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 the transaction fee will be less than a penny and after 21 million bitcoin is hit that is the incentive for minors but the reward decreasing, it is designed in a way to beat finished rewarding miners in 110 years. >> my understanding is bitcoin the divisible up to $8 or something like that. not what we will run out of money. we can just say all right and keep using smaller and smaller

kind of like pieces of 8, you can chop into fewer pieces. >> a lot of people will refer to bitcoin-micro bitcoins, moving the decimal three places. that is more enticing to people. if i put $100 into a by i don't want to get 0.1 bitcoins. that is kind of demeaning. i will have 100 microbit -- bitcoins. >> where is the inventor? does he live? does exist? >> the person who wrote the code and the white paper explaining what the code does, what he feels like it should accomplish is satoshi nakamoto. this person doesn't exist. there was a story among the two ago about a reporter saying they found him. he was using the name dorian in california but this guy -- is a

really just poured through his wife and put on the internet and he does just a guy and a model train. the thing is in my opinion i don't think this figure could have revealed himself. i don't think it would be viable for something like this because if i had a guy or an organization, if we knew who did it then the first response to bitcoin will be it will be -- profit them. they created it for themselves so no matter where bitcoin goes they're doing it as a ponzi scheme. the reason he did it anonymously was to try to assure people this is the new technology, i am not trying to gain you guys, i don't want any recognition, just do with it what you will. >> thank you very much. you quadrupled my knowledge and

a couple sentences there. jason healey, what is your take on this? >> your central question is if it is here in 2015 what are the implications? i will pick up two aspect of that. one is confusion and security and the second, how this fits into the larger geek versus government that or of the last -- i will go as far as 30 years or farther. because the answer of 21 million is sort of arbitrary. 21 million was kind of picked and it is not completely arbitrary but there's a lot of arbitrariness to and that bothers a lot of people. dollars are incredibly arbitrary. most things, big gap wheels that are used as currency, a lot of financial instruments have arbitrariness built around them. the true financial professionals

will tell you even gold is completely arbitrary. i don't quite go that far. every time we introduce a new financial instruments of any kind whether it is a currency or commodity there's often if a lot of confusion about it, confusion by government, confusion among the public any and 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 all sorts of different dollars. the greenback was just the federal government trying to come in. that is why we have the secret service. we had just rolled out the greenback in the 1860s and the secret service was there to make sure this was the one currency we had a different banks could be printing their own u.s. dollars. we had lots of other confusions when we rolled on new instruments. the arbitrary stock certificate tried to be rooted in this paper entitles you to a portion of

this company and just like we had security issues for bitcoin and confusion, stock certificates saw all sorts of south sea bubble was one of the classic incidents. i watch a lot of turner classic movies. movies from the 20s and 30s it seems like every other movie is about someone perpetuating some stock fraud. i worked in hong kong for a while and you see the way modern chinese are dealing with new stocks that are coming out. it seems very familiar to those movies from the 1930s. this new financial instruments, a lot of confusion about it, a lot of seeming arbitrariness and a lot of angst in security. and fraud that tends to be around these new pieces. security issues with bitcoin, i think might prevent bitcoin from

being around in 2015, sorry. the issue of crypto currency, these are all completely solvable if there's a point to it. the amount of security you have to put in to make sure your bitcoins can be secure are outside of what even i would be willing to deal with as a guy with the master's in computer security. you have got to protect yourself, best have of laptop, a separate computer you keep off line that you only use to keep your wallet, there are other ways to do it but there are a lot of issues in the exchanges. we are still in new into this and trying to figure it out. entirely solvable. it has to be usable for people. there has to be a demand we are not getting through paypal or credit cards or other things that will make it a viable medium of exchange for you and

me. as far as the broader chain of beaks versus government, this might be familiar to some of you, this was written in 1996, declaration of the independence of cyberspace. government of the industrial wheels, you weary jains of steel, i come from seiders of the space. on behalf of the future i ask you of 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 great gathering conversation nor did you create the wealth of our market place. you claim that our problems among us you need to solve. many of these problems don't exist where there are bought -- conflict we will identify demand address them by our means. your concept of property, expression, movement and context do not apply to us. they are all based on matter and there is no matter here.

