the cold war, or as i like to think of it, i won the cold war. and then between 1991 and 2001

we drifted along fairly well. since 2001 and certainly since the last -- will call it a depression starting in 2008, recession and depression differ. if you have a job its recession. few delegates to the persian. we have seen other parts of the world begin to move forward. china in particular. we have also seen a world that has been increasingly allowing itself to 51 allowing itself, connecting itself, two and half billion people on the internet right now. will probably add to file shortly. it belonged to some 200 countries, not all of whom have stable currencies. i can sit here right now and recite for you which new peso and knew whatever else has been promulgated by different countries over the years or whose last a couple zeros off the end of the currency. ask me what that does to people when they start thinking about

stability. some of you guys are probably too young to remember, but even the united states in the late 1970's armor parking money in a seedy and about 99%. why? mortgages are being charged 15 and a half percent because our inflation rate was running toward the 14. that was unusual in our circumstances. it's not unusual around the world. so when you start asking of the people to have full faith and credit in the money the lucky you, smiled a little bit, not their heads, and go on a merry way it can going to do what i have to to survive. i was just recently -- i spent three weeks and the uae. there are enormous amount of bracelets and necklaces and whatever else manacled. why? nine and a tin of the population in the uae are experts in the best majority of them come from either pakistan, bangladesh, or burma. they're want to give money out of the country and don't trust the local currency.

so what i'm asking you to do essentially is to get yourself out of the mind from of a 20th-century american and yourself in the the 21st century with a power of the united states is not as great as it used to be. the power of the dollar is not as great as it used to be. we have to start thinking about the way of dealing and communicating with each other in which borders and boundaries don't matter on a much more. so when i look at bitcoin -- and i purchased one by the way. i have taken a look at this. i think to myself, okay, is at the be all and end of? i don't know. is in a ponzi scheme? i don't think so, but will see. as a represent value? ability to exchange across borders? the answer is yes. does it represent a threat to nation states? well, take a look at china.

they're doing their level best to make sure that bitcoin doesn't exist. however -- and i will probably conclude on this one no, one of the things that i spent a career doing is carrying around rules and getting around borders and getting around different places in the world were someone to american do something. if you don't trust the currency and, if she tinters a better way of exchanging the volume to your family and friends you will use money orders. you will use bitcoin as possible. can it be forged, copied, is it all of this cracked up to be? i ask you simply take a look of what happens to the regular occurrence in. is it more subject to something besides the regular occurrence? and don't know. this guy does. on that have been about as a back lot and talk. >> can you give us some education on the basic aspects

of what bitcoin is? >> sure. basically it might go about complicated. all but -- vowed to my best to come up with bridges real help understand the process. basically through all this just keep in mind its dollars to my computers and exchange to one another. this dollar, kent bitcoin can be written on physical paper, but among winner another has to talk to another computer. so the weighty for his revolutionary is that, you know, encryption, description has been around for a while. bitcoin was the first to use encryption have value of money, have a value of bitcoin.

this works on a principle of when somebody wants an address to think of it like a paypall in no will to do is click a button, wetherbee on a program in their computer or basically it will create two keys. one is called a public key. this is your paypall e-mail address. this you give to anybody who you want in this and do bitcoin. it will have this key in the melson funds to this publicly. when you are creating this -- is the size of the san going to be when you create this public key yasser create a private key. this used to unlock all the funds that are sent to the public the. you -- if you give anybody a privately they can very well steal your money. so you can look at a minor over there. that is one of the rigs are built. miners are the things that keep the network going.

there is no central company bitcoin. it is not like central authority like paypall. everything is distributed. everything is peer to peer. it is something that gives more power to the people. and this works on a -- basically a minor will tighten minutes worth of transactions. ten minutes, people making transactions. awesome the bitcoin to my mom, you know, however. all of these transactions are sort of floating in the bitcoin name space. and then in the meantime there are people running programs on their computer that basically check the transactions across the network. so the way that they do this is something called the blog chain. when she mentioned in the opening speech. the block chain is the thing that bitcoin gives to the world. that is the way that you don't need a central authority. and a blocked drain is basically a very large ledger.

it tracks all of the transactions says day zero of bitcoin creation. so if i were to say, have one bitcoin it will say, okay, you get your bitcoin from fred, fred data from bob, bob got it from where the bitcoin was meant to. okay. you do have a bitcoin to send. your private key is valid. i will go ahead and some that for you. and so way that the miners do that is it is a race to find out which one is going to solve the puzzle. and so imagine have very large seville to puzzle. the only way to solve it is for a minor to throat ran the numbers or a computer through random numbers and as a joke a puzzle, check to see if it's right, and in coming in now, they're doing this a million times a second. it will try another one. it was be throwing numbers across the world. finally, one very lucky miner will throw a right combination of numbers into the son of a puzzle and say i got it. and it will broadcast an answer

