Failure to remove Hawaii’s cryptocurrency barriers could be ‘tragic’

On the latest episode of “Hawaii Together,” guest Alexandra Gaiser helped demystify the concept of cryptocurrency for host Keli’i Akina.

Gaiser is director of regulatory affairs for River Financial, one of 15 companies operating in Hawaii’s Digital Currency Innovation Lab.

Speaking with Akina from Washington, D.C., on Jan. 3, 2022, she called cryptocurrency, “the latest evolution … of a practice as old as man, and that is: bartering — exchanging one thing for another and using some symbolic token to represent what you’re exchanging.”

Gaiser pointed out that Americans already are very comfortable with different forms of digital transactions.

“Even now,” she said, “I pay for some things with credit card points. I book certain flights with airline miles. Anytime I give or receive a gift card, it’s denominated in dollars, but it’s not quite dollars. It’s a little bit more [like] store credit. We all are actually pretty sophisticated consumers of different types of currency, not all of which are related to the U.S. government.”

Gaiser said it would be “tragic” for Hawaii’s economic future if the Legislature doesn’t act quickly and continues to overregulate cryptocurrency companies in the state.

“To be in 2022, in the world of Bitcoin and cryptocurrency, is like being in 1996, in the world of the internet,” she said. “There’s so much that we haven’t done yet, we haven’t built yet. I would hate to see Hawaii miss out on the innovation to really improve life and to be creative, to be innovative, to make new products, [and] then to also miss out on the wealth that comes with that.

Watch the entire episode below. A complete transcript is provided.

1-3-22 Alexandra Gaiser with Keliʻi Akina on “Hawaii Together”

Keliʻi Akina: Aloha, everyone. Welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m Dr. Keliʻi Akina, your host and the president of the Grassroot Institute of Hawaii.

Today, we’ll be talking about removing Hawaii’s barriers to virtual currency. If you’re in any sector of the economy in Hawaii, any sector of industry, you know that we are overloaded with government regulation, and that, ultimately, doesn’t help business, and it doesn’t help the consumer.

As a result, we have one of the fastest rates of exodus of people leaving the state of Hawaii to live somewhere else, largely because of the cost of living and the lack of economic opportunity, but you’ve heard some names that have been circling around recently — Bitcoin, Ethereum, Blockchain. The new market for virtual currency has exploded in recent years, but not here in Hawaii, which has some of the highest barriers to entry for virtual currency companies, as well as many other industries.

To study the issue, Hawaii regulators took on an experiment. They lifted the regulations on 15 virtual currency companies, and we’ll tell you what virtual currency is all about in a little bit, and they used a program, which ends in December of 2022.

River Financial is one of the 15 companies that was allowed to operate in Hawaii through this program. Today, I’m going to talk with Alexandra Gaiser, the company’s director of regulatory affairs.

Now, let me tell you about this individual. Prior to joining River Financial, Alexandra was the executive secretary at the U.S. Department of the Treasury, where she worked directly with Secretary Mnuchin and led a diverse team responsible for the review and analysis of all regulations and interagency coordination on behalf of the Treasury Secretary. Quite a position. Ms. Gaiser holds a degree in politics, philosophy and economics from King’s College, and she has a JD from the University of Texas.

Alexandra, aloha. Thanks for joining us today. Welcome to the program.

Alexandra Gaiser: Aloha. Thank you. It’s great to be here with you.

Akina: Well, it’s winter up there in Washington, D.C. What’s it look like outside your window?

Gaiser: We got a ton of snow. Certainly, our first snow of 2022, but more snow than I think I’ve ever seen in my time living in the district. It is a winter wonderland out here.

Akina: We have a little bit of rain, which clouds the 80-degree weather on the beach. [chuckles]

Gaiser: Yes, I would rather be doing this live and in person from your office.

Akina: Hopefully, we’ll be able to visit soon.

You certainly have a wealth of experience on the regulatory side of the emerging world of virtual currency, but now you’re in the private sector, so you’ve got a bird’s eye view as to what’s going on. What’s attracted you to this field, and what keeps you engaged in it?