we must declare our virtual souls communities your sovereignty as we continue to consent to your rule over our bodies. that was john perry barlow, a lyricist for the grateful dead and that was from 1996 representing a trend. you can see that trend from the third wave and others in the 70s and 80s of saying we're going of the industrial age into the information age. in the information age governments are going to have less power. we will see more power from the bottom up. we talk about that a lot at the atlantic council. one of the trends we talk about, we'd tweet at for ac disrupt, governments use to have the monopoly and a lot of areas, monopoly on forests and other areas, monopoly on currency. this is particularly strong out in the post ed snowden era.

you are starting to see people, especially geeks, silicon valley, other places, the younger generation saying the stuff the government is doing, enough already. we can have our own things that are separate. we have our own rules of law. your bureaucracies, your rules, we have our own social contract whether it is sharing media, whether communicating, and having strong cryptography to make sure that happens separate from government. many things, if there are problems, we will solve them. cyberspace occurs across these borders. to me, bitcoin and crypto currency in general are part of this larger trend of the geek. i mean that as a term of endearment.

but this diffusion of power away from government to say there are problems, we can solve, owner own without government being fair to have to solve them themselves. this is a really strong trend. you will see it here in currency, you will see it as people's they can we invent a new internet that is not subject to mass surveillance and hack at tax? or is and is a continuing to get involved or other governments continue to get involved? i think the strong money is on government. it has been in the past everytime we have had other disruptive innovations lose sovereignty still matters a lot. if bitcoin and other crypto currencies remains something that is kind of difficult to use and kind of arcane and seems too confusing for normal people to use then probably the governments are going to stay on one side, are going to stay

mostly dominant and bitcoin like other things that start with crypto will remain a niche 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, say we want a more secure and private internet, bitcoin and crypto currencies can fit in with that and we can imagine all the way to twenty-fifth but by 2020 that these could be very much stronger. i am big fan of bitcoin capital, the system of the ledger, the system of the block chain that says here is a smart way that this could get done. i am a huge believe in that. it could solve some interesting problems. whether it is small beat bitcoin, the solution, it is early to tell. i certainly hope is. >> let me follow up on one issue

you pointed towards and we will go to chris and i don't understand the question among the panel, i will take questions from the audience. what about the last point you made is really interesting which is this business model, what i call at the beginning a block chain based application is already being experimented with as i read in a recent article, twitter style social networks called twisters, encrypted e-mail, alternative, bit message, unseasonable domain name systems called name:the use of these processes proliferating services peer to peer encrypted services, where do you see this going in the near-term? most people heard of bitcoin but don't know much about it but no one has heard of these other things. where's the next application of this type of process? >> really figuring what is the need, what is the mass need this

can handle? mobile money has made each huge difference because people don't need a wallet they can use their phone. you have this technology that came in that has absolutely changed that society because now it was an underbank society, they can use mobile phones not just to get information but to make payments. it completely changed society in incredible waste. i am not quite sure what that needed, that we're going to be using bitcoin for. yes, it can be anonymous, you don't necessarily know that is going to bob and rob and jack and phil, it is going to this address and this address the cash fills that need. it will allow you to do that more easily over the network but how many of us need to have anonymity when working over the internet. you can't get credit in bit

coin. there are no derivatives for bitcoins. what is the 90 day bitcoin selling for today? in ways that allows you to hedge. maybe we can get there in ten years but we still have to find -- it is the cool thing, accused the volatile right n, far more volatile than gold or currency. we will see. i don't want to get involved. >> chris knows the most about anything having to do with currency of all of us combined. we would love to hear your view. >> this is a fascinating discussion and thank you for allowing me to go on stage. i am in the global and business and economics program but your leadership on this issue is obviously very important. also a georgetown law professor so i will take regulatory step. it is important to think about very basic terms what does

