Main Street Meets Crypto: What Digital Assets Mean for Small Businesses

Welcome everyone to today's hearing entitled Main Street meets crypto, what digital assets mean for small businesses. Our hearing is especially timely as our colleagues in the Senate are expected to vote this afternoon on whether to invoke cloture and advance the much anticipated Digital Asset Market Clarity Act, commonly known as the Clarity Act. This is our subcommittee's second hearing of the hundred and nineteen Congress and I thank ranking member Skuldin for her ongoing partnership as we address how innovation promotes economic growth, and job creation by small businesses. Our subcommittee's previous hearing focused on the economic impact of minor league baseball, on communities across America. That hearing proved to be a home run as we welcomed former professional baseball players, minor league baseball executives, and even three beloved mascots to this room for a constructive and bipartisan conversation about America's pastime. Today we are focused on what digital assets and blockchain technology can mean for small businesses across America. When many Americans hear the word crypto, they think about Bitcoin, investing, or perhaps volatility in price. But digital assets are not all the same and they do not all serve the purpose. Stable coins, for example, are digital assets designed to maintain a stable value often tied to the United States dollar and can be used to move money quickly over blockchain networks. Today, I hope this conversation brings that uh technology to impact Main Street. What could this growing technology mean for a restaurant owner accepting a payment? Or a contractor awaiting payment for a completed job? Or an entrepreneur looking for the capital to expand a business? Today I wanna focus our hearing on three topics. Through this innovative, through this innovative technology, will small businesses be able to keep more of every sale? Will small businesses be able to get paid quicker? And how can small businesses utilize this technology? First, how can small businesses keep more of every sale? For a small business operating on narrow margins, every dollar matters. Consider something as simple as a five dollar purchase at a local coffee shop. The price of that transaction through certain payment processors can cost a small business in excess of thirty cents. Thirty cents may not sound like much to some, but multiply it by hundreds of transactions a day, every day, and those costs add up quickly. If digital payment technologies can safely lower the cost of accepting a payment, that means more money available for payroll, inventory, marketing, and growth. Second, how could small businesses get paid sooner? According to the Federal Reserve's twenty twenty-five report on employer firms, fifty-one percent of employer firms cited uneven cash flow as a financial challenge. A restaurant still needs to order food. A retailer still needs to restock its shelves. A contractor still needs to make payroll, and Main Street works nights, weekends, and holidays. Its money should be able to move then, too. Many stablecoin networks can operate around the clock, allowing payments to move directly over blockchain infrastructure without being limited to traditional banking hours. These tools may also help small businesses reach customers and suppliers beyond their local markets. For a small business paying an overseas supplier or selling to a customer abroad, stablecoins may offer another way to move dollars across borders, more quickly at a lower cost. The subcommittee is interested in understanding whether this technology can help small businesses access money they have already earned more quickly, expand their reach, and reduce cost, and what limitations or risks may remain. Finally, how can a small business utilize this technology? Most small business owners do not have a compliance department or a team of technology experts there, running a business, managing employees, serving customers, paying bills, and trying to make payroll. If we expect them to consider using digital assets, practical answers to some basic questions. What is the difference between stable coin and bitcoin? What happens after a customer makes a payment? How does the business owner convert that payment into dollars? What are the tax and reporting responsibilities? And how does a small business protect itself and its customers from fraud? A small business owner should not have to become an expert in blockchain technology before deciding whether or not it could help his or her business. Clear rules, practical guidance, and a better understanding can help entrepreneurs assess the opportunities. and the risk to make the decision that is right for them. I expect our witnesses today to help us answer these questions. Mister Scherzad has a profound understanding of the broader digital asset ecosystem Mister Leventhal has firsthand experience with how digital payments work for restaurants and other small businesses on Main Street. And Doctor Wu can help us examine both the opportunities and the risks. I look forward to our conversation. I thank each witness for your testimony. Immediately after we adjourn we will host a reception across the hall. More details will be shared at the conclusion of this hearing, but all are invited to attend. I now recognize the ranking member of the subcommittee, Miss Coulton, for her opening remarks.