Gaiser: Absolutely. As you mentioned, I have a background in politics, philosophy and economics.

I was first interested in Bitcoin really from an economic perspective. Even now, I like to joke that Bitcoin will make economics true again.

When you look at the big “I” word from the last six to 12 months, inflation, it’s something a lot of people are really worried about. The most compelling thing to me about Bitcoin is there will only ever be 21 million of them. There’s no Federal Reserve that can create more Bitcoin on a whim; it’s not policy-driven; it’s really sound money.

Akina: Well, it certainly is an innovation. It takes us back to the very roots of money.

We’re talking today, however, about virtual money or virtual currency. Bear with us, please. Talk “baby talk” to us, [chuckles] if you would, so that we can understand what is meant by Bitcoin and so forth.

Before we dive into that, talk to us about money, just the traditional notion of money.

You worked at the Treasury Department; presumably, unless you’re a conspiracy theorist, they have a lot of money. What is this thing called money? What does it do? Tell us what the role of government is with money.

Gaiser: Money tends to have three main characteristics. First is a unit of account, so you want to be able to measure it; whether that’s in dollars and cents, or pounds, it always has a unit.

Second, it’s a store of value. You want it to be worth roughly the same thing today that it’s going to be worth tomorrow.

And finally, a medium of exchange. Obviously, we could have a complex barter economy, where if I have some lawyer skills and you’re maybe a great chef, maybe we could swap them, but, ultimately, that becomes pretty cumbersome. Money is a nice common denominator.

Throughout human history, people have used all kinds of things for money: salt, shells, gold, the U.S. dollar. What we have here is really just another iteration of something that fulfills all three of the classic characteristics of money. Bitcoin does that really well.

You’ll hear talk about some other cryptocurrencies; sometimes they’re called virtual currencies. A lot of them are actually not trying to be money.

Ethereum is trying to fuel smart contracts. Some of the other coins that you’ll hear function a lot more like securities. The stocks that you would tend to trade in a Schwab or a Fidelity account, they work a little bit more like companies, and the tokens are a little bit more like stock issuances.

It’s an exciting and developing world. I do think that Bitcoin is a little bit easier to talk about than some of the others because it’s really the only one that’s trying to be money to do those three things well.

Akina: We’ll come back to that in a little bit.

I’ll ask you about Bitcoin and virtual currency, but just to encapsulate what you’ve said, virtual currency is now the latest evolution, so to speak, of a practice as old as man, and that is bartering — exchanging one thing for another and using some kind of symbolic token to represent what you’re exchanging.

You don’t have to carry around all that wheat or the cows or whatever it is. Instead, we used coins, we used money, and there were certain purposes of money.

Before advancing the conversation, I wanted to ask you what role governments have played with money because that seems to be a very key issue now as we look for new forms of creating money for transactions between people.

For the last hundreds of years now, we’ve relied upon governments to play a significant role in money. so what is that role that government plays in money, and what are the pros and cons of it?

Gaiser: The role government plays in money is actually a little bit more nuanced and varied than a lot of us assume. For my whole lifetime, the U.S. dollar has been the world’s reserve currency. A lot of things are denominated in dollars, and other currencies are not pegged to something like gold, which they used to be.

It used to be, from late 1800s until World War I, that the gold standard was how you denominated the British Pound and the U.S. Dollar and the Swiss Franc, and everything was just a different fractional amount of gold.

This is the period of human history where you saw the most zero-to-one innovations. To go from zero to one is like inventing electricity; to go from one to multiples is like using electricity to power a computer. Both are really impressive and important innovations, but the zero to one really creates something new. You had the most zero-to-one innovation when the entire world was on the gold standard.

So, we tend to think a lot about money being complicated and really connected to government, monetary policy, fiscal policy. That’s true right now, and it has certain pros and cons like you mentioned, but it hasn’t always been true.

Humans, like you said, have always needed to trade for goods and services. There are always mutual gains to be made from that; whether you have government that creates a currency and explains how you do this, or whether you have something your community has decided on, we use a lot of different things.