bitcoin do? what are its advantages? when you think about it in simple terms it helps for you to put your mind around how difficult it is for regulators to deal with this very new phenomena in. in essence when you have any kind of transaction between two parties the information relating to the transfer of bitcoin is not processed in a way that one would normally anticipate particularly when you deal with the transaction involving currency. that is quite simply in our modern financial markets there is an infrastructure for certain kinds of transactions that innocence we have certain clearing and payment and settlement systems that allow parties that are based in far-flung parts of the world to transact with one another and

that clearing system effectively validates and confirms the party has what it says that it has and will deliver that currency to the counterparty in that transaction. what we have in the bitcoin system is very different. instead of having that central clearing mechanism we have this democratized system whereby all of the participants in the bitcoin system and particularly the minors who receive various levels of incentives go out and validates, fact check the transaction and make sure on the one hand that party a who is giving bitcoin to party be has a bit:that party a says it has and also and closely related to it there is the recording process, a process by which the transaction is recorded and the

transaction is then transmitted to the world. it places public good once its is created so it is the democratized system in which lots of different parties can participate in the information gathering and information sharing and to a certain degree a kind of market based information system. and that is what is really very fascinating, what is different from a payment perspective and the interesting part is the bitcoin itself is data. it is a string of numbers. it is not just a piece of paper but a string of data created by software that is given value and in the same sense of on normal

currency is backed by space but the faith in that currency is generated by certain digital communities as opposed to national communities. participants in that community ultimately give that data devalue that the other participants in that system agreeing exist. okay? that is really a 21st century phenomenon because on the one hand you have these new platforms and data, young geniuses sitting around and attempting to create the computational models by which you can continue the process that data. and it is responding to a world that generally is faced with a variety of and a growing

skepticism about finance, money, counterparties, and then you have vote regulators. i am a law professor at georgetown as well and one of the main reasons one goes to law school is because they can't do high-powered computational models that allow them to be hedge fund did -- my students grow up to come fancy lawyers and regulators and it is useful to think a bit about what then is the place of a regulator. you have to open the dictionary to remember exactly what an algorithm is, but then figure out particularly what is the infrastructure behind that system, what are the relatives weaknesses and strengths, and

how does it relate to a specific mandate. the fact that you have 21st century currency in and of itself, lots of problems, no one knows it is currency or not. and many lateral listen, and the multilateral system, is under stress, from the core foundations of economic diplomacy are under religion. you don't try to aspire to a universal regime in which everybody is involved with communities of faith. and treat the, formal legal

obligation, and data and currency. and the last is you are losing this dollar hegemony. all kinds of blocks. regulators have to ask themselves, what could bitcoin. and you don't know what is. and, and what specific things.

and it doesn't necessarily have a use value, you don't consume a bitcoin that you each. this creates the question as to is that a commodity? a currency -- and a rhetorical sense for economic and legal sense, questions to whether or not the currency, it is an instrument of payment and we have an instrument of payment that is not universally accepted. it is a store of value. many of us in the room and fluctuates every day, way beyond the means of fluctuation one would normally associate with other investment in strength.

is it a store of value? or me traditional consumption? a unit of account, don't go to a store in which my baseball bat is denominated in bit coin, micro bitcoin. and denominated, used it going to pay for it but usually it is another currency. it is hard to think of bitcoin as typical currency? is it an investment? may be security i see in the background someone who has been in my security, security lawyers have a definition as to what constitutes security and when you bring in the fed's, there are certain key elements of what security is for those lawyers and law geeks, no commonality and folks participating but in

the same way in which one participates in a bitcoin chain. let's call it an asset. it is very weird because property was not always given this anonymity, so we'll have wild fluctuations but not identities that are created in a typical property based system. then we get up and say it is not really currency but a payment system. we have brilliant young the minors who create a ledger broadcast to the world and clearing and settlement system.

