Q&A with Mike Zalewski
Solomon Lieberman: I'm Solomon Lieberman, Vice President of Strategy for the not-for-profit, nonpartisan BGA. Today I'm joined by Illinois State Rep Mike Zalewski, a Democrat representing the 23rd District in Riverside who along with another state rep is chairing a subcommittee on cryptocurrency. Thanks for joining us on Ready Set Gov.
Blockchain which could be one of the more significant innovations in recent memory but nobody understands it. Since you head a subcommittee on this, could you tell us how it came about and explain these key terms and concepts?
Mike Zalewski: About six to eight months ago, a former staffer of mine named John Mirkovic who actually works for Karen Yarbrough now came to me and said, "Hey I think you’d be great on an issue relating to cryptocurrency and blockchain and can we sit down and talk?" And I was like, "What and what? I don't I don't know anything about either one of those things." We sat down and we kind of had a first conversation and the second conversation I think John has walked me through these concepts at least a dozen times already and each time I learn something new which is kind of cool but also for a policymaker very, very frustrating to not feel like you've got it pinned down.
Solomon Lieberman: So our listeners shouldn't feel bad if it takes some time.
Mike Zalewski: They should feel no remorse about not understanding this stuff. You know I saw real potential in what it is, what it's going to be and I thought that government has a role in it and it doesn't need to be a burdensome role it needs to be a fostering role and encouraging role and that's where I got together with Representative Jaime Andrade who heads our data committee in Springfield and is sort of an I.T. silo for bills relating to technology. We decided it would be wise to form a subcommittee to study these issues.
Solomon Lieberman: What's a bitcoin? What's cryptocurrency? What's blockchain?
Mike Zalewski: So it's actually a fascinating story. In 2009 when the market collapsed, I think people acknowledged that we had too much money based in these central investment banks and there was a person who decided he needed to develop an internet form of money and the problem with internet forms the money all along had been: if I give you a dollar, Sol, I no longer have a dollar, you have a dollar. On the Internet, you don't know that. It's a foreign concept. We don't know how to transact business or at least we didn't until this hacker or a data-driven person solved what's called a “double-spend problem” whereby virtue of computer code that was set and formed I could transmit a “bitcoin” to you. And on the ledger would be a piece of computer code that would demonstrate that it I no longer have it. And show that you have it now. Thereby, you now have a piece of bitcoin and I no longer have the bitcoin. The ledger on which it's given or distributed is called a blockchain. It's transparent it's also anonymous and it's immutable. You cannot do anything to it. It's forever.
Solomon Lieberman: So once it's on that ledger, the dollar that you gave me over the Internet has the same value as if we did it with a crumpled bill on the street.
Mike Zalewski: Basically! Thought, right now, given the market price, bitcoins don't exactly go for a dollar. But yeah for lack of a better way of putting it, for sure. You know you now have the dollar and I no longer have the dollar. And one step further we in our banking system have a centralized banking system we call the Federal Reserve. It's great for normal everyday activity but it's sometimes centralized systems don't work. They're subject to hacking, they can get old, they can get antiquated. The blockchain is distributed. Everyone gets a piece of ownership of it. Again, it's immutable. It's not subject to tampering. So that has real potential for us as policy makers to discover what else can we do to break up old antiquated centralized systems and make them smarter more efficient and more transparent.
Solomon Lieberman: Why is Bitcoin called a cryptocurrency? That word just sounds scary. What's that word come from?
Mike Zalewski: I'm not sure of a really great answer for that. I think cryptography stands for breaking of code, collection of code, and deciphering of code. And again when the person who discovered bitcoin and a Japanese name I can't remember it off the top of my head [Dorian Prentice Satoshi Nakamoto] discovered it. He cracked the code. He sort of discovered the magical algorithm and computer code that would demonstrate that I no longer had the bitcoin and now you have it. So cryptography was a big part of that because by cracking the code and acknowledging what it would take to further transact business on the blockchain there was a certain level of cryptography involved. I guess the best answer I can get.
