00:00Thank you very much, Ranking Member. I appreciate the Chairman for holding this
00:06hearing today and being serious about creating a framework for digital assets
00:09in the United States and certainly appreciate all of you and your
00:12willingness to be here with us and testify on this important topic.
00:16Obviously it's a very complicated issue, a lot of moving parts. We've seen some
00:21fireworks today. One of the primary points is just around definitions. You
00:26know, how do we properly define digital commodity versus digital security and
00:31what does that actually mean for the role of our regulators? We know digital
00:35asset securities can share many characteristics with traditional
00:38securities but they're not inherently the same and regulation needs to reflect
00:43that. Much like applying, you know, traditional regulatory framework to a new
00:49decentralized finance system, it just doesn't work. I'm concerned about the
00:55compliance burdens for developers and for startups and how we actually strike the
01:01right balance between the two. I've seen firsthand what happens to our small
01:06businesses and our small financial institutions when you have over
01:09regulation and it becomes unsustainable. So my first question is actually for
01:15Ms. Mersinger. We are dealing with a rapidly evolving industry here and we
01:21can't predict every change, right? So how do we create a framework that puts up the
01:27proper guardrails and the clarity that we actually need today without locking in
01:32rules that quickly become outdated? I'd love your thoughts on that and kind of
01:38your thoughts on how we approach that. Thank you for that question and I will
01:42say as a former commissioner at CFTC, I believe this is a reason why there is so
01:49much interest in having the CFTC as a regulator over the digital spot market.
01:54It's because they have a principles-based regulatory regime which provides that
01:59flexibility so as technology changes those companies, those startups, those small
02:05businesses can still operate and fulfill their regulatory duties but not be
02:12subject to a prescriptive regulatory framework that locks into place the
02:17technology and the systems or the processes they're using when it's put in place. So I think the most
02:25important thing you can do is have principles-based regulatory regime and prevent having
02:31prescriptive regulations around this industry. Do we have, are there kind of
02:36permanent and durable mechanisms that would actually encourage innovation? I guess my question, you know,
02:40have has the regulatory sandbox been beneficial in this regard and kind of
02:46sort of how do you see that playing out? Yeah, absolutely. There's been talk about
02:50sandboxes being a helpful tool. Okay. The both the SEC and the CFTC have
02:56exemptive authority that they can use. There's the ability to use staff no action
03:02letters and reliefs. So there are a lot of... Would you recommend that? Yeah, there are a lot of tools in place that they can use to still oversee and
03:10regulate the space but not stifle the innovation that is occurring and developing.
03:16I'm going to shift gears real quick in my remaining time. Mr. Levin, I've heard the
03:21narrative that digital asset transactions are completely anonymous and, you know,
03:26beyond the reach of law enforcement. I disagree with this as with any financial
03:31instrument or new technology. There's always going to be bad actors and we should, of
03:37course, where any loophole exists. We should find it and close it and not enable
03:43illicit activity. But from my understanding, blockchain technology actually can offer an
03:49enhanced level of security, perhaps even more resistant to manipulation. And
03:54transactions on the blockchain offer a unique ability for tracing and tracking and
03:59including analyzing trends on the ledger. So, Mr. Levin, can you speak to this, both to the narrative that
04:06digital assets are untraceable and to what type of tools are available to identify and
04:12actually combat bad actors? Thank you, Senator, for the question. This is exactly the
04:17business that we at Chainalysis have been building for the last 10 years. We build tools
04:24and technology that actually allows law enforcement, regulators, businesses to
04:29actually track and trace cryptocurrency with the relevant context about where to get
04:34additional information if there is some sort of investigation or some sort of disruption action
04:39that needs to happen. I would say that there are two levels of tooling that is worthwhile the
04:46committee understanding, which is one is there are actual forensic tools that are being used in
04:53investigations where you are looking at very specific transactions of interest that have been flagged
05:00either through regulatory reporting or investigations. And then also the blockchain actually allows for a
05:06much more macro view of trends and threats that are persisting against society. And so you could
05:14actually investigate ransomware as a whole threat to the United States of America and look at the
05:21entire supply chain that causes ransomware to have impact on our communities and find where there is an
05:27opportunity for actual disruption of that supply chain for the threat.
05:32Thank you so much. And I am out of time, but would love to continue this conversation with you,
05:36in particular, how we empower our state and local law enforcement with the tools they need,
05:42so that they're they're better equipped in this regard. So thank you so much. And with that,
