closely with our partners through this process and go be a subject as we feed to the wailes summit. >> he has articulated dutifully but to say the georgians are well aware they do not have consensus in the of finance. . . n supporting them as they make this case directly to individual allies. that happens very soon for georgia is it is on track to sign its association agreement with the european union, which will deepen its relationship with many of these same countries. a are hopeful that will have positive impact on how they assess its worthiness from that. >> i will stay outside ukraine and maybe use a quick second round to talk about ukraine to do you were justin moldova -- about ukraine.

you were just in moldova. as we try to learn from the things that we could have done or that the alliance could have months ukraine in the and years leading up to this crisis, which i'm not suggesting anyone could have foreseen what do you think are the most important steps to strengthen the transatlantic alliance with moldova to send the right message to russia and to perhaps prepare them for the potential of some kind of offensive action from russian -- >> we have intensified our collaboration and cooperation with moldova. secretary kerry was there in december. as you said, i was there again a week ago sunday. our primary effort with moldova has been to support their preparations for an association agreement signing with the andpean union and the deep

comprehensive free-trade agreement. both of these will strengthen their trade and travel and links to europe and give them more options than simply the russian market. we are also working intensively with them on energy security and alternative sources. we are investing with the european union in inter-connectors with romania. we are also helping them diversify their trade markets. they are trying to influence -- import some of their spectacular wine, which i hope you will sample, into the united states. we have linked them up with a number of key u.s. distributors. we are also helping -- they have ability a challenge compact -- they have ability and challenge compact -- they have a millennium challenge compact. supporting their

past two elections -- their path to elections as well in the fall, a very important set of elections for them. we are also trying to help them -- one of the things that was somewhat distressing on my last trip there was very strong support within moldova for tighter links with europe, but the russian propaganda effort has been particularly vierling -- particularly virulent in the russian speaking areas. they have not explained the benefits of what it will feel like when citizens can have visa free travel to europe, carefree export for goods -- tariff free export for goods. a job that needs more attention. we will put more effort into it ourselves. >> i hope our friends in brussels heard your answer to that last question.

there's nothing untoward about advertising yourself. we know the russians don't play by the same rules that we do. the fact is that in moldova battle for the a hearts and minds of the people as to whether they are going to orient towards europe or back towards russia. the fact is that du is not doing a good enough job in moldova, e.u. is notthe doing a good enough job in moldova, nor in ukraine. the russians are spending money to tell a very different story. air is a propaganda war being fought. only one side is truly at a high level of fighting it. he can certainly be partners in that. ultimately, this -- we can certainly be partners in that.

senator johnson? >> let me pick up in terms of the propaganda war. i agree it is basically one-sided. are we doing anything to provide the alternate view and try and provide information not only in moldova but also ukraine and the other baltic states? >> and has been a major line of effort -- this has been a major line of effort led by secretary kerry and supported by the president. one cannot match the kind of money and effort in a closed society that russia is putting into this, but we can certainly help our friends and partners , get the straight story out. we have directed a great amount of public diplomacy funds to mounting our own truth telling campaign, which we are pushing russian, allian,

of the european languages, also states and across allied territory. we have a number of products we have mounted to the new united for ukraine campaign on twitter. please link up with that. that was started at the state department and now has many thousands of users and repeat tweeters. we ever product called the daily playbook where twice, three times a week, sometimes daily we put out all the positive news about what is happening in ukraine. falsehoods from the russian federation, including this most recent one where they accused the u.s. company of having mercenaries across ukraine. when we called the company, they made absolute clear that no such thing was true and that this was something put out on a foreign ministry website in russia. we are doing a lot. additional $3.3 million into support for the ukrainian government itself.