Even now, I pay for some things with credit card points. I book certain flights with airline miles. Anytime I give or receive a gift card, it’s denominated in dollars, but it’s not quite dollars. It’s a little bit more like store credit.

We all are actually pretty sophisticated consumers of different types of currency, not all of which are related to the U.S. government.

Akina: Well, Alexandra, that’s very interesting.

It seems to be a natural inclination of people to come up with forms of exchange, forms of currency, and yet, the government, would you agree, pretty much has a monopoly on the predominant currency that is used in a country, legal tender, so to speak.

Only the government can print money. In fact, we might even be better off if the government stopped printing for a while, but that’s a different conversation for another show.

The thing is, there’s this monopoly element that governments have with regard to currency. What is the trend now when we go to virtual currency? What is the vision of the role that the government would play with regard to Bitcoin and other virtual currencies, as we begin to look at new ways of exchanging value and storing wealth?

Gaiser: I think it’s important to distinguish between legal currency, accepted forms of payment and illegal currency. If I were to print a counterfeit dollar bill, that would be illegal currency, and I could go to jail.

Like we mentioned, there’s actually this realm of in-between things that are not legal tender. A merchant isn’t required to accept them, but if a merchant decides to accept them, I can use them to pay for goods and services.

Again, we’ve got airline miles, credit card points, gift cards, even credit or a personal check. That’s actually fairly hands-off and allows people to transact as they see fit. Then you can have legal tender, which the government, that’s the U.S. dollar. There are other countries around the world, around a half-dozen, that use the U.S. dollar as their official form of currency, their legal tender, even though it’s not the U.S.

There is a little bit more give and take. You’ve also got [crosstalk]. The eurozone would be another example where there’s a little bit more of a tenuous relationship.

Akina: Very good. Well, thanks for explaining that.

Now, let’s move on and move from currency as established by government, which generally holds a monopoly over that and sets the rules up for it, to this new phenomenon that’s out there, virtual currency, and probably the most commonly heard word associated with it is “bitcoin.”

What do we mean by that? By virtual currency and bitcoin?

Gaiser: Bitcoin is the original virtual currency or cryptocurrency. Again, it uses something called blockchain technology that functions basically like a long string of Legos.

So, in Bitcoin and in a lot of other cryptocurrencies, you’ll have what’s called an open ledger. All of the transactions that have ever taken place on the Bitcoin network are viewable to anyone who’s running a Bitcoin node — essentially, the Bitcoin algorithm.

What this allows is for a trustless network because everybody’s transactions are always visible. Think of it like playing poker with everybody’s cards on the table; pretty hard to bluff or cheat, if that’s the case, right?

What Bitcoin did — today is Bitcoin’s birthday — Bitcoin innovated and solved a couple of problems. One was the tendency to want to inflate currency, which has been with us really since the dawn of currency.

If you could break off a little piece of the coin and keep it for yourself and use the coin, well, now you’ve accumulated a little bit of extra money. You’re inflating away your currency.

Bitcoin doesn’t do that. Like we said, there are only ever going to be 21 million Bitcoin. But, it does a couple of other things, too. It prevents double-spending.

Typically, you need a third party, whether that’s a bank or a government or a credit card processor, who verifies that you’re good for the money [and to make sure you didn’t just copy and paste].That was really hard to figure out, to hit copy and paste into a new window.

There was an issue with how could you prevent a digital currency from being essentially copied and pasted a hundred times over? Bitcoin, through its open ledger and its blockchain technology, solved that double-spend problem. Then other currencies have built on some of those innovations.

Akina: Well, it’s definitely very innovative.

You used a metaphor to help describe what’s going on here of the Lego blocks or what you call the blockchain. Now, in the traditional currency model, the most famous metaphor is really Fort Knox, that there’s this vault with gold inside of it. And so the dollar bill that we are transmitting to one another and carrying around with us is backed by a vault full of gold somewhere.

That is a metaphor, just as the blockchain is a metaphor for something going on today in the computer world, in cyberspace. 

In what ways is virtual currency like the old metaphor, Fort Knox, and in what ways is it different?

Gaiser: Sure. I think the biggest difference would be Fort Knox is owned and controlled by the U.S. government. So, they’re keeping it safe, and they own it.