Solomon Lieberman: How do we reconcile government which is inherently centralized in its process with the idea of decentralization dominating things like transactions of money. How do you, as a lawmaker, reconcile that?
Mike Zalewski: Yeah it gets to the point of why we're interested in it. People are obsessed with bitcoin because of its volatility. People had billions in that. Now they are taking out second mortgages.
As policymakers, we were far more interested in the blockchain aspect of this because it has real potential. Government is a series of centralized antiquated old systems that are subject to bad things happening to them: hacks and lost data and people having to maintain them. Well, I think there's real potential in government for us to decide what's a way to make government smaller, leaner, more efficient, more distributed. We've been under enormous pressure to change the size and scope of state government. For example, the topics you guys have covered so far on this podcast. I'm sure they're all intractable problems. Well, maybe we can make government size less of an intractable problem by incorporating some technology. Maybe in the future instead of having to go to the Illinois Department of professional services to get your nursing license you what's called in the blockchain vernacular, "Open up a hash." The Department comes, looks to make sure your certifications are up to speed, closes the hash and you now have a nursing license or medical license.
Solomon Lieberman: So you're using the term "hash" which you know in a couple years that might be common language for a lot of folks. Is that, if you're talking about dollar currency on blockchain that's ledger that ensures a transaction, a hash as a way of having another type of transaction be a document or services?
Mike Zalewski: Imagine a scenario where instead of every time you have to go see a specialist because you have a medical problem you are empowered to hold your medical information and the provider comes to your space in the blockchain and looks and asks you for permission to see it.
Imagine a scenario where you are trying to stop an opioid crisis and you're trying to determine how many times a person has been prescribed oxycodone in the last two months and how many times they've seen an M.D. in different jurisdictions. Maybe if we put the types of drugs that lead opiate addiction on the blockchain we keep track of who's getting what maybe we start to see a more transparent way of making sure patients aren't doctor shopping.
In each silo of our economy: healthcare, government, insurance, financial sector there's real potential here and it's coming upon us to try to tap into it, grow it, make sure that it doesn't get out of control and if we do that I think we'll have done something, for once, that's appealing to our constituents.
Solomon Lieberman: What about just directly in government legislation? How a bill becomes a law. How it's signed. Is this "digital first blockchain world" something that you could immediately apply and make that system more efficient, more transparent?
Mike Zalewski: Yeah. Anything that involves pen and paper and documents. I think this technology is going to have an impact on at some point probably a little more of a practical example of something I want to focus on this year in the General Assembly to sort of dip our toe in this is the idea seeing a notary. Seeing a notary comes from a very antiquated system of law where you had to have someone affirm that your signature was real on a document. The beauty of a blockchain as we mentioned is immutable. Once something is uploaded to the blockchain it's there forever. You'll never have to worry about someone having said it was signed it wasn't signed it was tampered with. What if we said instead of having to have Sol go to his local bank to get a power of attorney notarized he puts something on the blockchain and for all intents and purposes he's done his due diligence.
Solomon Lieberman: Would that be "the notary hash?"
Mike Zalewski: Yeah the notary hash. For all intents and purposes now as a government we've solved the practical problem we made his power of attorney authenticated. We've removed an obstacle; he doesn't have to go to the bank to do it. We've made it a little bit safer because it's on the distributed ledger and backed up by technology and the ways in which this technology is secured. And I just think if we start piling up a few small wins and making people's lives a little easier when it comes to the stuff people start to say, "hey wait a minute you know if we did it with notaries, maybe the next step is something else." Incrementalism always works best in the general assemblies. I want to start small but that's the kind of thing I'm after.
Solomon Lieberman: So how you're applying it to all levels of economy and government with just the immutable nature of visible, transparent transactions, are the applications limitless?