that is hard because it is not centralized and the different nodes and different parts of clearing the settlement system don't operate in anything we have seen before. for this reason federal regulators tried to call the money service business, cash checking, to make the more compliant with money-laundering system but even here there is a certain question about who's the integrity of the payment system where you have not only exchanged and cells that can be hacked, these folks, ponzi scheme but around the bitcoin system. and what is integrity for digital wallet. it doesn't look like, does it seem to have the same

constitutional muster that one associates with more established regulatory system. as a result, each of those questions, is it commodity or a payment system or currency? how you answer each of those questions leads to a different answer as to who is in charge. and when you question who is in charge various regulators look at any particular aspect and say that is me, confusion, to top all of you have this dynamic system that is always evolve bank and is deeply international. this is a major exchange, two french guys, new kinds of stresses and challenges for the

regulatory system. started in washington folks are going to be employing young geniuses to figure read out. when we don't know what it is, or who is in charge. >> someone tested me, it leaves me a little bit coin confused. and it is an important one. who if anyone will be in charge of regulation, internationally and globally. and writing bigger things down before we open it up to questions. >> if someone employs a lawyer i want to hire you. as someone who lives in a 21st

century, you don't believe this in total. wright 21st century jargon from the government. it is not wrong in the confines of that system. is asking nation bait spread -- nation state based rules and a little of what jay is referencing and their young friend is referencing, people who wish to act outside of that. in terms of international law, and those kinds of controls over these people, and running down the list we know what you are saying. those are nice dollar based systems kinds of rules. the thing i would say is do we need to think more carefully about how those rules are designed, approaching this a

little differently. >> i was describing what the regulatory response is currently. let me confirm your point, how difficult it is, simply trying to explain to people what is unfolding. to your point, do you then look at our bitcoin as an asset come as a property, sounds interesting enough. that means you would have to figure out a way to tax any appreciation of bitcoin at any point in time where there's a wide fluctuation. when for example the irs, everyone is saying in a system where there's a large degree of anonymity and wide fluctuations on a daily basis, the value of bitcoin not to mention you will be able to write it off, you

can't write off any losses, it doesn't seem like a very viable approach. >> they're looking at it like you would look at a commodity or something like that. >> precisely. there is a question as to how viable or how would the irs do this. you talk about the international aspects, germany will, i believe, talking later today with head of the profit. it is a digital commodity. on the other hand some countries, a currency. which obviously gets your banking regulators involved. the sec is worried about fraud. tries to come up with an

approach where the market and technology has outpaced the regulatory infrastructure. you will not always end up with baltimore results. one of the challenges in what i argue in my book is the need to update how financial market participants and authorities talk to one another across national boundaries. i will say one last thing. depending on the size of the bitcoin market you have certain kinds of issues. i always tell my students always remember, you too, young man. i love the fact that i can say young man. young people, twitter, this attracts -- cheese attract rats. the question is once you create

value, once you create value, you will get -- i could go on with a lot of examples. i go to a ponzi scheme, that doesn't mean it is inherently good or bad but it does mean certain kinds of opportunities, folks get involved, not always the best of all people with the best motives. sometimes these are not enough, how do you leverage the power of the crowd because you're dealing with crowds source information and how do you model the market, get the market involved in a way, i do some things with the regulatory agency, how do you get market participants involved in a way to speak to 21st

century problems that, human capacity, intellectual capacity, regulatory capacity, that is why we are gathered here today. >> to bring it even more practical, will government allow a system that is moved around, that know your customer requirements. you have a mobile phone, you can essentials sign up. governments, especially since 9/11 have been strong in saying you got to know who is working with you, who is signing up for a bank account, that allows the money to move across borders with no visibility by the government on what is going to happen. one of the reasons russia and china are not liking this, not just because it can be used for illicit purposes but it completely abates capital controls. 5 or russia or china i would be

paranoid about this because people want to get their moneys out of their countries and get into safer currencies. those governments have controls on what moneys can be allowed. there are a lot of government interests involved in stopping something like bitcoin. if it starts becoming important, stand-up not just against the u.s. government and the irs to figure this out but dedicated bureaucrats that want to stamp out any sickness they can't control. so there is a lot back against this. >> all of that control is necessarily good or reflective of the value council stance to