The Bitcoin network is decentralized. It’s tens of thousands of computers all over the world, and the computers are talking to each other. But there’s no one entity or no one country that really owns it. It’s all of these computers that collectively have incentives to secure the network, to make sure that the ledger is verified, that people aren’t cheating.

So it would be, the incentive structure is set up really well so that, really, it’s too expensive to ever cheat. It also requires too much computing power.

Again, I think a really nice appeal to Bitcoin is it’s designed to be global and very fast, unlike you think about the ACH settlement time you need when you pay your credit card from your bank account, it takes several days for those funds to actually move.

Well, maybe that’s fine, but maybe you’d like for it to go a little bit faster. That’s something that we can do through the Bitcoin network.

Akina: Well, thank you.

Many states are moving ahead in terms of being able to make transactions through virtual currency possible and to allow companies to facilitate that, but as I mentioned earlier in my introduction, Hawaii is one of the most restrictive states when it comes to virtual currency.

Hawaii regulators did lift the regulations a little bit on 15 virtual currency companies so that they can do business in the state, and that program will end in December of 2022. River Financial is one of those companies.

You’ve been able to see that program at work. What exactly do companies like this do? What is the role they play?

Gaiser: We have been absolutely thrilled to get to participate in the Digital Currency Innovation Lab, or DCIL. Like you mentioned, this has really made it possible for companies like River Financial to operate in Hawaii.

Previously, we wouldn’t have been able to do that because the regulations were too restrictive. This has been an absolute boom in terms of our ability to operate in Hawaii and get to do business there.

We’re, like you said, one in 15 companies, and there are a variety of business models. River is Bitcoin only. We are a brokerage, custody and mining company, but there are other companies that let you buy and sell a ton of different cryptocurrencies.

There are companies that focus a little bit more on a business-to-business model or maybe charitable giving. There are a lot of companies that are doing really interesting things in this space.

I think it’s been phenomenal that the Hawaii commissioner of financial institutions, Iris Ikeda, thought this up and worked to get it up and running and to really create some space for innovation and, hopefully, some prosperity for Hawaii and its citizens.

Akina: What are some of the lessons that are coming out of the Digital Currency Innovation Lab? What are we actually learning and demonstrating is possible here in Hawaii?

Gaiser: Absolutely. I’d say one, everybody agrees fraud is bad. When looking at things you do want to regulate, you do want to prohibit fraud. Fraud is always bad for consumers. That’s a pretty easy takeaway.

The second, I’d say, is Hawaii is unique. It’s almost exactly halfway between the North American and the Asian markets. There’s a lot of excitement you could have in cryptocurrencies trade 24/7. To be perfectly situated in between some major markets has, I think, some very exciting possibilities.

Three, you want to recognize it is a set of islands, and so the population in Hawaii is never going to rival the population in California or Texas. There just aren’t that many people.

You want to level-set the fees and expenses that you put on companies to operate in Hawaii against the actual business that they’re doing because, at some point, even if every single Hawaii resident were a River Financial customer, that still might not be very many people. It’s important to “right size” the regulation to match the business opportunity.

Akina: Once the laboratory has completed its course, the Legislature has to decide, if not by then, sooner thereafter what to do, how to take the lessons and apply them in new legislation here in Hawaii.

What do you and other practitioners there hope the Legislature of Hawaii will do?

Gaiser: I think our main hope is that they will get rid of the really onerous double-reserve requirement that’s been put in place. This requires us to not only keep our customers’ cryptocurrency in reserve, which we do — River has some state-of-the-art custody services that we offer for free — but then it also requires us to match that amount of cryptocurrency in dollars and hold that in reserve as well.

This is difficult for two reasons. One, River is a young company. We were started in 2019, and so for us to compete with some of these big, established financial institutions, with that kind of a rare reserve requirement, would tie up a lot of our capital.

Two, Bitcoin trades 24/7, and so the amount that you’d actually need is literally changing every minute. That makes it pretty unlike a traditional commodity that most commodities are somewhat volatile, particularly in the short term.

