Sen. Cynthia Lummis (R–Wyo.) might not seem like your typical cryptocurrency owner. She's 66 and doesn't have a tech background, but she's "in it for the distance."
Bitcoin emerged just a dozen years ago, when a pseudonymous hacker (or group of hackers) shared a nine-page paper on an obscure email list. Today, it's the third-largest currency on the planet, according to Deutsche Bank. The total stock of bitcoins is capped at 21 million, which means that, unlike most paper money, no central bank has the power to print more of it. That's one reason Lummis owns the digital currency—as a hedge against hyperinflation.
As they rise in popularity and value, however, cryptocurrencies such as bitcoin are increasingly under fire. The use of fossil fuels for bitcoin "mining" prompted Elon Musk to stop Tesla from accepting bitcoin payments in June. A month earlier, after the Colonial Pipeline suffered a ransomware cyberattack where hackers demanded payment in bitcoin, critics called for bans on the supposedly untraceable cryptocurrencies that they claim are favored by criminals.
But cryptocurrency backers still see the value of the nascent industry—not just as an investment but as a means to greater privacy and faster online transactions. This is especially important in less free economies. As Lummis says, "It provides great freedom to people who are living in hyperinflation or repressive governments."
At this June's Bitcoin 2021 Conference in Miami, Reason's Nick Gillespie spoke with Lummis about common bitcoin myths, why cryptocurrencies are on the rise, and what all of that has to do with both major political parties abandoning fiscal restraint.
Reason: You're a leading light on crypto in Congress. What do you see as the value of this new technology, especially as it intersects with a fiat currency system that has really gone off the rails?
Lummis: I had been my state's treasurer in Wyoming. I was always looking for a store of value, and I see bitcoin specifically as a great store of value. Only 21 million will ever be developed. We know that scarcity will protect its value going into the future, unlike the U.S. dollar that we're printing more of every single day.
Is bitcoin, or cryptocurrency more broadly, a competitor to the U.S. dollar?
It's not a competitor, but it's an alternative saving instrument for people who, like me, are concerned that the U.S. dollar saved will be worth far less than when it's deposited in savings. So I see it as an opportunity to save for my future in something that will grow in value, not fall in value.
Do you own bitcoin or other crypto?
OK. Are you cashing out or are you long on bitcoin?
Oh, I'm what they call a HODLer. I'm long—I'm in it for the distance.
You're working to bring a legislative agenda around crypto into fruition. What's the regulatory framework that you want to see crypto being used under? Currently, it basically is treated as a private commodity, so it's subject to things like the capital gains tax. Where do you see things going? What's your dream vision?
It is to create a regulatory and statutory framework—a sandbox, if you will—where innovators know the parameters, but the parameters don't constrain them in their innovation as they develop new uses, new tools, new opportunities. The blockchain will provide, for example, the opportunity to put both contracts and the money or value associated with that contract on the blockchain. It cannot be adulterated or have there be miscommunication about what the contract entails. It makes a secure framework. And we want to make sure that legislation protects that and doesn't stifle innovation.
So you want to have a clear, predictable, stable set of rules in place, and that way people can kind of get on with the business of building a crypto world.
That's correct, Nick.
What's the timeline for that, and where are the main sticking points? Is it mostly that people in Congress have no idea what you're talking about, or is it that they're like, "I don't like this because it might hem in my ability to keep printing money"?
Right now, [the problem is] the lack of understanding or knowledge about what the distributed ledger is. What bitcoin is, what blockchain is—it's a total mystery to most members of Congress. So the first part is going to be to inform, educate, bring in experts who can help explain the importance of this.
Some of the urgency is because China is making a digital yuan and intends to roll it out, as we understand it, for the Winter Olympics in 2022. They want to compete against the U.S. status as having the dollar as the world reserve currency, so that's some of the urgency.
Are you in favor of the U.S. creating digital dollars as well?
And you're not worried that to the extent the U.S. gets into the digital space, that's just going to pollute the pool?
It's not. There are different reasons to have a digital dollar, or a central bank digital currency, than to have bitcoin. As long as the dollar is in use, it's important that we make transactions clear faster and that people have more opportunity to use a digital format for the U.S. dollar. Then to use bitcoin, it would be for perhaps a different purpose, at least initially.
