Memorandum ​

https://financialservices.house.gov/events/eventsingle.aspx?EventID=408705

Overview of Cryptocurrency Industry ​

• investing, trading, and payments
• tech
  • cryptography
  • distributed ledger technology (DLT).
• Digital assets
  • cryptocurrencies
  • stablecoins
  • central bank digital currencies
• $500 billion in 2020 to almost $3 trillion as of November 2021.3 Over the past few years
• Bitcoin, to
  • new digital assets and technologies gaining market share, each with different structural and activity features,
  • Ether,
  • stablecoins,
  • non-fungible tokens (NFTs),
  • decentralized finance platforms (DeFi),
  • and others.
• regulators can ensure investor protections, ensure consumer protections, and maintain market integrity.
  • as an asset class for investors,
  • implications for consumer privacy
  • financial inclusion,
    • Financial inclusion is defined as the availability and equality of opportunities to access financial services.
  • and the promises and perils of central bank digital currencies (CBDCs).

Cryptocurrency Market Exchange Participants ​

• Cryptocurrency market exchanges definition and charasteric
  • market structures where digital asset buying, selling, lending, and borrowing can occur.
  • These platforms facilitate the offer and sale of cryptocurrencies for other assets, including digital and fiat currencies
  • and set the rate for conversion between these currencies.
  • Trading platforms can charge transaction fees for moving or withdrawing money from an account.
  • Some industry observers perceive digital asset trading platforms as similar to national securities exchanges in functionality.
  • However, without filing registration paperwork or seeking an exemption from registration with the SEC,
  • some exchanges have unilaterally determined that they are not subject to the same regulatory regime,
  • leading to policy debates on market integrity, investor protection, and innovation.
• have garnered scrutiny from regulators domestically and abroad
  • over their rapid growth, as well as the complex and risky products they offer.
• examples
  • Coinbase
    • one of the largest cryptocurrency market exchanges by market capitalization
    • became a publicly traded company on April 14, 2021.11 Coinbase is also affiliated with USD Coin, the second largest stablecoin, issued by Circle.
  • FTX
    • designated contract market (DCM): futures
    • derivatives clearing organization (DCO): options
    • swap execution facility (SEF): swaps
  • Other large cryptocurrency exchanges with millions of users include Binance, FTX, and Kraken.
• DeFi
  • decentralized finance (DeFi)
  • fast-growing area within the digital asset industry, reportedly reaching more than $100 billion in size in November 2021, up from around $21 billion a year before.
  • DeFi does not yet have a standardized definition, replicate and replace conventional delivery of financial services such as
    • without central financial intermediaries such as brokerages, exchanges, transfer agents, or banks
    • loans
    • asset trading
    • insurance
    • and other services

Stablecoin Products and Services ​

• Stablecoins
  • are a type of digital asset generally designed to maintain a stable value by linking its value to a national currency or other reference assets.
  • Stablecoins are used to buy or sell other cryptocurrencies, or to lend or use the stablecoin as collateral to borrow other cryptocurrencies or fiat currency.
  • Stablecoins reached almost $147 billion in market capitalization as of November 29, 2021,
  • largest issuers: Tether, Circle, Binance, and Dai. Diem(Libra)
    • unveiling a remittance service in the U.S. and Guatemala
• Stablecoins can have vastly different operational structures and reserve compositions.
  • Reserve assets backing stablecoins could include fiat currencies, traditional financial assets, or other digital assets and algorithms.
  • stablecoins represent a relatively small fraction (5%) of the digital asset industry’s total value, they facilitate more than 75% of trading on all digital asset trading platforms as of October 31, 2021.
  • Furthermore, stablecoins could find parallels in traditional payment systems, banking, or other forms of financial infrastructure service.
  • Some have compared stablecoins to private currency issued by banks before the practice was curtailed with the National Bank Act of 1863, and a shift was made to a single sovereign currency.
• management and structuring of the reserve funds resemble existing practices for registered securities products, such as
  • money market funds (MMFs),
  • exchange-traded funds (ETFs),
  • or security-based swaps.