promote. i am giving kevin na a little protection but can do it himself. >> a couple points that were touched on that i want to get my 0.0001 bitcoins con. a lot better than bitcoin, bitcoin does have an identity crisis. nobody knows is it a currency? is a stock? i don't know a lot of other terms he was talking about. i haven't taken economics yet. nobody knows what to classify it. the easy thing is to say to fight tooth and nail is it a currency? is a stock? in reality it is both. some people want to treat it like a currency and some people view it as a stock. it is the best of both worlds

where someone has a little bit going to make transactions they shouldn't be penalized as if bartering stock. another name from now there is mount gox, they were the people to go to view wanted to exchange bitcoins $2 in the face of whatever. the funny thing is not many people know where it of originated. it stands for magic the gathering online exchange. it was a platform for a trading card game. when it came out in 2011, send your password, any script could find your password. and so basically this was built on a platform that was

expecting, you couldn't give away a bit:if you wanted to. was worth less than a penny a:. they built on a platform that was doomed to fail. as bitcoin gained more popularity they added more servers to duct tape code. it reached the deck of there were so many holes and gaps but faber too big to stop everything and rework the entire system so they let it roll. eventually they were hacked into and the bitcoins were transferred out. a lot of people are like a hightailed it around. that was something favoring early investors. the day it went down i got so many texts saying the head of bitcoin failed. it is just an exchange. the system favors early

investors. if you were to invest in apple or microsoft early on, you would get rewarded for that. another thing i want to talk about was, it would be nice if the irs were to talk to a bit coin experts on what to keep in the regulatory matter. now the we have something on paper, something grasping it i do believe the bitcoin community will get -- what they should do and what will work. it is something bitcoin people believe is stupid or outlandish they are not going to follow it. they won't pay taxes on it which is lose/lose because one is illegal and one is getting taxes so they need to work together to come up a policy that works for everybody and it would be worst case scenario wonderful thing about bitcoin is governments don't need to approve it.

it can function completely normally without government intervention so government can -- china has been in the news lately because they band going to from their currency to bitcoin and bitcoin to their currency but only in the bitcoin world is completely fine. the deegan touch bitcoin that all people would still do it. is a moved point to ban any thing, that is not where the direction is moving. is moving towards power to the people and the government kind of having a hard time with this but it -- you might as well not fight it. >> now we open up for a session in the middle with his hand up and grab everyone while we are

over here. >> my name is martin apple. i will do what i can. i want to look at this as that different phenomena in. this is an experiment in alternatives to currencies as we have known as the manned whether it fails or not is irrelevant, going through these succeeded by another experiment and people get to the notion, embodied as something physical in the digital world doesn't have to be. everything in the digital world that so universally distributable. and any particular country, it will be a kind of a threat. how do we live with this new evolution? trying to stamp out will not be a successful story. i think it will evolve and

create a successful -- case successor does occur. >> you made an excellent point i want to bring up. when the internet was coming about and surfacing, congress knew what to do with it. there was a lot of discussion of completely stamping it out making sure it didn't cause any harm or do drug-related activity, you can do anything on the internet, get anything, drugs, hitmen, what ever. >> accept bitcoin. >> when the internet first came out it was text based, completely unappealing to an average person who wanted it for e-mail or to look at funny pictures of cats. you couldn't do it without

knowing whatever language was used to, innovators like google came up, apple was able to have to get technical. if people wanted it for the mail that is fine too. it is a good point it is not natural for people need to be so secure because if you have $100,000 in bit coin and one day you go to the wrong website and download the wrong thing, it is gone. that is something in the next couple years, to help people make it easier for them to make that viable method of exchange. >> one of the real problems is this is a 20th century idea institution. that is what we grew up in.

