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Melissa Harris-Perry: Thanks for sticking with us on The Takeaway. I'm Melissa Harris-Perry. Cryptocurrency. Maybe you're one of the estimated 40 million Americans who have invested, traded, or used Bitcoin, Ethereum, or one of the other 18,000 available cryptocurrencies. If you're like me, just what crypto is may seem cryptic.

John Beccia: Essentially, a decentralized ledger, a record keeping mechanism, but on that mechanism, you can transfer anything and it has benefits to many different use cases in life.

Melissa: Sure. John Beccia is a co-founder and CEO of FS Vector. It's a Washington DC-based advisory and government relations firm dealing with FinTech. That's Financial Technology for all of us newbies. He's also a professor at Boston University School of Law. John believes crypto can democratize our financial system.

John: Utilizing, harnessing the power of the blockchain, it really has a potential to unlock a lot of things for a lot of people. There was a chance to allow for people similar to the way we use the internet today, or transfer things over the internet, whether it's messaging, whether it's e-commerce or other things like that.

Melissa: If all the talk of blockchains and decentralized ledgers seems like a purposeful obfuscation, rather than a clarification, well, Beccia sees crypto's growing mainstream appeal and potential.

John: We're still early days in terms of the user base, although now you're seeing Super Bowl commercials on crypto and a lot of more mainstream touch points, but there's still this demystification process of it needs to go on it. People feel like it's complicated, people are unsure. I remember in the '90s and being scared to make online purchases and put in my credit card number online to do a e-commerce transaction. Now, we don't think twice about doing an Amazon 1-Click or something like that. All these things are going to develop over time in, and I think in a positive fashion.

Melissa: Some political leaders are also amplifying the crypto craze. In early April, the city of Miami played host to a four-day Bitcoin 2022 conference. It drew 25,000 attendees and included a giant declaration of monetary independence that attendees could sign, and an 11-foot Miami bull. It's a metal statue styled after the charging bull outside of Wall Street, Miami mayor, Francis Suarez, said that Bitcoin could usher in the new future of finance and shared his vision for Bitcoin's role in daily life.

Francis Suarez: This year, we need to integrate Bitcoin into every aspect of our society, every part of the fabric of our society. We need to make sure that you can go into a convenience store and buy a Snickers with a Satoshi.

Melissa: From the onset of his election as New York City mayor, Eric Adams has pushed the City to become a leader on the crypto front.

Eric Adams: I think we need to use the technology of blockchain, Bitcoin, all other forms of technology, and I want New York City to be the center of that technology.

Melissa: As they say, there are always two sides of the Bitcoin. The cryptocurrency and financial technology industry remains largely unregulated, and the landscape is rife with uncertainty. In March, president Biden signed an executive order on ensuring responsible development of digital assets. It calls for studies to explore and develop a "government strategy to protect consumers, financial stability, national security, and address climate risks".

Biden: We don't want to fall behind in the US. We want to encourage innovation, but in a responsible way. Over-regulation, you're going to stifle the innovation, the use case is here, which is bringing wealth to the US, which is bringing jobs, which is bringing benefit to businesses and individuals. I think over-regulation will temper that a bit. I think with the ways to avoid that is to really have an understanding and an education between industry and between government stakeholders and understand where the risks are.

Melissa: Now, maybe you can detect a bit of my own skepticism about the universe of cryptocurrency and FinTech, and I'll readily admit to being a bit of a Luddite, and my Takeaway team is worried that both my bank account and I could be irretrievably lost to the 20th century without a clear understanding of this sector, so we kept the conversation going. Hilary J. Allen, professor of Financial Regulation at American University's Washington College of Law is the author of Driverless Finance, and she took a turn at helping me get it.

Hilary J. Allen: To understand crypto, you need to understand a lot about tech and a lot about finance, and that's really hard to do. That's part of the reason why I wrote this book.

Melissa: Crypto in particular, has been built as the great equalizer. I'm always very nervous about great equalizers. I can remember COVID being called the great equalizer at one point [chuckles], but presumably it's meant to allow for transparency, access, and actually empower people directly. Is that how you read it?

Hilary: I am also nervous about everything that claims to be the great equalizer. Subprime mortgages claimed to be the great equalizer as well. Often, when you're giving people really complicated alternatives when what they really need are simple things, there are things hidden. We just said, it's hard to understand finance, it's hard to understand tech. You put them together, and you have to understand all of that to get basic financial services, that doesn't seem right to me.

I think there's a lot of room for predation, for taking advantage of people. Then, on top of that, I think there's a lot of room for financial crises to develop when we have so many new types of complex financial products, and we don't even know how they're going to interact.

Melissa: Help me to understand, what are some of the most clear and present dangers relative to automated financial systems.

Hilary: There's two ways of looking at this. There is investor protection concerns, and this was true of subprime mortgages, and it's true of crypto, which is, you could be taken advantage of if you are participating in this space. Subprime mortgages, people were offered mortgages that they didn't fully understand, and then in the end weren't able to repay them and they lost their homes. With crypto, there's no investor protection regulation in place whatsoever. There are a lot of hacks, scams, things like that. You really have to be aware that you could lose everything you put into crypto without any recourse. Now, that's not to say that people aren't making money, they are, but I think the better analogy is to the lottery or a casino. You can make money there, but there are a lot of risks involved.