Regulatory Concerns in Digital Assets Products and Services ​

• charastics
  • cryptocurrency markets have no overarching and centralized regulatory framework,
  • leaving investments in the digital assets space vulnerable to fraud, manipulation, and abuse.
  • Some cryptocurrency market exchanges and stablecoin issuers
    • have obtained state money transmitter and sale of checks licenses from multiple states,
    • and a few cryptocurrency companies have obtained national charters
• Stablecoin-related policy concerns include issues related to
  • market integrity,
  • investor protection,
  • consumer protection,
  • financial stability,
  • monetary policy,
  • payments,
  • and illicit activity prevention.
• risk
  • potential systemic risk posed by stablecoins
  • losses or instability of stablecoins could generate instability throughout the financial system.
  • potential fraud and manipulation
  • and the need for disclosure and transparency.
    • For example, investigations by the New York State Office of the Attorney General revealed that stablecoins issued by Tether, the largest stablecoin issuer, were not fully backed at all times, raising investor-protection concerns.
• Digital assets and related service providers can present
  • money laundering,
  • terrorist financing,
  • sanctions evasion,
  • kleptocracy,
  • and other illicit finance risks
• Criminal and terrorist activity
  • speed of the payments and transactions
  • looser anti-money laundering compliance,
  • access to jurisdictions with weak regimes allowing for money laundering,
  • and the pseudonymity provided by certain cryptocurrencies.
  • ransomware attacks
    • The lack of safeguards in parts of the market has contributed to the rise in ransomware attacks that demand payment in cryptocurrency
    • with the Financial Crimes Enforcement Network noting that $590 million in suspected ransomware payments were reported by financial institutions in the first six months of 2021, compared to $416 million in 2020.
  • While the overall criminal share of cryptocurrency activity is estimated to be a small portion of the rapidly expanding cryptocurrency market, given the size of that market, the harm of the illicit funds can be impactful.
• Cryptocurrency users may also be vulnerable
  • theft
  • fraud
  • hacks.
• environmental concerns.
  • crypto mining – the process of validating certain transactions
  • Cryptomining computers have also been criticized for their short lifespans and the amount of e-waste they generate.

Federal Regulatory Responses to the Rise of Cryptocurrencies ​

https://www.atlanticcouncil.org/cbdctracker/

Questionnaire ​

Note: In order to simplify the text, the answer is not necessarily very accurate, choose the closest one

The difference between Bitcoin and QQ coin:

-I don't know

• There is no difference
• My bitcoins are not taken away by anyone and QQ coins may be recovered

【Multiple choice】My understanding of digital assets:

-I don't know

• My Weibo account belongs to me and is my permanent asset
• My Bitcoin belongs to me and is my permanent asset
• My game account belongs to me and is my permanent asset

My understanding of the hash algorithm:

-I don't know

• Hashing is a digital fingerprinting technique that allows different pieces of content to have different digital fingerprints
• Hash is a one-way function, and in daily use, you will encounter different content with the same hash from time to time

When transferring money with Bitcoin, if you accidentally fill in the wrong alphanumeric character when filling in the other party's address:

• Not sure what will happen
• You can find a way to recall
• Will call someone by mistake, there is a small probability that you can find this person to return the money
• will fall into a black hole, which no one can retrieve with current technology

Difficulty of writing secure smart contracts:

-I don't know

• Very simple, novices watch tutorials in 21 days from beginner to proficient
• Similar to normal code writing
• Difficult, it takes a team with multiple professional divisions to competent

About SPV (Simple Payment Verification) and Lightweight Wallet:

-I don't know

• Similar to wallets such as Binance, Huobi, Coinbase, etc
• Similar to wallets such as MetaMask, ImToken, Ledger, etc

【Multiple selection】About mining

-I don't know

• All are energy-intensive
• When the last coin is mined, miners do not need to continue mining
• The function of mining is to protect the security of the blockchain

About whether Bitcoin is a currency or not

-I don't know

• Bitcoin is not a currency
• Bitcoin is the currency
• Bitcoin is just a general equivalent

Have you been involved in cryptocurrency

-No

• Only the private key is owned
• There are coins
• Participated in the construction of blockchain consensus security

Whether you know about asymmetric encryption

-I don't know

• Divided into public-private key pairs, public key encryption private key decryption, private key signature public key verification
• Encrypt and decrypt with the same password