this is the 21st century, this is about the cutting edge of technology. it is about jumping generations, i am less concerned but it interests me that many third world countries are underdeveloped countries basically dismissed hardware and telephone systems. i could see in unstable countries, take a look at this kind of thing, this is great. it is interesting that we on the status quo, status quote power here, this will go on. this will go on quite well in terms of the 21st century. the challenge is how do you regulate this. >> don't regulate something you don't understand or be careful

that you don't understand, don't have the opportunity for that technological innovation to develop. i did want to make a couple basic points. is not that the chinese were basic power, controlling the national monetary, should a bank be able to lend money to a broker dealing in bitcoin. in the post 2008 financial crisis, that becomes not a 21st century problems last couple years. what should be the relationship of this new payment system, between the 21st payment century with the 21st century payments system. that is something you cannot

just overlook. how does the 21st century exchange deal with the 20th century exchange? is like a ponzi scheme. that is an old school problem that works itself out in interesting ways when you have potential bitcoin. bitcoin offers some amazingly interesting opportunities. on the one hand one of the drivers behind bitcoin in an age of what appears to be western profligacy you have an opportunity for individuals to create value among themselves so you are not dependent on politically driven government decisions, you have an opportunity for people to

protect themselves. are in some ways, cutting out certain middlemen by employing minors. and payment transactions that were more efficient and less costly to people in the marketplace. not like it is coming out of nowhere but at the same time when you have the internet and you have the opportunity for human trafficking or hit men, please don't hurt me, obviously both of those problems are age-old problems that get a new life when you have 21st century technology. particularly when the nation state looks at it, it is domestic infrastructure.

they will never be entirely successful. regulators and market participants are as prudent as possible, they are not going to secure the downside. >> collect a couple questions and we will get one more before we answer. >> i share your skepticism. >> please identify yourself, say your name and where you are from. >> charles, i am from new york. >> turn it off please. speech into the mind. >> i am a recent graduate from florida law and i am writing an article on bitcoin and i would like to create either a niche market and business in bit coin. i share your skepticism regarding regulation, always

wondering about the policy behind it. directing my question to chris brummer. you expressed the problem of regulators trying to fit a square peg into a round hole. this is not a unique issues surrounding bit coin. the traditional system, i wonder if the best way for regulators who are facing serious issues, real issues and good regulation, look at bitcoin and define it by its function instead of looking at a commodity for traditional norms, and the currency regulated as a currency. not just for regulation's sake but serious real issues.

>> great. i think that is a great point. in the 21st century need more objective space process where you want to ask what am i trying to do, before i get involved? got to answer basic questions, what is, the nature of the problems i am trying to deal with. in a new technology, this is not, bitcoin is a great interesting question but there are other important ways in which technology is impacting finance. you can look at everything from good-looking trading, and related issue areas, crowd source information and new technology and new platforms impacting the way people do business and each of those domains you have to take a step

back. bitcoin is particularly difficult because of the fact that you are dealing with your data and it stretchedes the human capacity, intellectual capacity of lot of the folks at the agency's. when i am trying to figure out what would i do? what do you do? i can't tell you how it would come out. i can only give you a basic idea of the process i would undertake to begin to figure out what i would do and that is the best and wisest course for most regulatory agencies because everyone is trying to figure out particularly market participants themselves, granted the rest of the world is a little better but even there is a challenge for them to fully articulate what it

is that they are doing and in that kind of world you have to move to create a smarter dialogue, smarter process and i have ideas to get up and running but i can't tell you -- >> quicker questions because time is running out. if you could keep your questions short. >> i am the treasurer of the development bank, in a daily basis and that to your questions about rules and so on, would it be in the bitcoin community's interest if you, mainstream bitcoin, waiting for government to figure out what it is and regulate, if you said please help us move bitcoin into the mainstream because you would become dominant extent of value, thank you.