Good morning and thank you, uh, Mister Chairman, for convening this hearing. It was one of the first, uh, ideas that we talked about when we sat down to envision what we thought, uh, this subcommittee in particular, uh, might be able to do, the subcommittee on innovation, entrepreneurship, and workforce development. Cryptocurrencies and other digital assets have the capacity to significantly alter the financial system. Cryptocurrency was originally designed as a payment tool, uh, without central intermediaries and settle settlement systems. The idea was to produce near instantaneous transactions that could lower transaction costs for the benefit of both business and consumer. Today, cryptocurrencies and other digital assets present opportunities for new applications that could benefit Main Street and Ecommerce businesses alike. For example, some entrepreneurs have started using cryptocurrencies to facilitate cross-border transactions. This makes it easier and cheaper to grow their customer bases abroad, without the high cost of currency exchanges or money orders. By using cryptocurrency, businesses may also reach tech-savvy customers who prefer to use digital assets. And in a handful of cases, business owners can hold cryptocurrency in lieu of cash as a way to hedge against inflation. While cryptocurrencies and digital assets present new opportunities, Congress has work to do. to create clear rules for their broader utilization and establish reasonable safeguards that consumers can trust. Today, there are between thirteen thousand and twenty thousand cryptocurrencies with a total market capitalization of over two trillion dollars. The market is largely dominated by just two players, Bitcoin and Ether, which combine to represent approximately sixty-one percent of the market. While significant, the two point O three trillion dollar market capitalization of the industry is still only just a fraction of US equities which stood at seventy-five point three trillion as of July first. As utilization of digital assets continues to grow, so does the need for Congress to finish establishing rules of the road that foster both innovation and consumer protection. Today, cryptocurrencies are primarily used for buying and selling of other cryptocurrencies. and for other financial activities. As that potentially expands, Congress will need to consider issues that can arise, such as fraud, misappropriation of customer funds, money laundering, and the use of digital assets for sex and drug trafficking. Financing of terrorism and other transnational illicit activities. Congress has already taken steps to create a legal framework for digital assets, l- last year when we passed the Genius Act for payment of stable coins. But the broader market structure bill, as uh Chairman Jack alluded to, the Clarity Act remains stalled, due in large part to the lack of an agreement on a reasonable sa- on reasonable safeguards related to corruption and self-dealing involving Mister and uh President Trump, his family, and members of his inner circle. Procedural vote expected on that in the Senate today. Just last month, a Trump company afil- uh, a trust company, excuse me, affiliated with Trump's family cryptocurrency, World Liberty Financial, received conditional approval for a federal bank charter by the OCC. That's why Congress needs to be sure that we are not leaving gaps in the regulatory framework. We need a comprehensive framework that addresses these questions and gives regulators, businesses, and consumers clear rules rules of the road. So while cryptocurrencies, digital assets, and blockchain technology present opportunities for small businesses and entrepreneurs, Congress has work to do. We owe it to small business owners to create a clear and predictable framework that gives them the certainty they need to understand the rules and make use of these technologies. I look forward to exploring all these issues here with you this morning, thanks to insights from our panel of experts and I yield back.

Thank you. I now recognize the Chairman of the full committee and a distinguished member on the House Committee on Financial Services, Chairman Roger Williams, for an opening statement.

Uh, thank you, uh, Mister Chairman, and thank you, too, to the ranking, uh, member, Skulden, for holding this timely hearing and thank you to our witnesses for joining us here today to discuss digital assets and their impact on small businesses. Every generation of small business owners has had to adopt new technologies and other ways of doing business. The cash register gave way to the credit, uh, card, the printed phone book became a relic of the past, and the advent of this internet, uh, changed, uh, nearly everything, and small business owners who figured out these tools earlier were literally the ones who pulled ahead of their competition. And today we are examining another significant development, an emerging tool for small businesses to add to their tool kit, digital assets and blockchain technology. For small businesses the most immediate and practical use of these tools is in payments. They can lower transaction fees, settle payments faster, and reach new customers who more easily uh uh want to do business with them and Main Street is taking notice. Roughly one in three small and medium-sized businesses now use crypto in their operations, twice as many as the year before, and more than four in five say it can address at least one of their financial uh pain points. Some of these technologies uh also let businesses have money quickly and cheaply while maintaining a steady value. But the opportunity goes well beyond payments. A neighborhood stop uh shop can reward uh loyal customers with new digital tools. A small importer can track the origin of its goods origin and a local storefront can sell online at a lower cost. So of course, every opportunity comes with challenges and the adoption is growing by uh, uh, but with small businesses that still face unclear rules, complicated set-up, and a lack of political guidance. So nearly three in four small businesses say they would be more likely to consider using crypto if the rules for businesses used uh, were clearly defined. And as a senior member of the financial services committee, I worked my, with my colleagues, the past two, groundbreaking pieces of legislation in this Congress, uh, both with the clarity and the genius act that will establish important guardrails, as well as consumer protections for those wishing to use uh digital assets in a safe and responsible manner. So for many uh owners the problem is not lack of interest, it's figuring out how to bring this technology safely into the way they already do business. I believe American small businesses are up to the task, and I believe it is our job to help clear the path. This hearing will examine how these tools are used, today, uh, and what impedes wider adoption, and what we can, uh, do to ensure our small businesses are equipped to compete in the modern digital arena and the economy. So I want to thank our witnesses, I want to thank our Chairman and our ranking member again for joining us today. And with that, I yield my time back.