we will redirect some money to moldova as well. >> what about broadcast media? tv, radio? it came to our attention there was a tv broadcast that was for sale and could have been purchased. is there any expenditure being made to widen our building -- ability to broadcast? >> we are supporting ukrainian broadcasting companies that are broadcasting in both russian and ukrainian. we are also supporting the media center that the transitional government has set up, to help them exploit available opportunities for broadcasting. we have not looked into buying tv ourselves. i'm not sure that is the best use of resource. rather, we are trying to partner with folks in ukraine and in europe who are active in this space. >> secretary chollet,

congratulations on the new addition to your family. you mentioned secretary hagel talk to defense officials in ukraine. can you tell me what that conversation was about? >> he's had many conversations in the last several months with his ukrainian counterpart, i should stress counterparts. i think this is the fourth defense minister he has talked to in the past several months. this is to ensure we have, at of highest level, a channel communication throughout this crisis, so we can hear from them directly about their needs and ways we may be able to help. >> are they specifying needs? >> yes and no. they -- ukrainian military is not an extraordinarily capable military before this crisis. been ineen -- it has the field and deployed under quite significant hardship over the recent weeks given russia's behavior. the most urgent need they have n intified to us have bee

the more nonlethal, humanitarian and medicalmre's supplies in particular. we are working to accommodate those requests. >> when the prime minister was here, i know he made a request for small arms and ammunition, which i know was turned down. part of the rationale was we didn't want to do anything that could provoke vladimir putin. this was before the vote and the annexation. i guess he didn't need any provocation. he just did it anyway. are we rethinking our willingness to help ukraine militarily from the standpoint of those supplies, the small arms munitions they requested back then? >> we are constantly in dialogue with them about what they may need. this team that was in camp last week was a discussion that was already planned. >> dialogue is great. are we rethinking whether or not we are going to provide the types of support they requested

and actually need if vladimir putin moves further? >> yes, but the priority right now -- their own prioritization they presented to us is mainly nonlethal at this point. as we are looking out of this immediate crisis window we are in and thinking of the medium to long term, which is what we talked about last week in k iev, as they seek to modernize and professionalize their military -- efforts we have been working closely with them on long before this crisis. and they still have a long way to go on professionalization and modernization. >> you mentioned nato is augmenting their presence along the borders. what does augmentation mean? how many personnel? >> we can get you the exact numbers of total nato personnel. from the united states perspective, in poland, the upgrade bytachment adding some aircraft to that detachment, i think a couple hundred folks have added to that

. similar with the baltic air policing mission. it is a handful of folks. part of what general breedlove will be coming back to nato and briefing next week is his proposals for the medium to long ,erm, for the rest of this year how, whether by air, land, and sea, nato and our other allies can possibly be -- >> currently, our response to the russian troop buildup of tens of thousands -- hard to say what the exact number is, but tens of thousands of russians troop -- russian troops buildup along the eastern border of ukraine is a couple hundred and dozens. does that -- do you really think that will change vladimir putin's calculations question mark >> -- calculations? we have been seeking with our allies -- >> isn't it true that russian

officials mock the sanctions? >> secretary kerry said there was some chatter of mocking. these sanctions pinch. as the president made clear when he announced the latest round of sanctions, it is not the limit of what we can do. there are further things we can furtherit is clear the we go, the greater ramifications it could have on us. that said, we've made very clear to the russian government that we stand by our commitment when it comes to our nato allies, that their behavior is unacceptable, and that we are thinking -- rethinking many things when it comes to our military posture in europe. >> thank you. i will take time for a short second round here. i would just associate myself with the remarks of senator johnson. i think we are beyond the point of treading lightly and worrying about provoking russia. i think they are going to make decisions about the future course of events in and around ukraine based on their own security needs.

as one neighbor of russia around the black sea came and told senator johnson and i earlier this week that our response should be to do everything that russia does not want us to do. i have expressed skepticism about providing small arms. summit a successful nato , with an extension of membership action plan to georgia, and continued ratcheting up of sanctions is exactly that medicine. two questions. one for you, secretary nuland. can you give an update on the elections scheduled for may 25? maybe give us a sense -- i don't want you to be apocalyptic. what is russia's capability to undermine these elections when today they don't have a candidate that is polling at any level that would suggest they are a true threat? what are we worried about?