The metaphor I like to use is, it’s the difference between your savings account and a safety deposit box. People know that if you put something in a safety deposit box, it’s there, and it’s locked away; it’s safe. That’s how our custody services work. Separately, you don’t then need to also have some sort of savings account that covers the amount that’s in your safety deposit box.

Akina: It’s clear that you don’t oppose government regulation completely or entirely. As you mentioned, government is necessary to prevent fraud, but at the same time, I take it that you clearly don’t want to have overregulation by government.

How do we strike the right balance to allow this industry to go forward and really serve the needs of the people?

Gaiser: I think we look to traditional financial instruments. It’s pretty hard to completely reinvent the wheel or come up with something totally novel.

I think the most important thing people can do is try to find the right analogy or the right metaphor to something that already exists. Americans and Hawaiians are no different, are used to interacting with a variety of fairly sophisticated financial products. Your home mortgage and your savings account and your 401k and your private stock investments are all extraordinarily different, and yet, Americans interact with those and navigate through them every day.

Similarly, in the world of Bitcoin and cryptocurrencies, you want to say, “Well, is this thing more like a savings account, or is it more like the U.S. dollar?” Then you want to regulate it accordingly.

People already interact with a digital economy in a lot of areas of life. If you’ve got a banking app on your phone or if you ever log into your bank website, you’re already interacting with a digital ledger, a digitized currency — a lot of things that make our world in 2022 pretty convenient and work well.

Again, I think everybody’s going to have their own fine-tuning preferences in terms of more regulation or less regulation, more consumer protection or less consumer protection.

We’ve come to a pretty good point, with a lot of different financial products and services, and I think it’s actually easier to map that on to a fully digital space than we often want to give it credit for.

Akina: Very good.

Clearly, many states are moving ahead rapidly in terms of facilitating digital currency for their residents and for people from across the world.

Hawaii is moving very slowly with regard to this. If we don’t move quickly enough and if we continue to overregulate, what would be the ultimate impact for Hawaii in terms of our economic direction in the coming world?

Gaiser: I think it would be tragic.

You look at Bitcoin; there’s no five-year period, and, actually, most of the time, it’s a three-year period, where you could have bought Bitcoin, held it and lost money. That makes it a really compelling medium- to long-term investment.

Again, that’s just one of the cryptocurrencies, and buying it and holding it is just one of a handful of activities that you can really do. I think we’re still very early.

To be in 2022 in the world of Bitcoin and cryptocurrency, is kind of like being in 1996 in the world of the internet. There’s so much that we haven’t done yet, we haven’t built yet. I would hate to see Hawaii miss out on the innovation to really improve life and to be creative, to be innovative, to make new products but then to also miss out on the wealth that comes with that.

And I think the other sandbox participants are very interested and very hopeful that the Legislature will pass legislation that really closely resembles the DCIL and some of the innovative products and services that we’ve been able to bring to Hawaii and its residents.

Akina: That’ll be great.

Just about 30 seconds left, if you quickly address the issue of risk.

There’s a great deal of fear in this new technology. How safe is it to move forward with virtual currency?

Gaiser: I think, like with anything, it depends on what the virtual currency is and what you’re trying to do with it and then who you’re using to do those activities with. River Financial is extraordinarily well respected and trustworthy in the industry.

There is some fraud. Just like you shouldn’t be wiring money to a Nigerian Prince who claims he’s been kidnapped, you shouldn’t be sending Bitcoin to somebody who’s also an email scammer.

Again, I think people are sophisticated consumers of a lot of different financial products, and so different people are going to have different risk tolerances, and that may or may not work out.

Again, we deal with this all the time in a variety of ways and spaces. I think, again, Bitcoin and cryptocurrency are more similar to life as we know it than we might be afraid they are.

Akina: Thank you very much, Alexandra. Thank you so much for updating us on this very important topic.

My guest today has been Alexandra Gaiser. She’s an expert when it comes to virtual currency, with background both in government and in the private sector. Thanks so much.

I’m Keli‘i Akina on the Grassroot Institute program, “Hawaii Together,” on the ThinkTech Hawaii broadcast network. We will be back with you next week. Aloha.



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