The time has come to appoint a new Chairman of the United States’ Federal Reserve, and US President Donald Trump is expected to select Governor Jerome H. Powell for senate confirmation. In the past, Governor Powell has expressed hesitation about Bitcoin and cryptocurrency in general.
However, unlike many big names in the financial world who are known as ‘Bitcoin skeptics’, Governor Jerome H. Powell seems to actually have a decent understanding of blockchain technology. At a talk that he gave at the Yale Law School earlier this year entitled Innovation, Technology, and the Payments System, Governor Powell spoke rather extensively about DLT (distributed ledger technology) and cryptocurrency.
While he has some “bones to pick” with some aspects of DLT, Governor Powell seems to be open to the possibilities that DLT has to offer the world’s legal and financial systems – provided that a few important measures are in place. Said Powell: “[We] live in a time of extraordinary technological change. We should be open to the new ideas and innovations that will drive economic growth and improvements in our financial system.”
Concerns About Bitcoin’s ”Reliability, Scalability, and Security”
In the Yale speech, Governor Powell acknowledged that Bitcoin helped bring DLT into the public eye, and spoke of its function as a trustless system of value transfer between participants that operates “without reliance on banks or other trusted intermediaries.” He added that “this feature has led some to predict that DLT will, in the long run, render parts of the banking and payments system obsolete, as the intermediation of funds through the banking system will become unnecessary.”
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Additionally, Governor Powell noted that most technological tools of the financial industry operate on a “permissioned” basis, while Bitcoin’s open architecture allows anyone to be a user. Additionally, he expressed technical concerns about Bitcoin’s platform – Powell takes issue with Bitcoin’s ”reliability, scalability, and security”.
Governor Powell raised another noteworthy issue about the future of DLT when he spoke about the need for “standardization and interoperability across different versions of DLT” to allow the technology to be easily integrated into existing systems as well as to avoid “market fragmentation”. Governor Powell explained that upgrading existing financial systems into DLT-based systems is a process that is currently “costly, lengthy, and risky”, particularly because the technology is still in its early stages.
“Legal Foundations Supporting DLT Will Need Attention”
In the past, Governor Powell has noted the overlap between the privacy that Bitcoin offers its users and the use of the cryptocurrency for illicit activity. In this particular speech, however, Governor Powell acknowledged the problem with a rather practical attitude. He articulated the need for a legal framework that could deal with a DLT-based system that extended across multiple legal jurisdictions (ie separate governments): “A robust legal basis that provides certainty across relevant jurisdictions is essential for building strong governance, risk management, and operations.”
Given Governor Powell’s remarks, it is unlikely that the United States government will be jumping head-first into the adoption of DLT into any of its existing financial systems. However, it is equally unlikely that the US government will avoid the adoption of DLT in the future.