to the world, to the bitcoin will. and so when you have a solution to a seductive puzzle is relatively easy to check. it's hard to find the answer, but it's easy detect cancer. when the network confirms that yes, you in the have found the answer, that minor, the one that found it is awarded bitcoin for its work. the bitcoin reward is decreasing , sort couple of years ago every miner was given 50 bitcoin for solving this puzzle. today the reward is 25 to four. next, will be 12 and a half and so on until the cap of 21 million bitcoin is head. once that 21 million is reached there will be no more reward for finding the answer to this of the proposal. so once the minor finds the answer to this note to puzzle it does one last check with these ten minutes of transactions that are in limbo to make sure nobody is just are really saying, god a transmitter hundred billion but carns because they will fact

check you and a sign the you're wrong. and so basically they will go through these transactions cannot use the answers they have done and compress all of these into a block and added to the box chain. and then once that -- once those confirmation said it and they added to the blog chain they work all over again. the start the next puzzle. the puzzle will change every single block. and in order to keep the -- the program itself is designed to be every ten minutes that compression will hit and the new bitcoin will be minted. it can be every two and a half minutes, every 20 minutes, but the way bitcoin was designed, it wanted to be ten. so if a blocked takes, you know, more and more people on mining. a block takes five mastermind, what the problem will do is make the supposal harder. it will make it bigger serve you have to spend a little bit more time throwing random numbers are define the answer.

once this is confirmed you have successfully made the transfer of bitcoin. and as more and more blocks are added to this block chain your transaction becomes more and more final, more and more etched in this town. the further back in the blocks in this transaction is the more that this transaction basically is, you know, as guinness gold. so -- >> a couple of questions. i'm a former math major. tell me what 21 million is the magic number? >> like i said, what the block time being ten minutes, that's just the way the program was designed. i don't want to blow your mind too much, but they're is a bunch of of going. but coin introduced crypto currency. and so there are a bunch of different other cargo currencies like light. three like coins current value is $11 a corn.

it's cap is four times as big as between. it is -- every block time is two and a half minutes. so it basically was created by an mit grad cob charlie lea. he works for corn base. where he got his bitcoin, so excited about a. and so there is light : commandos , ripple, so many. >> to more sort of the informational questions and and i will move on to my other panelists. when we hit this 21 million, is there anyone has thought about, will that be a discontinuous sort of milestone or will things keep going the same? >> that's an excellent question. yes. the program is clever in that every single transaction is recommended that you to the minor as you tipple waiter. so basically it doesn't matter if you're making a 20 god transaction are million dollar transaction, you can tip the

minor a penny or less than a penny, and that's plenty, more than enough because, you know, all the tension between to nafta transactions adds up to be a lot. so that is the way that bitcoin can, as opposed to paypall which will take a percentage of returns acting to my bitcoin doesn't care. you can honestly be transferring hundred million dollars or $1. the transaction fee will be less than a penny. and after 21 million but collins is it that is the incentive for minors. but the raw board decreasing, designed in a way to be -- finish were war in the minors and about 110 years. we've got time cards my understanding is that bitcoin divisible up to eight decimal places. it's not like will run out of money. begin to say all right and keep using smaller and smaller pieces of hate. you can keep jumping of the piece of gold and a few pieces to use them as currency. >> allow people will refer to a bitcoin now as micro bitcoin.

used with the dismal over. it's a little bit more enticing the people. if i put a hundred dollars, and to abide i don't want to be getting. one bit coin. that's kind of, you know, the meaning. i want to have all hundred micro but collins. >> the last question, what is this mythology about the inventor. word is a list? does exist? >> so, the creator to fund basically the person who wrote the code and the white paper explaining what the code does, what he feels like it should accomplish, his name is satoshi not amount. this person actually does exist. they're is a story a month or two ago about, you know, a reporter saying that they found him using the it named dorian not among the nine california. this guy, i mean, you know, they're really just poured through his life and put it all up on the internet. he was just a guy and a model train. so -- but the thing is in my opinion i don't think this

satoshi figure could have revealed himself. i don't think it would be viable for something like this because, you know apply if i anodyne or, you know, it could be in the organization. when you did in the first response to bitcoin would be, well, it's going to profit than. they traded for themselves, a matter where bitcoin goes they are just basically doing and as a ponzi scheme. i think the reason that he did it anonymously was to try to just really assure people, yes, this is a new technology. i'm not trying to gain you guys. i don't want any recognition degrees is to with it what you will. >> interesting. >> thank you very much. >> i think you quadrupled my knowledge and a couple sentences now, j. healy, what is your take on this? >> your central question was is this going to be here in 2015 to acquire the implications? come going to pick up to aspects

of that. one is confusion and security. the second how this fits into the larger decoy purses government panel of the last -- i would even go back as far as 30 years, the little bit farther. because cavan's answer 21 million was arbitrary. ..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 abu