The United States Senate's Banking Committee held a hearing this week titled "Cryptocurrencies: What are they good for?" and the topic of cryptocurrency mining was discussed multiple times.
In total, nine mining-related questions were asked of the committee's panel of guests. Answers to these questions ranged from balanced and well-informed to deranged and almost impossibly misinformative.
This article summarizes the hearing's mining-related discussion with clips of each question imbedded below.
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The first mining question came from Senator Brown who asked if "powerful entities" in Bitcoin are able to "bend the rules" of the network in their favor. Angela Walch took the question and launched into a diatribe about centralization via mining pools and a general "power" that miners have, which she said "is not very well understood."
- Among other vices, Walch said super scary and powerful miners accept "bribes" in return for including transactions in new blocks, and they "exploit" transaction ordering.
- Walch claimed this power is so potent that "it's seen as a potential killer for the idea of cryptocurrencies."
Senator Reed continued pursuing the discussion topic of miners being more than "neutral in a technical aspect." Senator Reed asked the panel if he is correct in assuming that Congress has "no way to confirm who these people are" in real life, speaking of miners.
Eager to firehose the committee with more fear, uncertainty and doubt, Walch answered by saying, "[Miners] have not yet been recognized as intermediaries. People still call these systems disintermediated."
- Walch tried to slightly reassure the panel that miners are "coming out of the shadows" as nearly all Chinese miners have moved their hashrate to other parts of the world.
- Walch doubled down on her insistence that miners are intermediaries, telling the committee repeatedly that miners "need more scrutiny."
Senator Toomey brought a welcomed respite from the miner FUD storm by directing a question to Coin Center's Jerry Brito. Toomey asked flatly, "Should [miners] be thought of as intermediaries or as people taking a bribe in return for doing the validation?"
- It's not controversial to say miners are, in some broad sense, intermediaries. But they are not financial intermediaries in the way legislative committees think about "intermediaries."
- Miners function similar to internet service providers (ISPs), which are also not thought of intermediaries.
- Financial regulation excludes ISPs from being categorized as financial intermediaries in the same way that the Bitlicense excludes miners from being regulated as financial intermediaries.
Next, Senator Menendez wanted to talk about Iran. He seemingly wasn't aware that Iran is still in the middle of a complete ban on mining. His question addressed Iran's use of mining as a means for circumventing international sanctions.
"There's nothing that can prevent anyone with the right equipment and an internet connection from mining," Brito explained.
But can Iran avoid sanctions through using the bitcoins it mines for itself? Sure. Unlike fiat currency, limiting Iran's ability mine and spend bitcoin is difficult.
The hearing's question-and-answer format was temporarily replaced by Senator Tester opining on the real reason why China banned bitcoin mining.
- In Tester's view, China wanted to dispatch all of its domestic cryptocurrency miners around the world to "raise hell with our financial system."
- China wants to "be able to be the big player in the financial industry," so they banned mining, according to Tester.
Leaving the panel to puzzle over Tester's reasoning, the mining discussion shifted to Senator Warren who asked Walch if cryptocurrency networks are "as safe and secure as proponents claim."
Briefly resuming her lecture on the fearsome powers of miners, Walch answered by saying miners "can exploit their positions to reorganize the blockchain." She also mentioned exchange hacks...?
Senator Van Hollen continued discussing the "threats" posed by mining, referencing miners as "key choke points" in blockchain networks that can be "manipulated to harm consumers." He asked the panel to elaborate.
- Answering his question, Walch returned to large mining pools as an example of supposedly dangerous mining entities to whom pool contributors "entrust" their hashing power. She conveniently omitted any detailed description of how pools form, mine, or the relationship between pool operators and pool contributors.
- When miners are racing to solve new blocks, Walch claimed that miners enter into the network's "God mode" and embrace an awesome and fearful power... and the FUD just doesn't stop.
Switching topics, the committee turned to Bitcoin mining's carbon emissions.
The Filecoin Foundation's Marta Belcher started to explain how different protocols operate with different proof systems, which require different levels of energy consumption. But her answer needed far more time than the hearing allowed.
The hearing's final mining-related question came from Senator Toomey who wanted to close the chapter on wild theories about miners acting as God-like intermediaries with incredible and mysterious powers.
Speaking to Brito, he asked, "How should we think about the miners and their power to decide which transactions get put into the block and their whole role in the validation process?"
Brito wasted no time in clarifying and accurately representing the function of miners. "We have to understand that miners cannot redirect, steal, or initiate a users payments. But they can however affect the order that payments are confirmed on the blockchain."
Brito attempted to offer a 30-second summary of how transaction ordering could or could not affect a users payments (simple on-chain payment versus a trade executed on a DEX, for example). But a full explanation of these nuances required much more time than the hearing could provide.
A few takeaways from the hearing:
- Legislators are paying attention to cryptocurrency mining;
- Angela Walch's testimony was some of the most ill-informed, intellectually dishonest commentary about cryptocurrency that has entered the Congressional record;
- Coin Center's Jerry Brito offered corrective and clarifying commentary when he could, and hopefully he is able to do so again in future hearings.
Congratulations for reading to the end!
Any readers who are interested in watching the full Senate hearing to learn more or due to suffering from insomnia can view the entire video here.