what are the things that we and our ukrainian allies can do to make sure that ukrainians get a choice? if they have a free and fair election, there is no way the next president and the next cabinet of ukraine is going to give the time of day to putin in the next administration. senator., first of all, as you may have seen, there are more than 20 candidates registered for the presidential election on may 25, representing every single available color of the political spectrum in ukraine. ukrainian people will certainly have a very broad choice and the election is likely to throw to a runoff, which is a very healthy thing. the media environment, the basic conditions for this election at this moment, absent the security situation, are as good as they have ever been in ukraine, with a very supportive transitional

national government, with a vibrant public debate going on public media and private media. the other thing is we have a very strong response from the -- they are planning to field more than a thousand monitors across the country. ukrainians are also making tovisions for crimeans vote. they won't be able to vote in crimea because russia won't allow it, but there will be polling places for them. the helsinki commission will have a big u.s. contingent as well. that is part of the answer, to have eyes all over this process so that it cannot be manipulated . the number one concern we have now is efforts to destabilize the eastern regions, other parts of ukraine, to create either a pretext for declaring it too difficult to have elections, to create questions about it,

and/or for a larger russian move into ukraine to protect citizens. this is the real threat that .hese moves pose the interesting thing is that none of this has any concept -- any kind of significant support amongst the populations, including the populations of the east. ande was recent i.r.i. ukrainian polling indicating that less than 15% of those in the east want to join russia. they want to stay as a united ukraine. they want to have a choice in their future. there are candidates across a spectrum for people to vote for, including those who want a closer relationship with russia, but not to hive off pieces of ukraine or allow the kind of settle his ancient -- of settle-ization that could see

the country fall apart. you will see this aggressive effort. >> the more successful we are at making sure that election is free and fair, the more worried we have to be about russia's intentions once they see the writing on the wall. one question for you, secretary to u.s. military support for ukraine. it seemed to me one of the logical programs that we could undertake, whether it is the united states with nato, is a longer-term project to rebuild the strength of the ukrainian armed forces. they were obviously hollowed out under unicode which -- under yan and probably even prior to that. what about a long-term of -- long-term commitment to help them rebuild their military? >> absolutely agree.

i kind of long-term thinking is what we had embarked upon long before this crisis -- that kind of long-term thinking is what we had embarked upon long before this crisis. this crisis provides an opportunity for us to think anew about how we can continue the efforts we started and augment them further. our military relationship with ukraine, although important, and they have deployed with us afghanistan and elsewhere, was relatively modest. part of these discussions that we were having in kiev last week was about the medium to long term and how we can address the urgent needs, but more importantly over the long term ensure that they continue on the modernization and professionalization effort that we have helped with. are about thatwe long-term effort, the better. i've been concerned -- >> i've been concerned. i've been hearing a term like linesd-ization and red around ukraine. are we using the terms in any

way, shape, or form? >> senator, we are not. that term has different meanings to different people, but it generally implies a constitutional neutrality of one kind or another. as you know, the transitional government in ukraine -- and you've probably heard this from the prime minister -- they do not have any plans while they are in power to change the "non status of the country." obviously, it is a matter for future leaders of the ukraine and ukrainian people to decide how they might want to associate in this future. it is not a decision that the united states or any other country can make for ukraine or four ukrainians. >> we are standing by the by being -- assurance signatory to the budapest memorandum to do everything we can to maintain the border integrity of ukraine? signedou know, that was

in 1994 as a political assurance that we would all support and defend the sovereignty and territorial integrity of ukraine. it did not have the status of a treaty commitment and, as such, has been brutally violated by the russian federation. our own commitments reigned solid. can i go back to your point whether sanctions are biting it is easy to mock them. the numbers tell a different story. billion from the russian federation to prop up the ruble to defend it. capital flight in the first quarter of 2014 out of russia greater than capital flight throughout all of 2013, which was a significant year. economy, itnking