So to buy your soon-to-be-legal drugs, you go on the dark web and use bitcoin, right?
[Laughs] You know, I'm aware that there are softwares that can detect fraud or illicit use of bitcoin and the blockchain. And it usually has to do with a pattern of use that would require the usual privacy associated with bitcoin to be transgressed, but the software is working well that can ferret out illicit uses.
So you're not worried—I mean, this is one of the main cases against bitcoin and crypto in general, that as it gets more popular, it's only being used by criminals or for bad actions. You don't really buy that?
Not at all. In fact, it is used less for criminal activity than traditional fiat currency is.
How do you feel about China? On the one hand, a plurality of bitcoin mining is being done in China, at least as best as we can tell. On the other hand, the Chinese government is also cracking down on crypto. What worries you the most about that situation?
Well, they're cracking down on bitcoin because they want to give rise to the digital yuan. That will allow them to surveil its use—they'll be able to track the way people are using digital yuan. They'll be able to punish people who are using it in ways that the Chinese Communist Party doesn't like.
If they contribute to a religious organization, they'll be able to crack down on them. Maybe a person contributes to a religious organization and then tries to rent a car to drive to another city in China; they're not going to be able to. These are the kind of manipulative tactics that will be used with the digital yuan. So having a digitized dollar that is much more private because of our own constitutional Bill of Rights, the Fourth Amendment, will provide a degree of privacy that the yuan is intended not to have.
Then there's bitcoin, which is even more private. It's not anonymous, as a lot of people say—it's more pseudonymous—but it provides privacy. It seems like a lot of Republicans over the past 20 years or so have gotten away from that idea that the government doesn't have any business knowing what you're up to, and it doesn't mean, if you want privacy, that you're a criminal. But it seems like, when it comes to bitcoin, a lot of people on the Republican side of the aisle are like, "If the government can't find out what's going on, we should regulate it tightly." You seem to be coming from a different tradition.
Absolutely. I want to disabuse people of that and have them recognize that bitcoin, because of its privacy, is very freedom-loving and -oriented. Take, for example, the fact that today people in Venezuela can privately convert their wealth to bitcoin so they can avoid the hyperinflation and the repressive regime. It provides great freedom to people who are living in hyperinflation or repressive governments.
So it works in the United States?
[Laughs] Well, and as we see inflation growing, it should, I think, alert the Fed that their proposed 2 percent inflation strategy is not working and that we need to address this. There's too much money floating around in the economy right now.
You mentioned that you were interested in crypto because you had served as Wyoming's treasurer. What about intellectually? How did you get into the idea of competing private currencies? Did you read a lot of Milton Friedman or Friedrich Hayek, or where did that come from?
Actually, my reading of Hayek came after my first investment in bitcoin, which was in 2013. Once you invest in something, you have a little skin in the game, you start to learn more about it. So I invested as an experiment, and that experiment has become not only an interest but now a fascination.
One of the other arguments that's increasingly being advanced against bitcoin is that it's an energy hog. The idea is that if bitcoin actually becomes a global currency, all the electricity on the planet (maybe in the universe) will be devoted to bitcoin transactions. You have talked about how bitcoin is actually helping to either make use of stranded energy or to develop a renewable supply.
We know that even now, bitcoin mining is 40 percent sourced by renewables, whereas globally, the average is 12 percent. So even now, it is more intensively using nonhydrocarbon sources of energy.
But in Wyoming, you'll see a trailer full of bitcoin mining equipment pull into an oil and gas drill site. They'll hook up to the natural gas that's being vented into the atmosphere because it's not yet hooked up to a pipeline, and they'll use that as a source of energy. So it's actually taking an asset that's stranded and being wasted and using it to mine bitcoin.
Why isn't that more widely appreciated?
I think that people like me need to explain that.
Crypto, bitcoin, blockchain: When you say these things, some people's eyes light up. Many other people, they get dark scowls on their faces. Is the Republican Party better on bitcoin than the Democratic Party? Is it old people vs. young people? Coastal vs. rural? What is it?