Then, the second order of problems are the systemic problems. Going back to subprime mortgages, they were packaged into all kinds of fancy financial products that in the end ended up bringing down our entire financial system in 2008, causing a huge recession that had spillover effects for everybody. What I worry about crypto is that we may have this same dynamic.

Melissa: The dangers are not only to the individual investor, but to this entire system.

Hilary: When people talk about crypto, they say, "I should be able to invest in whatever I like." I think there's something to that. I do believe in investor protection regimes, but there is something to personal choice there, but that personal choice shouldn't come at the expense of others. Crypto is creating what we call negative externalities, problems for people who never invest in Cypto. It's not just the possibility of a financial crisis, it's environmental impact, it's potentially sanctions evasion, et cetera. There's a lot of broader consequences that we need to think through.

Melissa: Go back, environmental impact?

Hilary: Yes. The way the whole thing is set up, is that people have to 'mine' Bitcoin to release them into the economy for people to use. What that mining actually is, is not digging stuff up out of the ground. What it is is actually high-powered computers making a lot of guesses, trying to guess a particular number. Then, if they get that number right, they are paid essentially in Bitcoin, and they are then given the right to-- and this is just going to get hopelessly technical-- but append transactions to the blockchain.

Anyway, the more important point point from the environmental perspective is that we have these super computers guessing numbers, and it costs a fortune in electricity. Some estimates have said that the environmental cost of Bitcoin mining in a year is the same as the output of an entire country like Argentina or the Netherlands or the Philippines. Bitcoin mining is using as much electricity as one of those whole countries. That's major environmental impact.

Melissa: On the one hand, I'm so glad you explained that we were not actually digging it out of the ground, because I was about to think that I definitely even understood this even less than I do, but now I'm a little concerned that, actually, if we were digging a thing called Bitcoin out of the ground, it might actually be better for the environment, better for sustainability than this massive computer mining.

Hilary: We're digging other stuff out of the ground to support this mining process. I think we need to be asking ourselves, "Is it worth it?" You mentioned some of the narrative about crypto, that it's promoting inclusion and democratizing money, et cetera. I think we all need to be very skeptical of those claims in light of the costs. As I said, environmental, potential financial crises, sanctions evasion et cetera.

Melissa: I've got to say, I'm definitely one of those people who went and took a little cash out and put it under the mattress when Russia invaded Ukraine. I recognized it as being in part the fake news that we get, but I was also like, "Well, a cyber attack sounds like a real possible thing. Let me go get my cash out." Not all of it, just a little bit, enough to buy gas, which is like $1,000 these days. Help me to understand vulnerability to cyber attack in the context of everything you've now been talking about.

Hilary: I want to be clear that cyber attack is an issue for everybody. It's not just unique to crypto. Banks have to spend a fortune on making sure that their systems are resilient to cyber attacks. That's just the world we live in right now. The thing with crypto is that it may be particularly vulnerable, because again, it's not always clear who's responsible for maintaining the infrastructure in the crypto system. They're all different kinds of layers of technology and people who are responsible for those different layers, but then a lot of them are open source, which means that they're depending on the goodwill of people to keep them intact.

There's not necessarily a guaranteed pot of money to make sure that that infrastructure stays up-to-date and its protections against cyber attacks. There's some things about crypto that help with cyber attacks in the sense that it's a distributed ledger. It's a database that's hosted on lots of computers, not just one. If a couple of computers get taken down, that's not going to take down the system, but there are other vulnerabilities as well, because all of this in the end is just computer code and if someone can exploit that computer code and you don't have people dedicated to keeping that computer code up to date who are paid to do so, I think that's something we need to be wary of.

Melissa: At the end of all this, does the crypto emperor have no clothes, or is this the future of the economy and we just need to ensure that it is well-regulated to create some safety rails?

Hilary: I have to say I'm of the persuasion that the emperor is naked as a Jay bird, as someone put it to me [laughs]. I think the idea of crypto I think came from two places. First of all, there's the mathematical academic aspect of it, this idea of using this complex Bitcoin mining process to create a world where you didn't have to trust anyone in validating transactions. That was a neat academic idea. In reality, it's broken down. I've written a lot about all the people you have to actually trust to participate in the crypto economy.

There are a lot of them. That's not really a reality. I think the broader thing here is that after 2008, people really didn't trust the financial system that we had. I think that is totally justified. I understand why people didn't trust the system. The answer, to my mind, is not to create a parallel system that has all the same flaws and more, which is what I see in crypto. There's just as many opportunities for exploitation, for intermediaries to make a lot of money.

We're already seeing huge amounts of lobbying going on from the crypto industry in Washington. That wouldn't happen if there weren't money to be made. I think the stories about it being entirely just democratic and all about freedom, et cetera, I think got to take those with a grain of salt when you look at how much money is being made and how much money is being poured into lobbying.

Melissa: If you had one piece of advice for ordinary consumers who are thinking about entering into this world, what would that one piece of advice be?

Hilary: Don't invest anything you're are not willing to lose

Melissa: Generally good advice for investing and really for the casino as well [laughs]. Thanks so much to Hilary J Allen, author of Driverless Finance, for joining us on The Takeaway.

Hilary: Thank you so much.

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