Confused about crypto?

Michigan’s government could soon have an elite team of experts working to disambiguate the world of cryptocurrencies and blockchain technologies.

Senate Bill 880, sponsored by Democratic Sen. Jim Ananich of Flint and Republican Sen. Mike Shirkey of Clarklake, would create a blockchain and cryptocurrency commission to study these baffling technologies before submitting a pair of reports to the Michigan Legislature.

The members of the commission would include five industry representatives appointed by the governor, two individuals appointed by House leadership, two individuals appointed by Senate leadership, four more appointed by relevant House and Senate committees, the state budget director, the state treasurer, and the attorney general.

The commission is to study a broad range of questions, including:

• potential use of blockchain, a decentralized database technology, in government services such as marijuana registries and delivery of records;
• the use of cryptocurrencies such as Bitcoin for legal tender purposes;
• the potential for these virtual currencies to “mitigate the deflation of fiat currency”;
• inclusion of crypto in state accounts;
• payment of fees in crypto;
• how Michigan government can “foster an expansion of blockchain technology and the cryptocurrency industry in this state.”

The material rewards of service will be modest. Commission members will not be compensated for their work (not even in Dogecoin), though they can get reimbursed for reasonable expenses. The appointing officials will have the power to remove any members who bring scandal to the commission through malfeasance, dereliction of duty, or other misconduct.

The mission of the 16-member group? To deliver one report on cryptocurrency and another on blockchain to each of the two chambers of the Legislature by December 1 of this year.

The bill passed the Senate by a vote of 28-10 in June, and it is now with the House Financial Services Committee.

Majority Leader Shirkey and Minority Leader Ananich did not respond to email and phone requests for comment from Michigan Capitol Confidential. Republican Sen. Ken Horn of Frankenmuth, who is also backing the legislation, referred CapCon’s questions to the bill’s sponsors, though he told MLive recently, “It could be the currency of the future and we’re not quite sure yet, so we didn’t want to be left behind.”

Many have indeed been left behind by these popular but little-understood technologies. Crypto markets were roiled this year by rapid declines in valuation, as well as lingering questions over how these currencies – which are not pegged to any real-world assets – differ in practice from the Linden Dollars once offered in the Second Life universe, World of Warcraft gold, or Sim City SIMoleons.

“An ongoing debate about the viability of the token market is centered on whether tokens are used purely for speculation, or have actual utility on their underlying platforms,” two University of Michigan business professors noted in a recent study.

Co-author Andrew Wu, an assistant professor of technology and operations and finance, told CapCon the recent troubles of the crypto industry reflect widespread disappointment as early promises about the technology’s potential for retail transactions, investing, and lending have failed to pan out.

“The excitement about using these technologies for real-world transactions has died down,” said Wu, who also runs the university’s FinTech Initiative. “This year the whole blockchain-based system blew up, but it caused very little damage in the broader economy, because it is not really connected to the real world.”

The market has also seen a rash of scams and bankruptcies, Wu said. Though these are genuine regulatory concerns, he is skeptical of efforts to regulate the technology itself, or even to make extensive use of it in private retail or public services.

“Do you need a 16-person commission to study that?” he said. “Probably not. But the state could look at some of the products using these technologies, to say, ‘This is not a bank; we’re not going to let Michigan people invest in it.’”

Though regulation of crypto as a potential currency is a federal concern, Wu said, consumer protection is one area in which a state government could prove useful. He pointed to the examples of New York, which issues a “BitLicense” while strictly regulating exchanges of crypto for legal tender, and Texas, whose State Securities Board is investigating two failed crypto companies.

“Consumer protection would be a good use,” Wu said. “I don't see much macro application because crypto doesn’t have much connection to the real world.”

Celsius Network, one of the companies being probed by Texas and other states, allegedly implied that its digital currency was fungible, like money. The network’s advertising suggested its crypto investment product was “a high-yield, low-risk savings account,” according to one former customer.

“The number one thing we need right now is disclosure,” Wu said. “Both the federal government and the states should force some disclosure rules. State regulators could help inform consumers. A lotta people don’t know what they’re doing.”

The technologies do appear to be far more talked about than understood.

More than 46 million Americans intend to purchase cryptocurrency for the first time, according to a June Motley Fool survey, while 145 million Americans own or have invested in crypto.

Yet 98% of respondents flunked a Crypto Literacy Survey administered in November by YouGov to residents of the United States, Mexico, and Brazil.

Two-thirds of current crypto owners reported that “the concepts around cryptocurrency are needlessly complex,” in a NerdWallet poll published in June, while more than a third admitted they do not understand how crypto works. NerdWallet’s survey also found a much lower total number of current and prospective cryptocurrency owners than did Motley Fool’s survey.