‘Crypto Dad’ J. Christopher Giancarlo on the Future of the Digital Dollar

When was the first time you heard about the concept of cryptocurrency?

I heard about it in New York circles, probably in early 2014, from some brokers that were thinking about seeing if they could make markets or over-the-counter trading. I was aware of that when I went to the CFTC in the summer of 2014, that there were small boutiques that were looking to develop over-the-counter trading.

Financial markets were pretty much most of my life. In the markets that I was involved in, if it trades, there were brokers looking to create markets in them.

Perhaps it’s not that surprising to a lot of folks, but if you stop to think about it, that was the milieu I came out of when I went into government.

You’re now known as the “Crypto Dad,” but I don’t believe you started your tenure with the plan to become an advocate for digital currencies. When did that transformation take place?

The story of my getting that nickname is probably one of the most unlikely places anyone would ever expect to get it, it came out of a hearing in front of the Senate Banking Committee in February of 2018.

I was there with Jay Clayton from the SEC, and we were testifying on our agency’s efforts in handling, in his case, ICO activity, and in my case, our handling of the Bitcoin futures self certification by the Chicago Mercantile Exchange under CFTC regulation.

And going into the hearing, I was concerned from conversations I had here in the U.S. with officials in the public sector, in financial markets, but also conversations I was having with regulators abroad through organizations like IOSCO (which is the International Association of Securities Regulators) that there was a lot of fear and loathing toward the development of Bitcoin and other cryptocurrencies. 

When I went into my hearing in February 2018, I began my conversation by actually putting aside my written testimony — as I said to the senators, I wanted to just speak to them for a minute as a dad.

I talked about how during our Christmas break with my sons and daughters and nieces and nephews — everybody was talking about Bitcoin. And I said it strikes me that there’s something generational here, and that we owe it to this new generation to treat their interests not with disdain or dismissiveness, but with open mindedness and a search for getting the right regulatory response. 

When I went into my hearing in February 2018, I began my conversation by actually putting aside my written testimony — as I said to the senators, I wanted to just speak to them for a minute as a dad.

It was from that that my Twitter following just exploded. In a series of tweets, I was given the nickname “Crypto Dad,” which was an odd experience. It wasn’t something I went looking for, it wasn’t something that I coined: it was entirely in response to that testimony. But then after that, I came away, realized that it was actually a means by which I could communicate to a new audience and communicate my interest, which is a lifetime interest in financial markets and technology. 

Most of my career has been in the triangle of law, technology and financial markets. I’ve always been pro innovation, and the Crypto Dad label has been very helpful to me in communicating with an audience that’s interested in how technology can modernize so much about our financial system that’s quite antiquated.

As a relatively big public figure in cryptocurrency, have you had any opportunities to debunk any misconceptions about Bitcoin and crypto?

Yes, is the answer. I mean, there was a time when the CFTC in 2017 was approached about Bitcoin futures. There were all kinds of dire warnings that allowing futures to go forward would validate Bitcoin in the eyes of a lot of public officials who were opposed to it.

There was a fair amount of tension directed at us to take steps to block the certification of Bitcoin futures by those who saw Bitcoin as perhaps a threat to sovereign currencies. I believe that the launch of Bitcoin futures actually, rather than perhaps feed into those fears, has actually helped mature Bitcoin as a viable asset class, which now has an increasingly large institutional and professional following.

It’s establishing itself as a viable tradable asset class, along with others that have long been traditional asset classes. I think that’s helped to mature the market, so I think it disproved a lot of those fears, and the fear and loathing towards Bitcoin that was present in 2017 and earlier.

I believe that the launch of Bitcoin futures actually, rather than perhaps feed into those fears, has actually helped mature Bitcoin as a viable asset class, which now has an increasingly large institutional and professional following.

The past year has caused a pretty unusual financial situation with coronavirus and the quarantine. Has your philosophy about the importance of the place of digital currencies in the world changed or strengthened in any way?

Let me put forward my view on crypto in a broader context. I want to share some observations that my five years in government and then my 30 years before that in financial markets have led me to. 

The first one is that just so many of the bridges and tunnels and mass transportation systems in the West — that were once state of the art in the 20th century — have been allowed to age and decay, in some cases becoming obsolete in the 21st century. 

The same is true about a lot of our financial market infrastructure that was certainly state-of-the-art in the 20th century. In some cases — in too many cases — it has been allowed to age and decay and become somewhat obsolete in the 21st century. That’s certainly true about payment systems. It’s true about the analog basis for the way a lot of securities regulations are written. It’s true about some of our clearing and settlement systems, and it’s certainly true about our payment rails. 

That’s observation one: we’ve got antiquated systems. Observation two is that we truly are entering a new wave of innovation, what some people call the internet of value, which follows the first wave of the internet, which was the Internet of information. 

This wave is going to render most of the world’s things of value into digital representations, ultimately with the ability to program through smart contracts and whatnot. 

The same is true about a lot of our financial market infrastructure that was certainly state-of-the-art in the 20th century. In some cases — in too many cases — it has been allowed to age and decay and become somewhat obsolete in the 21st century.

I believe that this somewhat antiquated financial system — and to some degrees, antiquated regulatory system in financial markets — is ill prepared to weather this next wave of financial innovation unless it itself also modernizes. 

Everything that I’ve been focused on, and where I place myself since leaving the CFTC, is focusing on the modernization of key elements of our financial market infrastructure. 

Before we come to cryptocurrencies, I am serving on the board of the American Financial Exchange, which is creating a new blockchain-based replacement for LIBOR as an interest rate benchmark. It’s called the AMERIBOR, and it’s based upon a real marketplace place of banks lending to other banks and financial institutions, and then recording those transactions on a blockchain-based system for ultimate transparency and digital representation. 

