Blockchain Policy Matters: U.S. Congressman Bill Foster

By Greg Hall Published: August 17, 2021
Bill Foster

Congressman Bill Foster is the U.S. Representative for Illinois’s 11th congressional district and the also co-chair of the U.S. Congressional Blockchain Caucus. He sat down with Bitcoin Association Founding President Jimmy Nguyen to talk about his unusual path to public service and the progress the U.S. is making in regulating and legislating for blockchain technology.

Congressman Bill Foster has had a long and storied career, which is about what you would expect from Congress’s sole blockchain programmer. Foster is one of the U.S. lawmakers who is working hard to make sure that the country has its head around blockchain technology and the potential benefits it can bring for government. However, Foster’s career began not in blockchain or even cryptography, but physics.

‘For 25 years I designed particle physics accelerators and particle detectors, so actually the last of the giant machines in the United States was one I invented and led the teams that built it,’ Foster tells BA.

‘Along that career, I designed ten integrated circuits. I’m probably the only member of congress who has designed and built a 100,000-ampere superconducting power transmission line.’

A hyper-specific vocation to be sure, so of all possible fields to break into, how did Foster end up in this one?

‘Almost every physicist was the smartest kid in their class. And there’s an almost universal experience among physicists where they realize they’re the smartest kid in the class and they wonder if they’re the smartest person in the world,’ he explains.

‘And then somewhere along your career, you go on and on and then you look around the classroom and realise you’re not in the top of the class and maybe only in the middle. I hit that in Harvard Grad School when I saw these brilliant people destined to have great careers in theoretical physics and I realised – I’ll be a pretty good experimental physicist.’

 

The miracle of public-key cryptography

Foster had his head around cryptography long before the words Bitcoin and blockchain entered the mainstream, so by the time the Satoshi Nakamoto white paper was released, Foster was already speaking Nakamoto’s language. He says that public-key cryptography is a ‘miracle’.

Of course, cryptography will be a general concern for anyone in government: it’s a key pillar of national security. Being able to make sure something is secure means understanding what might make it insecure, says Foster.

‘It’s become important because Congress is putting a lot of money into [quantum computing], with one of the main justifications being that it has the potential to be able to undo some of these one-way functions that are fundamental to cryptography. If that happens after a class of cryptography has been deployed, it’s a huge national security threat. And so I’ve spent a lot of time trying to understand what exactly it means to be a quantum-safe cryptographic technique – which is still unclear to me, but is very important.’

‘The problem is, it is an existential national security threat if someone broke the cryptographic techniques that are currently in use. It would cause a lot of grief to everyone from the Federal Reserve on down. A lot of things that people are assuming are private will not be. It’s a high-stakes game trying to understand if we can do this or not.’

‘I’m sure that’s true in the mirror image in other countries. One of the fundamental missions of the intelligence community is to avoid technological surprise, which you can’t imagine a better example than our enemies discovering how to undo the cryptographic techniques we’re using.’

 

What are lawmakers interested in?

As lawmakers set about trying to patch any gaps in the existing rules which might miss a novel consideration raised by blockchain technology, they must determine exactly where the gaps are. Blockchain and digital assets often seem like a radical departure from what the world is used to, but this might not call for so novel a legal solution as one might think.

‘There’s the complicated situation where someone steals your coins and then immediately, they trickle onwards. There’s a very evolved set of law on this: if you rob a bank with cash and then you go and stop at McDonald’s and buy a hamburger, the question is: can the cops recover that cash from McDonald’s? It’s my belief that McDonald’s gets to keep that as long as they had the belief it was legitimate cash. If, on the other hand, they were a fencing operation who launders money, then they cannot,’ says Foster.

‘And so, it’s a very evolved set of law and I think we’re going to need that in the crypto domain as well, because there are very analogous situations, where someone drags you into an alley, puts a gun to your head and says to get out your cellphone and transfer all your crypto assets to my cell phone. Under what circumstances can you go to the police and consult the court system and say “I want my money back and my crypto assets back.” It’s something we’re going to have to face. ‘

However, the differences are important, he says.

‘The big difference you see in crypto assets, cash and fixed assets is the difference in mobility. For example, I’ve never heard of ransomware where your screen says all your files are locked up and I want you to transfer all your real estate holdings to me!’

‘That would not work, because the real estate holdings are traceable and you can go back and you can go to a court and say ‘you know that I had to sign over my title to this, but in fact, it was a fraudulent transaction. And so, cash is an intermediate state but the preferred things for things like ransomware are crypto assets simply because there is no control point. Even for cash, if you’re going to smuggle cash across the broader, there’s a control point where you have to hide it in your luggage. This obviously doesn’t exist for crypto assets.’

