DIGITAL COINS FACE CONGRESSIONAL SCRUTINY

Cryptocurrencies came under scrutiny in the United States on Tuesday as three separate committees explored their viability and risks — one of the most pressing being the use of the digital currencies and their underlying technologies in cybersecurity breaches such as ransomware attacks.

The Senate Banking Committee held a hearing titled “Cryptocurrencies: What are they good for?” that explored some of the ways cryptocurrencies could be useful, but also included some foreboding remarks on how digital currencies could contribute to systemic risk.

The House committee panel consisted of a mix of industry insiders and an academic, St. Mary’s University School of Law professor Angela Walch, who was quick to point out the risks crypto posed to the traditional financial system.

“The financialization we have seen of cryptocurrencies and crypto tokens means that a problem in a single cryptocurrency could ripple through all the financial products tied to that cryptocurrency, as well as all investors in the cryptocurrency and companies that provide other services and products related to the cryptocurrency,” Walch said in her witness statement.

Adding to the topic of risks in the financial payment system, the House Financial Services Committee held a hearing on central bank digital currencies (CBDCS) and how such tokens could penetrate the financial system.

The third hearing of the day was the Senate Committee on the Judiciary’s discussion on the concerning rise of ransomware attacks, in part describing the role cryptocurrencies have played as the preferred payment method of choice of hackers.

“Cryptocurrency can be moved anywhere in the world, often more quickly than traditional currency and these transactions frequently take place on the dark web, which presents its own set of problems,” said Bryan Vorndran, the assistant director of the cyber division at the FBI. “While these ransom demands often used to be just a few hundred dollars, we now see American businesses targeted with ransom demands in the millions — and in some cases tens of millions of dollars.”

Richard Downing, the deputy assistant attorney general at the U.S. Department of Justice, told the House committee that the Ransomware and Digital Extortion Task Force, which had been launched in early June this year, would be working with global network partners to focus training efforts on ransomware and criminal use of cryptocurrency in the coming months.

These hearings built upon a conversation U.S. regulators had last week about how cryptocurrencies are changing the nature of technological terrorism.

“The rapid expansion of cryptocurrencies, as well as other digital stores of value, presents a significant challenge to law enforcement and a growing area of risk to the U.S. and our foreign partners,” Jeremy Sheridan, assistant director at the U.S. Secret Service Office of Investigations, told the House committee.

U.S. Department of Homeland Security deputy undersecretary Stephanie Dobitsch echoed these concerns, adding that the rapidly developing technology that supports cryptocurrencies like Bitcoin make it more difficult for the government to defend against. That said, Dobitsch told the House committee that the majority of terrorism financing is done through other avenues beyond cryptocurrencies and that cryptos have many honest uses.

One only needs to look at the massive ransomware attack at Colonial Pipeline, considered to be one of the most disruptive infrastructural hacks in U.S. history, to see how ransomware threats can be.

While cryptocurrencies are growing more influential in the political sphere, many remained unconvinced of their utility. Sen. Sherrod Brown argued that after a decade with these currencies, they haven’t promoted much “good” for anyone beyond their creators.

“There’s nothing democratic or transparent about a shady diffuse network of online funny money,” he said.