Members of the House Local Government Committee tried to wrap their heads around cryptocurrency during a hearing Tuesday morning.
With the popularity of cryptocurrency growing in recent years, lawmakers in the committee found themselves puzzled for ways to address the emerging industry.
A bill, sponsored by Rep. Phil Christofanelli, R-St. Peters, would create a basic regulatory framework for cryptocurrencies, like Bitcoin, in Missouri. The bill proved to be contentious, drawing criticism from some lawmakers and lobbyists for limiting the government's ability to regulate industries.
Throughout much of the hearing, representatives from both sides of the aisle struggled to understand cryptocurrency and needed detailed background information from witnesses for clarification.
Christofanelli modeled the bill after a similar bill passed in Wyoming. The bill would, primarily, prevent local municipalities from passing laws explicitly targeting the cryptocurrency industry.
"(The bill) says that we can't have the Public Service Commission charge a special interest rate just for crypto mining. They should be treated like every other actor in the marketplace," Christofanelli said.
Coinbase, the largest cryptocurrency exchange in the United States, describes mining as, "the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions." A virtual ledger is used to document transactions, which any computer with enough processing power can access, according the information page on their website.
Computers connected to the network, known as the blockchain, verify new transactions and are awarded currency, like Bitcoin, in exchange. This currency can be bought and traded by consumers like a stock or investment.
"Crypto mining is a new and developing field," Christofanelli said. "A huge amount of economic activity is going on in this space. ... The entire network has to agree on the amount of crypto, so that it can't be fraudulently reproduced. That's what makes it remarkably secure and almost impervious to fraud."
Michael Berg, a representative for the Missouri Sierra Club testified against the bill for that reason, citing concerns that it might limit the power of local government and drain power grids.
"(Crypto mining) takes an enormous amount of energy because you have different miners competing to solve mathematical puzzle and ... it creates a lot of pollution in this state. ... If you look at cryptocurrency mining in the world, if Bitcoin was a country, it would rank in the top 30 countries for energy use," Berg said.
Rep. Joe Adams, a Democrat from University City, also took issue with the bill for environmental reasons.
"They use an excessive amount of electricity, which is taking power off the grid, (it is) denying mom and pop their air conditioning," Adams said. Rep. Bridget Walsh Moore, D-St. Louis, shared his concerns.
Adams also categorically questioned the validity of cryptocurrency saying that it "doesn't exist," like real currency. Christofanelli defended the bill, saying the decentralized nature of cryptocurrencies makes them difficult to regulate.
Despite his push to protect the industry in Missouri, Christofanelli said he still doesn't own any cryptocurrency of his own.
"Cryptocurrency, like any investment, comes with an array of risks. I don't own it because I don't understand it well enough to be investing in it," Christofanelli said.
Christofanelli assured the committee that they had all been briefed by members of the cryptocurrency sector, which Adams and Moore objected to. Both representatives said they had not been visited by any members of the cryptocurrency industry.
Dennis Porter, the CEO and founder of the Satoshi Action Fund, testified in favor of the bill, offering insight to the committee on how cryptocurrency works. The Satoshi Action Fund is registered as a 501(c)4 nonprofit organization (sometimes called a "dark money" or social welfare organization). The organization, Porter said, took its name from Satoshi Nakamoto, the founder of Bitcoin.
"We see growing brownouts and blackouts as the cost of energy increases for ratepayers across this, and other, states," Porter said.
Porter said facilities that "mine" cryptocurrency would be uniquely equipped to address issues like these, because mining computers can be turned off on-demand, without interruption to the larger network.
"Missouri can depend on Bitcoin miners for a reliable response during peak demand or emergencies, which allows your state to avoid building expensive, and often carbon intensive, infrastructure," Porter said.
Christofanelli said he would talk to Adams further to see about stricter regulations regarding taxation before moving the bill forward.
HB 764: Establishes provisions relating to digital asset mining and virtual currencies
Sponsor: Phil Christofanelli, R-St. Peters