Mike Zalewski: I wouldn't say limitless. I think ultimately we're going to have some pushback on some things that require a human touch. I just know my colleagues in the General Assembly well enough to know that but there's real potential. And as long as there's potential and people are interested in learning more I think we have an opportunity to make people's lives a little bit easier. The government in the last 20 years–were not very good at much right now. You know we got a budget after two and a half years of stalemate in Springfield. We finally got a school funding reform and you think about the time it took to do those things. In D.C., you know how they struggle with the ACA. It's becoming hard for us to show people that we really are capable of doing some things and I think this is an instance where we should refocus our effort on being part of the solution instead of always being considered part of the problem.
Solomon Lieberman: Here at the BGA we've talked a lot about how Illinois has more than 7000 units of government–more than any other state. Is this the type of thing that takes a big cut at those institutions?
Mike Zalewski: Yeah. I think to the extent that people want to see a smaller leaner better bang for your buck when you remit a tax style either in the form of property taxes or as income tax or sales tax. This is going to be one of those things that we can do to help with that. We need to start limiting the scope of state government and we need to start being responsive to the idea that people want to see frankly more value when they trust us with their tax dollars. And again, it takes a lot of effort and a lot of elbow grease to get into the weeds on a lot of the stuff as long as we can come up with innovative ways to do it and we can make sure that we're careful. I think this is one area where Republicans and Democrats can agree that it's in the best interest of the state to move forward. I will say, as a Democrat I think this is one area where the Rauner administration has made some good strides. You know, New York came in and did some very draconian rules early on in cryptocurrency. Eric Schneiderman is the attorney general there. He's very active in trying to protect consumers and I applaud him for that. In that instance, I think he created a climate in New York that made people a little nervous and it just so happened some of them came to Illinois. In Illinois, we have the CME and CBOE. We have a very fertile trading community. We have very fertile tech community. We have a lot of coding going on here. And so to the extent we're not developing widgets anymore and not manufacturing things because of automation maybe we're developing coders and developing ways to put things on the blockchain. Maybe that's the next generation of where Illinois can lead to try to get us back on the right track.
Solomon Lieberman: So how do you incentivize that? The IRS defines bitcoin as property so it is eligible for property tax and there are some states like Wyoming who last week came out and said that they are not taxable as property which in their mind opens up that crypto economy for people coming to Wyoming. "We're open for business." What is the state of that business incentive structure in Illinois? Are we taxing cryptocurrency and are there plans in your committee to change that?
Mike Zalewski: No we're not taxing it. And I think both Representative Andrade and I have been very clear we should this should not be perceived as any sort of burdensome effort to crack down on this. First of all, I think it's the federal government's responsibility to be at the forefront of that. Again, I urge restraint on the discussion of cryptocurrency versus blockchain because that is a very thorny subject that I think both the Federal Reserve the SEC the Consumer Financial Protection Bureau need to get together and figure out what we're going to do.
Solomon Lieberman: You're suggesting separate regulation around cryptocurrency versus blockchain?
Mike Zalewski: Innovation and blockchain. Right. What we need to do in Illinois is focus on legislation and outreach that shows potential and shows growth. And I talked a little bit about notaries there's areas in real estate that have potential so that's where my head is and Representative Andrade’s head is as we go forward.
Solomon Lieberman: Next year if you only did one thing in this committee, what would you want to make sure you accomplished?
Mike Zalewski: I won't be happy if we don't pass at least one bill acknowledging the potential of blockchain. That could be the notarization effort. It could also be real estate taxation liens.
Recording a lien on a piece of real estate in Cook County is old, archaic, weird. No one understands it. And as a result of no one understanding it, it's subject to a lot of fraud. You know they've battled these issues where people come in and slap a fraudulent lien on a piece of property and because the records are if he or the mortgages have been released no one knows whether the lien is legit. As a result, the elderly couples could lose their homes. What if we put title restrictions on the blockchain? Every time a title restriction came on it was recorded on the blockchain and again forever embedded in there transparently that we knew each time a lien was placed and when a lien was released. Title insurance, title restrictions making sure that real estate is clean. It makes our economy better. It makes our economy flow simpler. It protects people from a consumer protection perspective. All those things we want government to do. This has the potential to do it. But to answer your question, I want to pass a bill either in the real estate or in the sort of arcane antiquity document sector of government.