>> my question along your lines is it is beneficial for the government to get tax revenue and not make its citizens pay a criminal situation so how does the government help provide better security and have access to that big paper trail, that ledger so the irs can track and file taxes and give your public account the main user name and can you explain funding service manager versus exchanger. and being a user and not become a money exchange manager. >> take those questions for kevin and chris and take a couple more. >> your question is basically how would a government be able to track your funds and therefore tax them? >> further help of security we

don't have. we will encourage you to do that. in that way, filing a user name with as we will help you track down -- >> similar to the first question. is it a useful approach for the bitcoin community to help figure out regulatory approach that works for all parties? >> i completely agree there is a need for the bridging of the two world's. as for how they would do this, they could theoretically give the government the address and because bitcoin is based on a public letter called the block , you could see you are paying it to, not who but they could see the address it is going to and where you are getting the money from so it could adapt maybe 2 if you are using it as the currency may be

from i know tiger direct and overstock.com are accepting the coin as payment so if you're doing a transaction like that maybe tax purposes will be a little different than if you're using an address for something more substantial like a car or a boat or something that would be a different tax implication. >> hold on a second. just to save the money service issue has to do with whether you look as a payment system and the irs is asking a more basic question, is it up properly or asset that needs to be taxed. the irs has said even using the -- they can in certain instances backtrack and look at the patterns of certain payments. to identify real person. for each transaction, the

computational power and time required is so extensive that it would be very hard in today's world to regulate every bit coin transaction but like the irs proclamation and the idea of the money service industry the idea is how can we better make sure bitcoins aren't being used for illicit purposes, money laundering, it terrorism, financing, drugs and the like. >> puts you in position to think which part of the government has that capability and i will give you three letters that do. there's only one that has that computer capability and do you want them there? >> it is a difficult place to get the bitcoin community to stand up to that. you can get there a couple ways. they are threatened by regulation, government cracked down so hard it is an item of

last resort. so many in that community see anonymity as one of the reasons for the system. if you don't have anonymity in the system what is the point? just use dollars. there has to be some value. if it is can why seas and is easy for an exchange, the exchange will be recognized by the authorities, more safety and security. if you come out publicly to be associated with your private key and associated with the exchange and there are real benefits that come from that. you can imagine other ways we have done this but it is not like you can go to ubs and say tell us who everyone is because there's no real they're there. as you do in going after other -- other sovereigns that have corporate banking. >> we are out of time for

questions. any last comments before we formally end this event? >> i must tell you as a member of the intelligence community i think i would have an enormous problem dealing with this and the counterterrorism standpoint and also the standpoint of what this does to the nation's currencies? in countries where you do have unstable currencies are you going to get a class of people using this in the elite? how will this affect their behavior toward the government? >> two things. one after this if you want to see my mining red, i worked so hard on it. and the second is, we are talking about bitcoin here but like i said before the greatest gift bitcoin has given us is the way that we can do something like this without needing a central authority. in the next five years is it

going to be bitcoin? who knows? but i do know that more and more people are getting interested, more and more ingenious developers, even smarter than me, to create something that will make crypto currencies something everybody would want and everybody could use. i remain skeptical in the broader term. look at what we have been going through the last week, s s l, open source, had people looking at the standard for years and years. the internet is fundamentally insecure at almost every level, even those places that had a lot of scrutiny. if crypto currencies are going across, they have a lot stacked against them. dollars at the end of the day, counterfeiting that happens, inflation is an issue we can get past because of fiat currency

backed by the full faith of the united states government or whatever. it is more difficult to get past, a 51% of miners you to make changes to the standards that allow power and energy in fiat currencies only lead to the sovereign. a lot of things we have to get through, a lot of things that sound like a good idea in the internet but don't work out. just because it is technically possible doesn't mean it it is going to happen or we would have all gotten here on brad peck. and the core question when you

digital information, and new opportunities that allow market participants of all shapes and sizes to connect with one another and transact across borders is here to stay if not in the bitcoin iteration then in subsequent erase in. one of the challenges will be exactly how do you engage this phenomenon that is fundamentally reshaping our society. >> i could go on and other two hours. i have really been educated and entertained. please join me in thanking our fantastic panelists. [applause] >> thank you. >> if you want to donate money -- [laughter] [inaudible conversations]

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