was already shrinking, it is shrinking more, downgrading russia by major organizations. this is pinching, but you're not wrong that we have to maintain the pressure. >> thank you very much. thank you to both of our witnesses. yourpreciate your time and late start. you're dismissed, and as you leave, we will see to the second panel. thank you. [captions copyright national cable satellite corp. 2014] [captioning performed by national captioning institute]

let me welcome our second panel, with one caveat. senator cardin 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 are going to try to wrap this up as quickly as we can, even what is happening on the floor. we are very excited to have our guests today a senior fellow and

rector of the strategy in the centerprogram at for new american security. she previously served as that deputy national security adviser to vice president biden and also office of the secretary of defense. brings more than two decades in experience in u.s. national security, including serving as deputy secretary for defense and native policy. a person who spent 30 years working in the energy industry, including 20 years with chevron. welcome to all of you. we will go into the order that i introduced you. >> thank you very much, chairman murphy, and thank you for the

opportunity to testify. russia's recent annexation of crimea has raised a lot of thorny questions about the future of transatlantic security. statesand the united share three common objectives associated with this crisis. one is isolating russia and ed -- ensuring there are additional costs imposed on russia. the other is supporting our europe, andstern also supporting the government in kiev. i want to start with reassuring our allies in central and eastern europe. you heard about some of the things the united states was able to do in the early days of f-16's to, providing poland and other plants that we have for the region to reassure

our allies. europe, western europe in particular, was slower to respond to this crisis and to calls for reassurance. they have had a number of concerns about unnecessarily provoking the russians. they have look at public opinion data that does not support initiatives that would reassure our friends in central and eastern europe, and some of them lack the capabilities to do so. some of that has changed. o ministerial where we saw a number of countries offer support. as you heard, a general is presenting options on tuesday that i hope will be supported not just by the u.s., but by the alliance as a whole. forward, the challenge for europe and the united states is to keep momentum going. and get to a point where we do not allow our policy differences to lead to policy for alice's. we do not want to find ourselves

in the situation where we are breeding additional overconfidence on the part of the russians. in my written testimony, which i have submitted today, i suggest three things europe and united states should be focused on. the first is resented -- presenting a united front when we cannot reach consensus. you know better than i do that there are some cracked in the transatlantic relationship on this issue. we had times have disagree. we have some public airing of our disagreements, especially over sanctions, which was not a wide mood -- wise move. as we weigh the pros and cons of initiatives moving forward, we have to ensure we keep what is actually at stake in the back of our minds and remember that crimea is not a bumper the road. this is not a hick up. this is not a short-term incident. or havepened in crimea

lasting implications for transatlantic security and the region as a whole. we are not going back to this -- to business as usual. it is important to think about the long-term strategy that would include economic, the nomadic, and military measures. the second thing we have to focus on is getting the nato peace right. you heard from the secretaries that there is a nato summit coming up. we're going to need leadership to drive some of those initiatives forward on some very difficult issues. , chairman, nato and large but as one issue. you are aware of the differences inside the alliance on that issue. if we do not take on nato enlargement, on cyber, if we do not take on missile defense, if we don't take on some of these tough issues nato will ultimately be unprepared to deal with what is coming at it in the 21st century and beyond, not just with this crisis, but with others.

the secretary-general has been optimistic in recent days saying that ukraine is a game changer and will hopefully lead to increases in defense spending. i am not so sure. i would like to count on washington leadership to drive that date forward. also managing the debate we have had many times about article five versus expedition area operations. the last thing i think europe and united states eats to focus on is making sure they do not leave a great zone between nato territory and ukraine. we need to look at the reassurance requirements not just in countries like poland and the baltic states, but also georgia, moldova, and in many ways these countries need more assurance than those already members of nato. we will have to look at things like defense cooperation and security corporation. people have to put everything on ae table to ensure there is united front there between europe and the united states. it just cannot be the u.s. alone. in terms of our efforts to