Thank you, Mr. Chairman. I will now introduce our witnesses. Our first witness is Mr. Faryar Sherzad. Mr. Sherzad serves as the Chief Policy Officer at Coinbase, cryptocurrency exchange where he leads the company's engagement with policymakers around the world. Prior to joining Coinbase, Mister Scherzad spent fifteen years at Goldman Sachs, where he served as Gl- Global Co-head of Government Affairs. He also served in the White House as Deputy National Security Advisor for International Economic Affairs and in roles at the Department of Commerce, and the United States Senate Committee on Finance. Mister Scherzad, we are grateful for you, uh, and grateful for your testimony before our subcommittee today. Our second witness is Mister Ben Leventhal. Mister Leventhal is the founder and CEO of Blackberry, Blackbird, a loyalty and payments platform for restaurants. For more than two decades, Mister Leventhal has built businesses at the intersection of restaurants and technology. He co-founded Eater in two thousand five and later co-founded Resi, which was acquired by American Express in two thousand nineteen, and something we all use, for those of us that have American Express cards. And today through Blackbird he is working to give restaurants greater control over their customer relationships, payments and long-term economic futures. Mister Leventhal, thank you for joining us today and for bringing the perspective of an entrepreneur using technology small business in the real world. I now recognize our ranking member, Miss Goulton, to briefly introduce our final witness appearing before the subcommittee today.

Thank you, Mister Chairman, I'd like to introduce Doctor Andrew Wu and welcome him to the committee today. Doctor Wu is an Associate Professor of Technology and Operations at the University of Michigan's Ross School of Business. He's also the Faculty Director of the MBA AI AI Concentration and Co-Director of the FinTech Initiative at the Ross School. He's conducted and published extensive research

Thank you.

Thank you.

We appreciate all of you for testifying before us today.

Thank you.

Before recognizing witnesses, I remind each of you that your testimony is restricted to five minutes in length. If you see the light in front of you turn red, your five minutes have concluded, and your testimony must conclude. I now recognize Mister Scherzod for his five minute opening remarks.

Uh, thank you. Chairman Jack, Ranking Member Scholten, Full Committee Chairman Williams, Ma- and members of the subcommittee, thank you for inviting me to testify about what digital assets can mean for America's small businesses. My name is Farir Scherzod and I'm the Chief Policy Officer at Coinbase. Our mission is to increase economic freedom in the world by building financial tools that make it simpler and less expensive for you. people to hold, move and manage their money. For small businesses, better financial tools can mean faster payments, lower costs, more manageable cash flows, and more opportunity to scale and grow. And for me, the, our mission is personal. After the Iranian revolution, nineteen seventy nine, this great country welcomed my family and allowed us to make our home here. As we restarted our lives in the US, my parents opened a small delicatessen in Maryland. In junior high and high school, I worked alongside them every day, behind the cash register. stocking shelves, making sandwiches, cleaning up. I watched them track every dollar because every dollar mattered. Back then, a good day might mean a hundred dollars in sales. And the margins were thin. If a customer's ten dollar check bounced, it was a serious problem for us. If the bank closed early or a power outage delayed a deposit, we still had to pay bills,

Mm-hmm.

