 everyone and welcome to Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm Dr. Kay Lee Ikeena, 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 you know many other industries. So 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. And today I'm going to talk with Alexandra Geiser, 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 Munchen 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. Geiser holds a degree in politics, philosophy, and economics from King's College and she has a J.D. from the University of Texas. Alexandra, Aloha. Thanks for joining us today. Welcome to the program. Aloha. Thank you. It's great to be here with you. Well, it's winter up there in Washington, D.C. What's it look like outside your window? We got a ton of snow, so certainly our first snow of 2022, but more snow than I think I've ever seen in my time living in the district. So it is a winter wonderland out here. Well, we have a little bit of rain, which clouds the 80 degree weather on the beach. Yes, I would rather be doing this live in person from your office. Well, 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? 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. So 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. Well, it certainly is an innovation. It takes us back to the very roots of money. So we're talking today, however, about virtual money or virtual currency. And bear with us, please, talk baby talk to us. So that we can understand what is meant by Bitcoin and so forth. But 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. And what is this thing called money? What does it do? And tell us what the role of government is with money? So 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 stored value. So 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. So obviously, we could have a really 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. So money is a nice common denominator. So throughout human history, people have used all kinds of things for money, salt, shells, gold, the US dollar. And so 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. So Ethereum is trying to fuel smart contracts. Some of the other coins that you'll hear function a lot more like securities. So 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. So it's an exciting and developing world. But 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. And it does everything as well. So we'll come back to that in a little bit and I'll ask you about Bitcoin and virtual currency. But just to kind of encapsulate what you 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. So 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 to transact 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? The role government plays in money is actually a little bit more nuanced and varied than a lot of us assume. So for my whole lifetime the US dollar has been sort of the world's reserve currency, so a lot of things are denominated in dollars and other currencies are not pegged to something like gold, which they used to be. So it used to be kind of late 1800s until World War I that the gold standard was how you denominated the British pound in the US dollar and the Swiss franc and everything was just a different fractional amount of gold and this is where this is the period of human history where you saw the most zero to one innovations. So it's to go from zero to one is like inventing electricity to go from one to multiples is like using electricity to power computer, right? So both are really impressive and important innovations but the zero to one really creates something new and 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. They're always mutual gains to be made sure and so whether you have government that creates a currency and sort of 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 and 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. So we all are actually pretty sophisticated consumers of different types of currency, not all of which are related to the US government. Well you know 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. But the thing is there's this monopoly element that governments have with regard to currency and 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? Yeah I think it's important to distinguish between legal currency accepted forms of payment and illegal currency right. So if I were to print a counterfeit dollar bill that would be illegal currency and I could go to jail. But like we mentioned there's actually this realm of sort of in-between things that are not legal tender so 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. So again we've got airline miles, credit card points, gift cards, even credit or a personal check right and so that actually fairly hands off and allows people to transact as they see fit. And then you have legal tender which the government that's the U.S. dollar but there are other countries around the world about 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. So there is a little bit more kind of give and take you've also got the Eurozone would be another example where there's a little bit more of a tenuous relationship. 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? Yeah so Bitcoin is the original virtual currency or cryptocurrency and 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. So all of the transactions that have ever taken place on the Bitcoin network are viewable to anyone who's running a Bitcoin node. So essentially the Bitcoin algorithm right and so 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 and so what Bitcoin did this is actually today is Bitcoin's birthday. Okay so 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 you've accumulated a little bit of extra money right you're inflating away your currency and 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 right so 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 makes sure that once you've that was really hard to figure out to hit copy and paste into a new window and so there was an issue with how could you prevent a digital currency from being essentially copied and pasted a hundred times over and so Bitcoin through its open ledger and its blockchain technology solved that double spend problem and then other currencies have built on some of those innovations. Well it's definitely very innovative and 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. Sure so I think the the biggest difference would be Fort Knox is owned and controlled by the US government right and so they're keeping it safe and they own it. The Bitcoin network is decentralized so 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 and so it would be the incentive structures set up really well so that really it's too expensive to ever cheat. It also requires too much computing power so that's a big and again I think a really nice appeal to Bitcoin is it's designed to be global and very fast unlike you think about the ECH 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 right and so that's something that we can do through the Bitcoin network. Well thank you you know 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 so you've been able to see that program at work. What exactly do companies like this do? What is the role they play? Yeah so we have been absolutely thrilled to get to participate in the Digital Currency Innovation Lab or DCIL and 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 so 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 of 15 companies and there are a variety of business models so 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 and so I think it's been phenomenal that the Hawaii Commissioner of Financial Institutions, Iris Akeda, kind of 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. 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? Absolutely. I'd say one everybody agrees fraud is bad and so when looking at sort of things you do want to regulate you do want to prohibit fraud. Fraud is always bad for consumers so 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 so there's a lot of excitement you could have in cryptocurrencies trade 24-7 so 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 violence and so the population in Hawaii is never going to rival the population in California or Texas. There just aren't that many people so you want to kind of 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 right and so it's important to right size the regulation to match the business opportunity. You know 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? I think our main hope is that they will get rid of the really onerous kind of double reserve requirement that's been put in place so 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 and so 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 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 but most commodities are somewhat volatile particularly in the short term so 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 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. 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 over regulation by government so how do we strike the right balance to allow this industry to go forward and really serve the needs of the people? I think we look to traditional financial instruments so it's pretty hard to completely reinvent the wheel or come up with something totally novel so 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. So 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 US dollar and 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 in to 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 and so again I think you know everybody's going to have sort of their own fine-tuning preferences in terms of more regulation or less regulation, more consumer protection or less consumer protection. But 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 mount that onto a fully digital space than we often want to give it credit for. Very good. Clearly many states are moving ahead rapidly in terms of facilitating digital currency for the 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 over-regulate what would be the ultimate impact for Hawaii in terms of our economic direction in the coming world? I think it would be tragic. So 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 and 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. So 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 and so 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. So I 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. 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? 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. So river financial is extraordinarily well respected and trustworthy in the industry. There is some fraud so just like you shouldn't be wiring money to a Nigerian prince who's who claims he's been kidnapped, you shouldn't be sending Bitcoin to somebody who's who's also an email scammer, right? But 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. But again, we we deal with this all the time and in a variety of ways and spaces. And so I think again, Bitcoin and cryptocurrency are more similar to life as we know it than than we might be afraid they are. Well, thank you very much, Alexandra. Thank you so much for updating us on this very important topic. My guest today has been Alexandra Geiser. 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 Kaley Iakina on the Grass Root Institute program Hawaii Together on the Think Tech Hawaii broadcast network. We will be back with you next week. Aloha.