Assembly Standing Committee on Banking and Finance

Good afternoon and welcome to the Committee on Banking and Finance's Informational Hearing on Digital Asset Innovation. We are convened today to delve into the realm of digital asset innovation a technological and financial paradigm shift that has rapidly moved from being a subject of niche speculation to a critical, unavoidable component of the global financial and economic conversation.

This hearing is vital to ensure California is prepared to responsibly govern and strategically benefit from this emerging asset class. To discuss the state of the market, we must first establish a foundational understanding of the core technology at its essence, a cryptocurrency is a form of digital or virtual money.

Its security and integrity are fundamentally ensured by cryptography utilizing advanced mathematical principles to make fraud and counterfeiting virtually impossible. By defining characteristics of most cryptocurrencies, it is the decentralization. Unlike traditional fiat currencies, which are issued, controlled and guaranteed by central banks and governments, cryptocurrencies operate without a need for a central authority.

This decentralization is enabled by blockchain technology. A technology is a continuously growing list of records called blocks which are linked and secured using cryptography. This ledger is not stored in one place. Instead, it is transparently maintained and validated across a massive network of independent computers.

This design ensures that every transaction is verified and unchangeable, establishing a level of trust and security previously only possible through traditional intermediaries. The lack of a single point of control is what gives these assets resilience and their revolutionary potential. The digital asset market has undergone a dramatic transformation and maturation since Bitcoin's genesis.

Today's ecosystem is vast, complex and far more diverse than its origins. The market now encompasses thousands of digital assets serving a myriad of purposes. It extends far beyond simple peer to peer cash transactions.

Decentralized finance applications seek to recreate traditional financial services like lending, borrowing, trading and insurance without the need for banks or brokers operating instead through smart contracts, automated programs on the blockchain. We are now able to use blockchain technology to issue tokens, digital certificates of ownership that represent unique assets or traditional assets like stocks and voting rights.

We've seen a federal level of acceptance with stablecoins as well digital assets designed to maintain a stable value relative to a specific traditional currency. This is a crucial bridge between the traditional and decentralized financial systems. There is broad consumer acceptance of this technology. Digital asset ownership is no longer confined to technological specialists.

Californians and Americans across all demographics now hold or interact with various digital assets. They recognize them as a new high growth and sometimes volatile but but increasingly valuable asset class for investment, savings and payments. This has led to an unprecedented institutional integration. What was once dismissed by Wall street is now actively being integrated by it.

Major financial institutions, global payment processors, corporations and technology giants are dedicating significant resources to incorporating digital assets and blockchain into their core services and balance sheets. This integration signals long term viability and confidence in the technology on a global level. Governments worldwide are moving beyond exploratory stages. They focus on shifting towards establishing clear, predictable regulatory frameworks.

This effort is crucial for two primary reasons. Consumer protections, Safeguarding investors from scams and market instability and fostering responsible innovation. Creating a supportive environment where these technologies can develop safely and legally.

The objective of this hearing is to explicitly not endorse or criticize the speculative aspects of this movement, but to engage in a necessary and practical discussion about its implementations. For California, we must address critical administrative and economic policy questions as digital assets move to mainstream.

The state has responded by developing effective and equitable mechanisms for managing assets that are abandoned or considered unclaimed. This ensures that state law keeps pace with digital ownership and state financial stability in the long term.

We must explore innovative concepts such as utilizing a potential digital asset reserve Fund to determine if how state resources could strategically and safely interact with asset class to enhance California stability and resilience against economic headwinds.

By understanding the technology, recognizing the market's maturity, and proactively addressing the regulatory gaps, California can position itself not just as a consumer of digital asset innovation, but as a leader in its governance and strategic implementation, as it has done so in so many spaces. We are joined here today by two esteemed speakers.

Our State controller, Malia Cohen, is joining virtually to discuss forthcoming implementation of SB822, the digital financial asset unclaimed property law. And Dennis Porter of Satoshi Action Fund, a nonprofit with a mission to responsibly advance Bitcoin and digital asset innovation. He will be discussing what a digital asset Reserve Fund could look like in California.

With that, I'd like to open up to our Committee Members to see if they'd like to make any remarks. Seeing none, let's move on to our first speaker, Mr. Dennis Porter. Appreciate you being here.

Okay, get my notes ready here. Education.

All right.