but we had less cash available to pay them. Today, small businesses face many of the same pressures my family felt. Financial and logistical challenges are still a problem. with roughly half of small employers reporting unpredictable cash flows um as a enormous problem. For a large corporation, a fee or a settlement delay may be an administrative inconvenience. For a small business, every dollar in every day can impact families and jobs. My family's experience is why I'm proud of what we're building at Coinbase. There are several reasons why digital assets will give small businesses better financial and management tools. First, blockchain technology can help businesses keep more of what they earn through cheaper payments. Stablecoins have dramatically reduced the cost of moving money, particularly across borders. Vantage Bank in Texas, for example, can now reduce the cost of cross-border payments for its customers from roughly seven dollars to about thirty cents, for small business savings like that can add up quickly. Second, digital assets can help small businesses scale into new markets, regardless of geography, thanks to the global reach of dollar-backed stablecoins. Coinbase, for example, has a partnership with Shopify that allows merchants merchants to reach millions of new customers across the world, all while reducing the friction of payments using USDC, a US-issued genius compliant stablecoin. We're all already seeing what the benefits can mean in practice for small business. Uh, Prevail Coffee in Alabama is leveraging stablecoins to pay invoices and accept customer payments. Latosha, an independent artist from California, used blockchain technology to sell her music and art directly to fans, growing her first NFT sale. in twenty twenty one to over a hundred thousand dollars in sales that year she earned a record deal in months without surrendering her creative control building a direct relationship with her audience in a reach far beyond what a traditional label deal could offer this is how this technology should work for main street not by making business more complicated but by making it simpler it helps small businesses get paid pay their suppliers reach customers and put their money back to work more quickly But barriers to adoption remain. Small businesses and the companies building tools for them need a clear and predictable framework that allows them to use digital assets for payments, and take advantage of blockchain technology. Congress can provide that certainty by passing the Clarity Act and the bipartisan crypto-tax bill. The Senate will vote today on the Clarity Act, which will help protect businesses and their customers, while giving innovators and developers the confidence to build products here in the United States. Tomorrow, the Ways and Means Committee is marking up an important bipartisan bill that will establish clear federal rules for d- tax rules for digital assets. At a time when every dollar counts on Main Street, we should give small businesses the tools they need to keep more of what they earn, put their money back to work faster, and reach new markets. And also to provide services that previously could only, uh, be performed by big companies. Digital assets will not solve every challenge facing America's small businesses, but they can give Main Street better tools, more choices, and a greater opportunity to succeed. Thank you and I look forward to your questions.

Thank you very much. I now recognize Mister Leventhal for his five minute opening remarks.