That's what's so fun about it. It's all of those things and none of those things. We have a Financial Innovation Caucus that I founded with Sen. Kyrsten Sinema of Arizona, a Democrat. And it is bipartisan—we have members of both parties. And in the House, there is interest in cryptocurrency and financial technology and bitcoin from both parties. And it's all age groups.
Most of the people I'm meeting with here [at the Miami conference] are younger, a lot younger than I am. They're my daughter's age. And so they're informing me and educating me as I try to figure out how we can craft a regulatory framework that doesn't stifle what all these young innovators are trying to do. Takes me a while to grasp some of their thought processes, because they're so far ahead of me in terms of understanding technology. But I'm catching up, and I need to help my colleagues in Congress catch up.
Some of the people we're talking to here are very worried that the federal government is going to come after bitcoin at some point and either take it over or destroy it. What can you tell them about whether that's going to happen?
The people that I've talked to that are policy makers, that are thinking the way I'm thinking, want to make sure that doesn't happen. We want to make sure that bitcoin, stablecoins, tokens can innovate and that the U.S. dollar can innovate as well and become a digital currency. So there's going to be formats that people can use that are much more user-friendly than our more old-fashioned forms of currency.
Young people are ready to embrace it. People my age are either nervous about it, or perhaps they're in traditional banking and they think that this is going to pull the rug out from under their business. So we have to find ways to explain it so traditional bankers understand that, yes, it's going to change their business model, but it's not going to destroy their business model. And we need to inform policy makers of the benefits of having these various opportunities to store wealth and value that can exist side by side.
You mentioned your age. How old are you?
OK. So you're on the young side of the Senate, right? Do you worry at all that America is becoming a gerontocracy? I remember looking at Soviet leaders and being like, "Oh my God, they're ancient." But they were in their 50s when the Soviet Union collapsed. Do you worry that American leadership is getting old and that with that old age comes fear and anxiety about the future?
I see both young and older people very concerned about how we're destroying the value of the dollar by printing too much money. That is a common concern that crosses age groups. Young people are as worried as people my age that we're spending too much money—that the U.S. dollar will lose value, that we'll have inflation, maybe hyperinflation. So they want to see an alternative like bitcoin protected. We want to see tokens and stablecoins available so there are places to go if the U.S. dollar underperforms dramatically. That's true of people at both ages.
What I am finding, however, is that too many members of Congress continue to believe that we can spend more and more—117 percent of GDP—and not have ramifications for our economy. I believe now we're seeing it play out that we cannot do that, and we're going to have to adjust. And among the ways we can adjust is to help provide opportunities for digital currencies that will help us protect savings, wealth.
Republicans talk a really good game about cutting the size, scope, and spending of government when they're not in power. But under Donald Trump, spending went up, and it continues to go through the roof under Joe Biden. Is there any remnant left, a serious remnant in the Republican Party, that's talking about reducing the size, scope, and spending of government?
It is so small, and it is so overwhelmed by people who see no end to spending and don't want to be part of an end to -spending. I think the Republican Party has pretty much abandoned its concern about the debt and the deficit and spending. The whole reason I ran for Congress and now ran for the Senate is because I'm concerned about the debt, the deficit, and spending, but I'm in such a small minority of members who are concerned about it that we're going to lose.
That's one of the reasons that bitcoin is attractive to me and I want to make sure we protect and nurture its capabilities. Because at some point, if we had a black swan event, at least we'd have an alternative. Bitcoin represents that store of value that I'm concerned we might lose with the U.S. dollar.
Are there any Democrats who are also worried about the spending?
Absolutely. And I served with some on something called the Committee for a Responsible Federal Budget. That was a very bipartisan group. It still exists. I had to leave that board when I ran for the U.S. Senate, but I continue to use them for advice, counsel, and policy ideas.
But we know we're swimming upstream, and I very much want to run parallel courses. One is to try to save the U.S. dollar. The other is to enhance the opportunity for bitcoin and other cryptocurrency in case we jump the track and crash the train.
Start your day with Reason. Get a daily brief of the most important stories and trends every weekday morning when you subscribe to Reason Roundup.