support the new team in ukraine, we are trying to support the elections. we are working to provide financial assistance so their economy does not collapse. we are trying to address the security needs simultaneously. we have done all right in the first two categories, which try to ensure they have been tools they need for free and for elections. we have provided billions of dollars in promises of loan assistance, all sorts of expertise and all the rest. i think we have not done well in addressing the security concerns. i know you heard dod is looking at some of those requests. we have had the good fortune of relying on incredible restraint on the part of ukrainian military. i do not think we can count on that in the long term. we are not so sure how much longer. otherularly given some protests we have seen in ukraine. moving forward the united states will have to ramp up efforts to

review those requests, nonlethal and lethal, and determine if we can provide additional intel sharing and look at things like ammunition. to close, i want to say i think europe and the united states deserve kudos for the work they have done together in multiple categories of addressing different aspects of this crisis. but what they have done to eight should be seen as the opening act. we have to sustain this momentum, make sure we have a long-term strategy some and make sure that that strategy is paired with real resources and real capabilities. we also have to think through the potential scenarios that we might be facing in the future. what happens if russia goes into eastern ukraine? what happens if the russians try to further destabilize -- and what happens if those may 25 elections to not happen? we need to be having that conversation with our european allies now to prepare ourselves for anything that might be dumbing down the road. thank you very much, and i look

forward to your questions. >> chairman murphree, ranking member, i am honored to speak. russia's coercion and the invasion -- and invasion present a security challenge. the west has yet to generate response that will deter moscow from further aggression. the actions of the events dates should be guided by three reinforcing objectives. to deter russia from further aggression against ukraine and other neighboring countries, to confidencekraine's in its capacity for self defense, and assist ukraine in its effort to become a modern, prosperous democratic state. allow me to review six rounds of initiatives that serve these objectives. first, we need former economic sanctions against russia. the current set of are clearly insufficient. they are overly -- their overly savages scope has created badges of kurds among the russian --

badges of courage among the russian elite. economic and diplomatic sanctions need to be complemented by a strategy to shore up allies in ukraine. nato's response to the invasion of ukraine has been underwhelming. it has been limited to a largely symbolically reinforcement of nato airspace, the testing of force posture studies. this reinforces concern about their ability to act decisively and about the reduction of u.s. combat capability in europe. it affirms those who say washington and nato's commit mint has declined. the united states and nato should reinforce allies in the following ways. it should deployed now a ground combat brigade with air force support. it should appoint a special operation contingents to the baltic states. the alliance should rescind a 1997 nato-russia founding act.

should freezetes reduction of u.s. forces in europe and direct -- to present options to make permanent the deployments i suggested. an hour west european allies -- and her western european house should be encouraged to do this same. we need to provide military assurance to ukraine. haveand the united states unwisely drawn a red line on the eastern frontier that leaves kiev militarily isolated. that redline should be erased. we should grant ukraine's request for military equipment and include antiaircraft weapons. u.s. equipment would reanimate moscow's unpleasant memories. we should deploy intelligence and surveillance capabilities.

this would force moscow to consider repercussions it acts. department of trainers to georgia after it was invaded by russia attributed to that country's security. we should conduct now a major exercise in ukraine to train their military. waiting until may and june as is currently planned by nato only incentivizes russia to take action earlier. under these initiatives would threaten russian territory. they would introduce uncertainty in moscow's military planning and force the government to consider the risks of a military conflict. fourth, the west needs to reinforce resilience to russia's aggressive campaign, which is the most intense we've seen since the end of the cold war. the secretaryear outlined actions we're taking, but i wonder if it is sufficient. this campaign threatens the ability to conduct elections,

and it creates opportunity for the provocateurs in moscow. ukraine'spport efforts to reform its economy. one area where we can do more is supporting diversification of ukraine's energy supplies. easternup exports in europe word server as a priority. the west needs to reanimate a europe whole and free. the situation necessitates native make clear its policies. reaffirmation of this mission is a way to underscore commitment to security in central and eastern europe. for these reasons no decision or recommendation should be permitted or advanced that would in any way limit its applicability to any european country. that is what i think your concern about the -- is

warranted. putin forreward th his aggression. it would violate the spirit of the maidan in which ukrainians 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.

is 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 ae 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 its 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 participating in 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 wos