Uh, Chairman Jack, Ranking Member Skuldin, members of the committee, Chairman Williams, thank you for the opportunity to testify today. Um, as you said, Mister Chairman, I've spent my career working alongside one of the great platforms for small business, the restaurant industry. following Eater and then Resi, which now services more than twenty five thousand restaurants globally. In twenty twenty two I founded Blackbird, a company that is building a new payments network for the restaurant industry using digital assets technology. Our goal is to lower the cost of collecting payments for small business owners and enhance their ability to sustainably grow top-line revenue. We're all familiar with restaurants. Everyone loves restaurants. The neighborhood joint where you're a regular and they bring over crayons and surely temples for your children, the big night out place that creates lasting memories, the cafe where they're preparing your morning coffee before you order it. We all understand the magic of good hospitality. What we may be less familiar with is how it looks from the operator's side. Despite the industry's massive overall size, one point five, five trillion in sales in twenty twenty six, uh, and importance in our economy, the industry is the second largest employer in the US and is responsible fifteen point six percent of US GDP. Despite this, financial health for individual restaurants remains elusive. The average full-service restaurant has a pre-tax profit margin of two point eight percent, limited service bots operate on an average margin of just four percent, and when you look at food and grocery retail stores, it goes down to one point three two percent. If you're hearing these numbers and thinking that this industry sounds hard, You're right. Forty-two percent of all restaurants weren't profitable in twenty twenty five. The good news is that we know how to fix this, and it relies on us innovating in three areas. First, we need to use crypto-assets, particularly stablecoins, to make accepting payments cheaper for merchants. Second, where many many small businesses contribute to a humongous industry, like restaurants. We need to give small business owners ways to benefit economically from their aggregated scale. And third, we need to use new technologies to make the marketplace for revenue, that is, sourcing customers, fluid and efficient. So back to our local coffee shop. Using legacy systems, a coffee shop might wind up with an effective processing fee of more than six percent, on a four dollar and twenty cent cup of coffee. That's quite standard. Blackbird's payment rails cost them two point five percent all in, which means they can instantly recapture more than three and a half percent of pure profit, which doubles their profit just about. We can do this because crypto-assets, such as Blackbird's spending points, move more efficiently on blockchains. The other important area of innovation for small business will be how tokenization of networks allows even the smallest business to benefit from an industry's scale. This month, the blockchain-powered payments platform we have built called Flynet will be made available to developers and restaurants for custom apps. With this release we are also proposing an economic model for participating businesses. In short, a restaurant can get scale benefits by electing to hold Flynet crypto tokens. Our coffee shop will be able to bring its two and a half percent processing fee down to perhaps as little as one and a half percent, a windfall previously only available to large scale operators. Merchants will also be able to build custom apps and services on Flynet, potentially a capability that will revolutionize how restaurants think about finding and retaining their customers. The only fine print on all of this is that adoption of new technologies in small businesses, is incredibly difficult, in part because they rely on partners like Blackbird to innovate on their behalf. We're making progress. More than twenty-five hundred restaurants have signed up to use Blackbird, and we expect to process close to a hundred million in payments this year. But we will be able to go even faster as these technologies become more mainstream, and regulatory hurdles are cleared. In closing, we strongly believe in the power of the small business as the ultimate economic empowerment machine. And with your help, We look forward to helping our partners use digital assets and innovative technologies to realize their dreams. Thank you.

Thank you very much. I now recognize Dr. Wu for his five minute opening remarks.

Chairman Jack, ranking member Skulden, Chairman Williams, and members of the uh subcommittee, good morning. Thank you for inviting me to testify here today. I'm a professor of the University of Michigan's Ross School of Business, where I research and teach how new technologies change finance and business. The views I express are my own. To start with, let's take a hardware store in downtown Grand Rapids. Its payment provider just offered to switch on digital assets with the promise of lower fees and faster money. Should the owner say yes to that? Now in my view, the useful test for crypto a- or for any new payment system is simple. does the service meaningfully improve the business transactions after all costs risks and responsibilities are accounted for for the store owner it boils down to five simple questions what kind of crypto who else needs to use it what's the total cost is it better than the existing options and what happens if something goes wrong first question what kind of crypto

hmm

as chairman jack has pointed out there are two kinds with different risk profiles the first type is bitcoin and others like it with no issuer reserve so their value is set by trading alone and their prices swing widely a reserved backed stable coin is meant to hold a dollar's value so which can be very useful for payments but it is also issued by a private company it's not a bank deposit it's not insured its value depends on that company's reserves and the banks behind them. In March twenty twenty three for example, when Silicon Valley Bank failed, one of the two largest stable coins fell to about eighty-seven cents on the dollar, until regulators guaranteed the bank's deposits. So one carries price risk and the other carries issuer risk. Before adopting, the business should understand which kind it or its payment provider would use and who stands behind it. question number two who else need to use it remember a payment has two parties so a business adopting a loan achieves little unless the other party adopts too in the fed's household survey only two percent of adults currently use crypto to pay to make a payment in two thousand twenty five and that share has not grown in four years a kansas city fed estimates further less than one percent of stable coins outstanding are used for payments so before committing a business should confirm that its customers or suppliers are ready to adapt and weigh the cost of running ahead of them number three what does it really cost now good news first uh newer blockchains a transfer can settle in seconds for a network fee often below a penny but that network cost is the smallest part of the total depending on whether the business holds crypto itself or uses a it can incur many other costs like dollar conversions, guarding the private keys that holds the money, and screening counterparties. Holding crypto can also bring non-trivial bookkeeping for tax. IRS currently treats digital assets as property, with gains and losses to report when spent or converted. Congress has not yet changed that rule. So the business should add up the complete cost for its transactions beyond just the provider quote or the network fee. Question four. Is it cheaper and better than existing options? Now that varies by setting. If a hardware store pays a supplier abroad that takes crypto, it can be a competitive option against international wires, cost, and weight. But between US businesses though, many banks offer instant transfers around the clock in insured deposits through Fentanyl or RTP. Crypto transfer in this setting is no faster, as conversion at each end and moves outside the insured system in between so the business should compare all options out there ideally separate it by transaction types and consider adoption only for the settings where it comes out ahead last question what happens when something goes wrong if i tap a credit card at the hardware store there's a whole system stands behind it a fraudulent transaction can be reversed deposits are insured and generally someone's available to fix the mistake for crypto these institutions are only beginning to be built a blockchain transfer is often final if the money goes to the wrong address or the goods never deliver never arrive there is very little recourse and a processor stable coin service may not support disputes so a small business should therefore counts the lack of recourse as a cost and ask the provider who to call after a bad transaction what help it promises and who bears the unrecovered loss in summary notice that none of my questions asked whether the the technology works because most of the time it does instead they ask about the rest of the payment system which has not yet caught up with the tech until it does a small business holding crypto is an early adopter taking a work and risk that existing intermediaries carry for it now so i return to the test does the service meaningfully improve the business transactions after all costs, risks, and responsibilities are accounted for. Thank you and look forward to your questions.

