‘Casino-like’ speculation, lack of regulation and environmental concerns harm blockchain’s reputation: NY Senate Banking Committee

by Arthur · April 26, 2023

We need to move away from the “casino-like” world of digital asset speculation and focus on blockchain’s transformative capabilities in other areas. Testifying this week before the New York Senate Standing Committee on Banking, BSV Blockchain Association Global Public Policy Director Bryan Daugherty said that a scalable proof of work (PoW) blockchain like Bitcoin was the only way to realize the technology’s true potential.

The committee’s hearing, chaired by NY State Senator James Sanders Jr., looked at several aspects of the blockchain/digital asset industry that could either benefit or negatively impact society. The first part looked at regulation and investment risks, while the second examined in more detail the ecological effects of PoW mining in New York State. A third segment looked beyond blockchain to the wider fintech world and its issues for regulators and businesses.

Daugherty stressed the importance of distinguishing between digital assets and blockchain technology, which are often conflated. “This narrow perspective (on speculative trading) fails to recognize its transformative capabilities in a number of fields,” he said.

Blockchain has far broader use cases than just finance, he said, listing benefits in safeguarding data integrity and cyber security, streamlining public services such as transit, healthcare, voting and land registries, identity management and fraud mitigation, and sustainable agriculture.

Panel’s strong focus on the blockchain’s environmental impact

His testimony followed that of Elizabeth Moran, NY political spokeswoman for the environmental law organization Earth Justice. Her organization was particularly concerned about PoW’s ecological impacts, primarily since 38% of the world’s PoW assets are mined in the US, but the industry overall would be in the top 30 energy consumers if it were a country. PoW mining, and BTC in particular, uses energy equivalent to half of the existing banking sector with estimates that it will surpass it, she said. All of this puts excessive stress on the power grid and increases energy costs for others in the community. Also, promises to use renewable energy sources and feed supplies back into the grid have fallen short of expectations.

Senator George M. Borrello focused on Moran’s environmental claims to Daugherty and fellow panelist Cody Carbone, vice president of policy at the Chamber of Digital Commerce. “Can you guys talk about it?” he asked, noting that he agreed with Moran’s concerns.

Daugherty responded to the senator, was able to paint a more detailed picture of the differences between BSV and other Bitcoin-like protocols, namely BTC (although he also pointed out that Ethereum still has limited ability to scale to meet demand, even after the switch for proof. -of the bet). “There is a huge misconception about the actual energy consumption of Bitcoin; more of the competing protocols to Bitcoin,” he said.

“The reality is that Bitcoin BTC, which has a block of one megabyte every ten minutes that collects data, is limited to how much data it can actually use, so it doesn’t scale. It does seven transactions per second. If we were to share e mail with a technology that performs seven transactions per second, none of us would ever receive that email,” Daugherty explained.

He compared Bitcoin to another energy-intensive industry: airlines. A plane with 300 passengers uses the same amount of fuel as a plane with unlimited seats. Comparing BSV to the hypothetical airplane of unlimited size, he said there would be “no shortage of applications” for a properly scalable blockchain network.

“Bit refers to data, and Coin to finance…Bitcoin is the fusion of data and finance, where if you remove the one megabyte limit and have an unlimited block size every ten minutes, now you can actually have – from BTC which is about 1200 kg of CO2 per transaction, which is completely ridiculous, for other protocols that use competing proof of work, scalable proof of work like BSV, that is, less than 2 kg of CO2 per transaction, even today, because the unlimited amount transactions that can be included in a block, he said.

Chairman Sanders noted that Moran (and regulators who have testified in the past) had “come up with an almost damning picture of the industry as it stands now” and asked what best practices the industry should adopt.

“We have to think about what we’re actually talking about … if it’s not doing any good, why are we spending any energy on it at all?” Daugherty replied. Most (non-BSV) mining is simply “fishing for the block grant” and speculating on the value, and “unless the fees can overtake the actual grant, there’s no business here. It’s not going to have any real-world applications world.”

Carbone agreed with Daugherty’s assessment, saying blockchain’s data security and monetization benefits could outweigh some of the aforementioned costs.

Investment and financial regulatory issues

Another part of the hearing looked at financial regulation and the often Wild West nature of blockchain and digital asset companies, many of which still saw New Yorkers lose millions in savings despite being located outside the jurisdiction. Sen. Cordell Cleare and guest panelist Assemblyman Khaleel M. Anderson were particularly concerned with the impact on the black community, which they said was disproportionately affected by failed “cryptocurrency” ventures such as FTX, Celsius, Terra/Luna and Voyager.

Christopher D’Angelo, Chief Deputy for Economic Justice at the office of the NY State Attorney General, was critical of the blockchain industry’s tendency to make bold claims about economic benefits and inclusion, while lacking transparency and downplaying investment risks.

Although his office distinguishes between blockchain technology and digital assets, he often said “no need for new digital assets,” which have no intrinsic value and represent no stake in a company or its success.

“The digital asset industry has been unprecedentedly non-compliant with its existing obligations,” he added, saying his office receives daily complaints from investors who have lost their savings. Cryptocurrency theft has increased by 500% since 2020 alone, and instances of criminal activity have increased 60-fold since 2018 – digital assets are “high risk, low regulation, with none of the usual protections”.

Deputy Superintendent of Virtual Currency at the New York Department of Financial Services Peter Marton echoed some of D’Angelo’s concerns. He noted that New York is often a leader in regulating the industry, particularly with its “BitLicense” framework introduced in 2015 after previous debacles such as the Mt. Gox.

“If they want to replace what exists today, they also need to learn from past experiences,” he said.

When asked if regulators needed more resources or even a whole new department, Marton and D’Angelo said that commitment and increased knowledge/staffing had helped a lot. They said there isn’t much need for additional rules, although the situation would be better if digital asset firms just followed existing financial rules without trying to undermine them.

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