‘So, you have to distinguish the utility of crypto assets having to do with convenience from ones having to do with anonymity. I’m a big fan of the convenience and efficiency aspects, not so much of the anonymity.’

What blockchains can do to identity is a particular difference that Foster thinks about a lot. From the perspective of lawmakers and regulators, the prospect of unidentifiable parties to a transaction can be quite alarming. Take the highly regulated stock market, for example: if a bid is placed on an asset at an exchange, the counterparties are totally blind to one another – but that’s not to say the information isn’t there and available to regulators. They have an interest in that information if they are to enforce their rules effectively – rules like those against wash trading, the practice of establishing a fake price for a given asset by buying it back and forth from yourself.

‘If you’re going to prevent things like wash trades, that regulator needs to have a tremendous amount of very sensitive information. It’s got to be someone you trust to do that. I think that’s really the advantage of the free democracies of the world as a place where this will be domiciled. If you end up getting in a fight with the regulator, I think most people would prefer that regulator be based in one of the free democracies of the world rather than, for example, China.’

 

Identity is everything

For Foster, the identity question is a key area of focus. He recently introduced the Improving Digital Identity Act, which among other things, would establish a government task force responsible for developing secure methods of identity validation for both the public and private sectors.

Foster says getting the identity question right is a necessary step in the digital asset journey toward mass, mainstream use.

‘If you agree that ultimately you want these things to be legally traceable, then you say, “OK, how do you authenticate yourself as a legal participant?” And then you come around very quickly to the need for a trusted digital identity. Not only do you have to prevent that from being fraudulent, from someone being able to impersonate you, you also have to limit or prevent people from operating multiple identities,’ he explains.

‘For example, in the United States, the way most identity fraud takes place is that someone gets a driver’s license in four different states under four different names and proceeds to establish a credit history and onwards. To prevent that, there’s not really an alternative to have, once in your life, someone present themselves to a trusted authority – a government – authenticate themselves as a citizen (the way you do for your real ID-compliant driver’s licence).’

Foster is quick to point out that even these considerations are peppered with tough choices which need to be made. What do you do about undocumented people? What do you do with something like the U.S. witness protection program (‘which is essentially government-sponsored identity fraud,’ he says).

‘That’s one of the downsides of using the blockchain as the trusted source of digital identity, because maybe we’ll want to make it somewhat less trustworthy under some national security situations. So it’s just one of the very complicated details that you get into when you try to design a real system.’

Interoperability is something that Foster sees as a key consideration that must be taken into account as nations design their digital identity systems. It is inevitable that citizen identification is going to be increasingly taken online in the coming years – the EU has already expressed their vision for a digital identity for all EU citizens in the decade ahead and Foster hopes the U.S. will follow suit. Should this happen, it won’ be enough that these systems work within their own borders.

‘We’re going to somehow have a way that we will get other trusted countries to let them know – it looks like that’s a fraudulent identity as part of our witness protection programme. Sharing your list of people in the witness protection programmes with some countries might be easier than other countries. And so, you know, there’s a bunch of very fraught international negotiations that have to do simply with establishing a way to authenticate yourself as a single legally traceable person.’

 

Foster on Central Bank Digital Currencies

Together with digital citizen initiatives, Central Bank Digital Currencies are another hot topic in the world of lawmakers trying to determine how to approach blockchain. Private sector companies are competing with national governments who are competing with one another because the prospect of a stable currency used to be the strict domain of governments. Thanks to blockchain, this might not be the case any longer.

‘There’s a long-term threat to the primacy of the dollar, both in and use in transactions internationally, but also in as a reserve, ultimately as a reserve currency.

Foster isn’t ignorant that the appeal of digital assets for many is increased privacy if not anonymity, so the idea of a government overseeing a digital currency is bound to turn some people off. But Foster is optimistic that it’s possible to strike a balance between the need for government to have fiscal control and the obvious benefits offered by digital assets.

‘If you design a central bank digital currency correctly, you can set it up so that, you know, for example, if the Federal Reserve clears all payments or at least people have the option of just saying, I want to pay you ten dollars, I send a message. I authenticate myself to the Federal Reserve and authenticate a transfer from my account to your account of ten dollars. Then it’s possible that the Federal Reserve only knows that at this point in time, this account transferred that account and they don’t know that I just bought underarm deodorant or whatever it was,’ he says.

‘I think that the most people will end up being more comfortable with a transparent, legally based government entity like the Federal Reserve as being the, you know, the single entity that actually has access to the information.’