Thank you very much, and I will note, Doctor Wu, I was hoping you'd comment on the record whether Michigan actually beat Western Michigan, but thankfully to my right is the Congresswoman from Western Michigan, so we'll hear soon from her perspective.

Ann Arbor just rolls its clock back one second and uh, you know, well, that's just how we go.

We will now move to member questions under the five minute rule, I recognized myself for five minutes. Small businesses often operate on extremely tight margins, as we've discussed thus far in this hearing, and every additional fee they pay to accept a customer's payment comes directly out of those margins. Federal Reserve research has found that payment processing fees are the most common payments related challenge for businesses collecting payments at the point of sale when a customer pays a small business today that transaction can involve a payment processor banks and a card network before the business, ultimately, receives its money. Mister, if I owned a small business and I'm paying thousands of dollars each year, simply to accept payments, how can blockchain technology introduce more competition into that system, and allow me to keep more of every dollar I earn?

I think you said it yourself in your question, uh, Mister Chairman, um, a traditional payment right now, even though for the consumer it may seem like a very efficient instantaneous experience because you use your app or your credit card actually involves multiple touchpoints. before the payment finally settles between the customer and the merchant. It can be up to five, seven different uh people that will have to hand off the money to ultimately get it to the final destination. That incurs huge amounts of cost. Now for small businesses, you know, as the professor said, it's really not for them to have to figure out all the tech and the regulations behind it. It's up to companies like Mr. Leventhal's and Coinbase to do that hard work. But there's a lot of us who wanna do that so that we can make the Merchant experience and the customer experience seamless, but take but but take costs out of the system.

And for that small, that same small business owner using this analogy, I wanna make this as practical as possible to those watching at home. What does removing some of these intermediary intermediary layers mean in practice? Does it mean lowering costs, faster access to money, better cash flow, all three?

It means all three, and for uh businesses like my family's and the ones that Mister Leventhal serves in the food service business, the margins are always extraordinarily thin. So if you save even one percent, two percent, because payments costs have gone down, as they will with stablecoin adoption, uh, it's a transformational uh moment. It allows uh restaurants that fail at a very high rate to survive, delicatessens like my family's, uh, to thrive, maybe hire another employee, do all those things that they need to do that are otherwise impossible.

Wonderful. Thank you very much. Mister Leventhal, Mister Scherzow just described how the technology works. You have spent more than two decades

Um, thank you, Mr. Chairman. The average restaurant is encumbered in a couple of different ways in terms of their um in terms of their finances. Um, as I noted, the margins are incredibly thin to begin with. So, really, every transaction and every dollar of every transaction counts. There are very few restaurants that are operating, what, in a way that is wildly successful today. Most restaurants, as, as we've all noted, are small businesses and, uh, some of them are passion projects, some of them are individuals pursuing an American dream. It's very, very hard to make money. Um, first of all as we modernize the payment stack the margins are going to go up because as we've discussed uh more of every dollar is gonna wind up in the operator's pocket i think more broadly what we're talking about is giving small businesses technology to regain some control of their business and so financially regaining control is one way the other way we think about this is in terms of access to their customers and in terms of tools that let them fill seats um quickly the biggest problem that restaurants have is that when they open the doors every dollar for that night has already been spent it's a cash out business so the difference between break even or losing money or making money on any given day excuse me is how many people come through the door so if it's raining and we know that in the rain people are a little bit lazier and they stay home and they don't show up for their reservations the restaurant is going to materially be be materially impacted and so the other part of what we're talking about here is technology that allows them to fill those seats for example quickly last minute most of the most of the things they have at their disposal today don't allow that kind of fluidity and flexibility and certainly not at the low cost that we're thinking about

