Ari Juels says legislators will focus on crypto risks as CEOs testify in today’s hearing

By: Jinia Shawdagor
Jinia Shawdagor
Jinia is a cryptocurrency and blockchain enthusiast based in Sweden. She loves everything positive, travelling, and extracting joy and… read more.
on Dec 8, 2021
  • Juels believes cryptos have tremendous potential, but the industry needs regulation.
  • Per Juels, the crypto sector features risks like financial instability and exploitive arbitrage.
  • Juels says BTC bulls argue that the network is shifting to green energy without considering costs.

Six cryptocurrency executives are set to testify before the House Committee on Financial Services today and share their opinions on the rapidly expanding crypto market. These include Circle CEO Jeremy Allaire, FTX CEO Sam Bankman-Fried, Bitfury CEO Brian Brooks, Paxos CEO Chad Cascarilla, Stellar Development Foundation CEO Denelle Dixon, and Alesia Haas, the CFO of Coinbase Global Inc.

This development comes as legislators continue discussing the implications of the swiftly-growing sector and how to regulate it effectively.

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While the executives will try and put forward the benefits of the crypto space, the slump over the weekend and the BitMart hack will likely trigger critical reactions from lawmakers. With legislators like Maxine Waters already proving to be crypto critics, the crypto ambassadors are in for a hard time.

According to Ari Juels, a professor at the Jacobs Technion-Cornell Institute at Cornell Tech, today’s hearing will see the legislators focus on the unsung crypto market risks. Juels, who is also an expert in financial cryptography, believes that the new blockchain-powered financial products feature enormous promise in multiple verticals.

Specifically, Juels said marked smart contracts, which facilitate the creation of financial instruments, will play a pivotal role in reshaping the financial system.

Regulation is necessary for the crypto space

While Juels is bullish on the potential of the crypto market, he said,

At the same time, carefully considered regulation is a necessity, given the myriad risks engendered by blockchain-based financial technologies. Apart from the risk of financial instability, the risks of exploitative arbitrage, pyramid schemes and environmental damage are often underappreciated.

He pointed out that arbitrage opportunities in the blockchain ecosystem already surpass $1 billion (£0.76 billion) annually. Although some of these arbitrage opportunities might be negligible, Juels claims they feature common forms of front-running schemes similar to picking users’ pockets.

The financial cryptography expert noted that the blockchain’s technical traits have made front-running possible. On top of this, the community has created systemic support for the practice.

Juels added that,

There is a fine line between crypto schemes that involve real innovations and create incentives by rewarding early participation and those that deliver little or nothing of technical value but enrich their founders and speculators.

Additionally, the professor mentioned that BTC’s proof-of-work (PoW) consensus mechanism sends the network’s electricity consumption to the moon. He added that Bitcoin (BTC/USD) proponents might argue that it is transitioning to green energy. However, Juels believes this shift would be expensive.

Nonetheless, he admitted that the market features other cryptos with more functionality. He gave an example of crypto networks that leverage a proof-of-stake (PoS) consensus model, which is more energy-friendly.

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