I’m serving as chairman of the Board of Common Securitization Solutions, which is a joint venture between Freddie Mac and Fannie Mae that’s working on the modernization of our very analog-based mortgage securitization system in order to move that forward into a new digital paradigm. 

I’m on the board of the Chamber of Digital Commerce. And then lastly, at a not-for-profit venture that I’ve set up, I’m a principal in the Digital Dollar Project, which is working on advocating for creation of a U.S. central bank digital currency, what we call the digital dollar. It’s a tokenized form of the dollar, a CBDC. 

All the things I’ve engaged in professionally since leaving the commission and of course, my relationship with Willkie Farr & Gallagher, a law firm which provides me with a structural basis for my work, a firm that can help with legal work and also provide me with administrative support and whatnot.

Everything I’m focused on since leaving the commission is in the realm of modernizing our systems. Because I was able to take my company public back in the first decade of the 20th century — GFI group, which built some of the first electronic trading platforms over the counter swaps — it’s given me ability to at this stage in my life now focus on really just those those issues and matters that that are part of that overall framework of modernizing our financial systems for a new digital future. 

And that brings me to cryptocurrency, which is, I believe, a part of a solution for the lack of a digital sovereign currency, a digital dollar. But I am also exploring the edges of that antiquated system of payments and settlement clearing and others, all of which are very analog-based and seemed brilliant 20, 30 years ago, but are quickly showing their shortcomings in this new wave of digitization of things of value.

I read your recent piece about the need to move carefully in the creation of a digital dollar, and not allow coronavirus to rush things. Why do you think right now is the time to jump start the digital dollar?

I think creating a digital dollar is the right thing to do. We’re going into a digital century, and I believe we need a digital currency. It’s not just that I believe it, people all over the world believe it. Which is why many central governments, probably most central governments, are all exploring digital currencies right now. Some of them are moving forward very rapidly. 

It’s not just one person’s view, it’s a growing consensus that in order to equip nations, sovereign governments and the economies they oversee — for a digital future, they need to digitize their currency. 

But that something as ubiquitous in the global economy and as foundational to the global economy as the U.S. dollar is not something you try to just experiment with overnight and take a cavalier approach to. This needs to be done thoughtfully, carefully, sensibly, experimentally at first, but with determination. 

Whether it’s the launch and success and naturalization of Bitcoin, whether it’s the Libra project, whether it’s the accelerating pace of the digital RNB, or whether it’s the COVID crisis, whatever, whichever of those events will appeal to public officials to build a consensus that we need to get started is fine with me. 

This needs to be done thoughtfully, carefully, sensibly, experimentally at first, but with determination. 

They will provide a rationale on why we need to move forward on this in different ways, but it does help to build the consensus that we need to get going with this. We need to get going with this for all those reasons and more, because it’s the right thing to do. 

Why did you need to modernize public transportation systems every so often? Why do you need to sometimes modernize airports? Because they’re all core public infrastructure. They’re public goods on which economies are built — as is currency. It’s part of the core architecture of an economy. It’s the bottom level architecture. It’s the foundation of an economy. We need to modernize that for a new digital era. It’s the right thing to do. 

If your focus is about financial inclusion, then maybe COVID and the difficulty of getting people money in a crisis was the reason when you said, “Wow, a digital dollar makes sense. A CBDC makes sense.” 

Or maybe you’ve got a foreign policy focus on competing global economies like China. Maybe that’s what brought you to say, “Oh, a USD CBDC, that makes sense.” Or maybe you’re worried about loss of control over monetary policy by non-sovereign currencies like Bitcoin or Libra coin.

Whatever the pretext is of any of those or others that I haven’t thought of — that’s fine, because I believe we need to build a national consensus that we need to get to work on a USD CBDC. 

Now, having said that, we need the national consensus to get started. Getting started to full implementation is a complex and long journey. One of my mentors likes to say, “If you want to be on time, you’ve got to start early.” I believe if we want to be on time with this, and being on time meaning along with the movement of other major economies, then we need to get started now.

One of my mentors likes to say, “If you want to be on time, you’ve got to start early.”

Do you think the U.S. is being a leader in this right now? 

No.

Who do you think is being a leader?

China is definitely moving fast, being a leader…Let me define terms. Let’s put it this way. 

If we were in the first laps of a race, I would say that others are ahead of the United States right now. But the race is not finished. The winner is not who finishes first: the winner is who is able to successfully develop a thriving digital currency that reflects their values. 

I don’t think being first is that important. What’s important in the United States is to make sure that it’s not last to this, where others have all already managed to stamp the consensus form of a central bank digital currency with their values rather than U.S. values. 

Russia beat the United States to launch satellites in space of the 1950s. But ultimately, the United States realized that it had a national interest in space exploration and landing on the moon, and it built a successful space program that reflected the values of a free society, of a diverse economy that was both private sector and public sector, values of innovativeness and privately-funded innovation.

I believe that can be considered a success in the United states, because they were able to achieve their national purpose and do in a way that reflected their values. 

If we were in the first laps of a race, I would say that others are ahead of the United States right now. But the race is not finished. The winner is not who finishes first: the winner is who is able to successfully develop a thriving digital currency that reflects their values. 

I feel the same thing is critically important about a digital dollar. It’s not about being first — but we don’t wanna be last. It’s about doing this in a way that’s able to reflect the values that America places on a currency, in the same way that e one of the many underpinnings of the dollar is a sovereign currency, the right balance of privacy rights against government interest in law enforcement, and anti-money laundering, etc.

We need to make sure that any digital form of the dollar also has that right balance of rights in it. Are we leading? I do not believe we’re leading at this point, but I’m not sure that’s what’s important. What’s important is whether we’ll be leading in the years to come.