wonderful well i thank both of you for your testimony thus far and i will now recognize the distinguished ranking member miss colton for her five minutes of questions

thank you uh so much doctor will my first question uh is is for you cryptocurrencies started as a combined payment system uh and unit of account but have not been as widely uh adopted as as a payment tool method can you uh explain why cryptocurrencies have not been widely adopted as a payment tool

thank you i can remember um i wanted to answer this in two levels so at the start bitcoin was designed as a payment system but as a kind of unique payment system right one with no issuer and no reserves behind it so as a result its price is set by trading alone and sort of moves largely with investor sentiment so a a business or a consumer holding it for payment can lose money before spending it and that makes it a poor unit of account um and difficult to use for everyday payments so it was mostly used as an investment option Now stable coins were meant to fix that, and it mostly did on the price volatility front. Yet a Kansas City Fed survey uh estimates that less than one percent of stable coins outstanding are used for payments. So why is that? Part of the difficulty is what I described in the testimony. Right, so a payment needs more than just a stable asset and a fast network. Someone has to screen the parties. someone has to provide the cyber security, hold the money safely, and answer when something goes wrong. So traditionally these are prov- provided by existing intermediaries. Um, uh around the blockchain network though, these institutions, as I said, has are only beginning to be built, which potentially is a is a factor why the adoption, even for stable coins, for payment is also quite low today.

And as a follow-up, you mentioned certain uh narrow use cases for small businesses to use cryptocurrencies as a payment tool can you expand on some of those

yeah so so we can think of couple of cases for example the first is uh the cross-border payments like uh other people has pointed out

yeah

so uh let's say you know a hardware store in grand rapids right is paying a supplier or contractor abroad a bank wire they get get to pass through a chain of banks um bank of america uh for me it's gonna charge forty five dollars and and close about you know up to five business days to clear Um a stable coin in that case can reach the recipient in minutes and at a network cost of cents although of course the recipient still have to convert it but it does reduce a lot of long-standing friction in the system uh the second is an emerging case that i'm currently researching called autonomous payments by ai agents and so with ai we know they're now doing more and more complex tasks a program might need um to perform some small transactions right like buying a small amount of data or compute time while doing a task for a business autonomously. Now if that purchase is very small that just cost a few cents in our existing system, like credit cards, a fixed card fee can extend the can uh exceed the purchase price itself. So in that sense in that case a stable coin transfer on a low cost blockchain network could make that uh payment much more practical. So in my assessment the small payments made by software's and ai agents is a promising use for stablecoins but the volume involved still are quite small

thank you i wanna uh pivot to talk about uh digital dollars and uh and and traditional banks um and and we'll give the panel an opportunity to weigh in as well but i'll i'll start with you doctor much has been said about the creation of digital dollar issued by the fed also known as central bank digital currency how might uh a cbdc be designed to speed up payments and reduce costs for small businesses

yep so uh the cbdc would be uh a claim on a federal reserve so it's a little bit different than a standard cryptocurrency right it's like the way that paper currency is so you know rather than a private company like or in a bank like a stable coin um so what that could do for a small business depends on the design because there's lot of designs that you can make for a cbdc so whether it's for banks only or for public whether the balance sit at the banks or the central bank um so whether or not the clearing the settlement is twenty four hours around the clock uh and how much privacy small uh payments get so again um the use case primarily depends on the design and for small you know p to p transactions uh domestic transactions much of that benefit actually already exists through fentanyl and rtp so uh where uh CBDC could also add value is uh abroad right if central banks connected their systems. So um as I understand it there is a executive order and uh statute enacted in July to bar through twenty thirty. So uh currently that's not an option that businesses can evaluate now.