Solomon Lieberman: Do you think the leadership in the General Assembly sees you and your partner Representative as just the weird data nerds who are trying to do this stuff?
Mike Zalewski: I think my colleagues think I'm weird no matter what.
Solomon Lieberman: Is there buy-in and political will if you put things out there that are aggressive and new and really looking at these institutionalized processes and saying there's a better way to do this? Will people say, “OK let's talk about it?”
Mike Zalewski: Yeah. In my career thus far, I've had the opportunity to work on some kind of weird bills that no one else was willing to take on. I did a commercial ridesharing bill when Uber was first on the scene. I worked on daily fantasy sports. Figuring out what it is and how it is comparable to existing brick-and-mortar gambling.
I think that when you get into a room with my colleagues and you ask them what they want, you generally hear that they want to do things that–speaking very frankly– A) are productive and B) will be appealing to their constituents and are politically popular. So this has that potential to say like, "hey what are we doing that would create a little bit of buzz and I can tell people that I went back in my community and did this for them." I think this has that kind of potential and I'm hopeful that if we talk about it, enough people start to get behind and there'll be a little bit of momentum behind it.
Solomon Lieberman: It sounds like you're kind of the I.T. guy in the General Assembly.
Mike Zalewski: Jamie is. I won't take credit because it was his idea. He's the I.T. guy. I'm just the guy that was obsessed with bitcoin. We'll put it that way.
Solomon Lieberman: What in our background made you predisposed to this? Or is this just youth and opportunity and you saw something and you grabbed it?
Mike Zalewski: Yeah, I like technology. I don't say I'm a gadget guy you know because I think people have passed me by in a world of gadgets. But I do tend to try to stay up on interesting, weird policy discussions.
Solomon Lieberman: As a good government guy to think about how this hits on BGA’s core values whether it's efficiency, accountability, transparency, or fairness. By nature, this blockchain/cryptocommunity has the same foundational principles as well. So how do you protect those to make sure this does what it can do?
Mike Zalewski: This is in the wheelhouse of what I think advocates of good, transparent government want to see government working on. Again, it's transparent, it's immutable, and it has a chance to make government leaner and more efficient. So to the extent all those things mold nicely with the mission statement of places like the BGA, I think it has real potential for your organization to see how it can help. I don't know many more ways that we're going to be able to do things in the next few years that require hard choices and difficult circumstances. And you know we did some things last year that were important for the state of Illinois. But we by no means solved every problem. We need to be big time problem solvers. We have to consistently look outside the box for solutions that we maybe have not have thought of before. If you sort of Venn diagram those two things, that's right where we need to be. That's the pitch I can give you.
Solomon Lieberman: Are there other governments or countries that are far ahead of us? How far behind are we? Are we are at a good pace? Are we struggling to catch up?
Mike Zalewski: I would say that there are countries that have been willing to make their form of currency cryptocurrency. I don't know if Argentina did it or Colombia. I know there is some Baltic nations that have considered doing it. I was speaking to a gentleman from one of these countries and he said, "I was running on this cryptocurrency platform and all anyone wanted to talk to me about was taxes and pensions." And I was like, "Well welcome to Illinois, man. That's exactly what it's like here." He was discouraged that he couldn't get his message out. But I thought that was a humorous take.
So I think in some respects there are countries that have embraced this way more than the United States has. That being said I think we have a very lucrative ability here in Chicago, Illinois and the United States we need to start teaching our kids how to code. I think when kids learn how to code they're going to be the widget makers of the next generation. As a result of that I think the United States and Illinois has a chance to catch up in short order. I don't feel like we're behind but I but I also acknowledge that in this space it's probably hard to say that we're ahead too. We can do what we can. A given the constructs of our government to encourage us as much as possible but yeah there's probably some more countries ahead of us.