Mr. Chairman and members of the committee, thank you for inviting me here today to comment on Bitcoin’s use for small businesses. My name is Jerry Brito and I am a senior research fellow at the Mercatus Center at George Mason University, where I study the regulation of emerging technologies in the Mercatus Center’s Technology Policy Program.
Online virtual currencies are nothing new. They have existed for decades—from World of Warcraft Gold to Facebook Credits to e-gold. Neither are online payments systems new. PayPal, Visa, and Western Union Pay are all examples. So what is it about Bitcoin that makes it unique?
- Bitcoin is the world’s first completely decentralized digital currency.
- Its decentralized nature results in lower transactions costs, making it particularly attractive to small businesses.
- It could also be an attractive electronic payments option for consumers, including the unbanked and underbanked.
- Risks include volatility and security, but these are not problems inherent in Bitcoin’s design.
The policy challenge is to address the risks associated with Bitcoin without stifling innovation.
Whatever one may think about Bitcoin’s prospects for enduring value, it is safe to say that it is a remarkable technical achievement.1 Bitcoin is the world’s first completely decentralized digital currency, and it’s the decentralized part that makes it unique. Prior to Bitcoin’s invention in 2009, online currencies or payments systems had to be managed by a central authority, whether it was Facebook issuing Facebook Credits or PayPal ensuring that transactions between its customers were reconciled. However, by solving a longstanding conundrum in computer science known as the “double spend” problem, Bitcoin for the first time makes possible transactions online that are person to person, without the need for an intermediary between them, just like cash.