Thank you. Looks like were you gonna say something? Can we let Sharzad weigh in briefly?

Sure.

Yeah it's a really good question uh Congresswoman um technologically a CBDC can do a lot what of what a stable going to do but it raises hard public policy questions that um you all have to really work through there is significant privacy issues there is social control issues because the issue of the digital dollar can extinguish it can mandate its use for certain things to disallow for other purposes so i know there's a lot of uh folks in congress who are concerned about whether that kind of power in the government to potentially uh director or control people's ability to pay uh engage in payments is something that is better left to a private sector hands so that if the government does have an interest in a transaction they have to get a court order or do all the normal processes but technologically they're interchangeable there's also questions about consumer adoption most markets that have tried to implement cbdc's the adoption has been quite low china is actually the counter example but they mandate that people use cbdc so it's a different dynamic

it's yeah entirely Thank you. Appreciate the additional time.

Thank you.

Yield back.

Of course. I now recognize the distinguished gentleman from Georgia's fourteenth congressional district Mr. Clay Fuller for five minutes.

I like that our friends from Michigan are asking for extra time, so I really appreciate that. Um, uh, Mister H- H- H- H- H- H- first off, uh, thank you so much for your your family's inspirational story and sharing that with us. Um, one of the things that that brought me to Congress, I I told folks that I was gonna be a warrior for um Appalachia and for um Northwest Georgia communities. And one of the problem sets that I talk about a lot is um too many innovations and capital stays on the the East and West coasts and doesn't come into communities like mine and so one of the things that I wanted to talk to you about if if crypto is going to be something that will benefit Main Street and not just Silicon Valley, um kind of what ha- what has to be true so a community bank or small business is willing to kind of take on this technology and use it without a full-time compliance shop.

It's a really great question. Um, you you have to think about blockchain technology and the way that we all experience the internet. Um, at the starting point, it's an extraordinary efficiency story. And so the value proposition of the internet was to make emails a better, faster option than paper correspondence. So when the internet came about, we all thought, oh yeah, this is, there's a advantage here. We all now think of the internet as much more than email. We think about it, about the the p- the internet's ability to uh allow the programmability of data and that way we get date we get video conferencing and social media and uh ai agents and all those sorts of things and the same thing is gonna happen with the blockchain initially the value proposition is better and faster payments which matter for your constituents small businesses but eventually the value proposition is gonna be programmability and so it empowers people in your uh constituency beyond the coastal urban regions to be able to do things with their money in a way that um only sort of big sophisticated actors with big tech shops could potentially do. And so that sort of evolution of how we all engage with value is a really the exciting thing and why it's so important for Congress to provide the regulatory clarity we need.

Thank you, sir. Uh, Mister Leventhal, I wanted to turn to you, my my staff is well aware that I I get very hangry especially as I'm driving around the district, I'm kinda like a gremlin that needs to be fed at regular intervals and one of my favorite things is to when I'm traveling around Georgia fourteen is to stop off in small businesses and and see different restaurants uh across the the district uh could you help me, as I go into these businesses and talk to owners across my district, can you help me give the can you give me the vocabulary to talk about this this technology to them why it would benefit them specifically something like Flynet?

Uh, thank you Congressman and uh, go dogs. Um.

Yes sir.

Uh, you know, candidly we speak about the services and the technology we're developing in pretty straightforward terms. I think uh we think about um you know, uh crypto and blockchains essentially as infrastructure, and so I think at the end of the day we're talking about very simple tools, um and innovation that put much more of the control of their business back in their hands. Um, the idea of a payments network where they can do things that are composable, where they can build their own apps, or they can uh use technology to create specific hospitality interactions or experiences with their customers is very hard to do as a small business on their own. And so, as I said, these businesses rely on companies that are pushing innovation that are doing things uh different than the companies that came before them, so that things change, so that the tools get better, so that the networks get more efficient, so that ultimately the small business is more profitable. So it's it's a bunch of very simple things frankly, if they wanna build a loyalty program they can do that on Flynet, if they wanna simply create um a payments network at Better Economics they can do that, if they wanna come together with other local merchants and create a neighborhood or a regional they can do that too. At the end of the day, the point is they need more customers and they need more profitability, and that's what Flynet has set out to do.