Well, thank you for having me be here. I really appreciate the honor to come before this Committee and talk about something that's incredibly important to me and I believe the future of the state and the country as a whole. Thank you, Chair Valencia and Members of the Committee. My name is Dennis Porter.

I'm the CEO and co founder of Satoshi Action Fund, a nonpartisan nonprofit policy organization that works with state legislators across the country on digital asset legislation. Since 2022, we've worked with lawmakers in over 30 states helping draft and pass legislation covering everything from bitcoin rights to unclaimed property protections, banking frameworks and digital reserve legislation.

Education first, nonpartisan and built around sound policy is the mission at Satoshi Action. Today's briefing, the first of two is about what digital assets are and how they affect the 40 million Californians that you all represent. The deck title says digital assets. Hopefully you guys can see it.

I don't know where you're looking at, but I got it above me here on this top up here. But I'm sure you all are familiar with the term digital financial assets from California's default legislation. Digital assets is simply the broader category and we're going to be focusing on that in this presentation to keep things simple.

And I'll reference as digital assets throughout the as I continue. It works. That's great. We'll cover three areas today. First, the foundation, what digital assets are and how they work. Then the application, the real world use cases and risks, and also policy what's happening federally across the state.

Across the states and what the opportunities are that lie ahead for California. But first, the numbers. These aren't projections. This is where we are right now. 3.2 trillion in total market cap larger than the GDP of the United Kingdom. 55 million Americans own or use digital assets combined. Stablecoins now boast a $300 billion market cap.

47 states have enacted some form of digital asset regulation and over 200,000 US jobs have been created. With 107 billion in capital investment being made across the country. This is mainstream adoption. Let's get into the fundamentals of why this adoption is taking place. I often get the question. I already use Venmo. I already use Zelle.

I have digital banking. How is this any different? There are three key differences that I'd like this Committee to focus on. First is control digital assets. Let users hold and transfer value directly with no intermediary required. Second is settlement. Transactions settle in minutes versus days, hours or weeks in the traditional financial system.

And this occurs 247365. And third is access. Anyone with an Internet connection can participate, including the 4% of US households that are completely unbanked today and the roughly 14% of households which are underbanked. There are real trade offs, though. Volatility, limited consumer protections and an ever evolving regulatory landscape.

But these systems are Converging, JP Morgan, Citi, Fidelity are all building digital asset infrastructure. Right now, traditional finance and digital assets are growing together not independently of each other. But not all digital assets are the same. I break them into three categories. Currency Bitcoin is a scarce store of value. 21 million coins hard cap. Think digital gold.

When you're thinking about Bitcoin, stablecoins are pegged one to one to the dollar. Think digital checking account designed for payments tokens. These represent ownership or other rights, proof of ownership of real world assets. Fractional real estate, governance rights in an organization. Even BlackRock now holds over $2 billion in tokenized Treasury bonds and tokenized Treasury securities.

And the third one, which I think is really important, that I think helps differentiate something like Bitcoin from the other types of digital asset technologies is what I would call digital asset platforms. Platforms are things like Ethereum, Solana, Xrp. These are infrastructure, the operating systems where stablecoins move.

So you have a stablecoin, but what does it operate on top of? And these are the platforms that stablecoins and other types of tokens operate on top of, including smart contracts and other forms of tokens. Think of platforms as the Rails, which a lot of the activity takes place on.

Of these three stablecoins have garnered a lot of attention from federal lawmakers. But let me explain why. Stablecoins are the bridge between traditional finance and the digital asset world. They settle in seconds, not days, at a fraction of card network costs. And because they don't require sharing credit card numbers, they they reduce risk associated with data exposure.

On the policy side, the Genius Act was signed into law in July of 2025 with strong bipartisan support. That act requires issuers to maintain one to one reserves backed by cash and cash like assets like Treasuries. Because those reserves must include Treasuries, it creates new demand for US debt, reinforcing dominance and lending dynamics.

That's why both parties got behind it. Despite our incredibly partisan political environment that we live in. Visa, MasterCard and PayPal are all building stablecoin payment rails. This isn't coming. It's here, right now, today. Now let me address another question. I get a lot. It's not backed by anything. Where does the value come from?

The answer depends on the category. Bitcoin derives its value from its design. It's scarce, durable, divisible and verifiable. It shares monetary properties with gold, but also adds digital portability and programmatic scarcity. Stablecoins drive their value from their reserve backing. As I mentioned, previously they're backed one to one by dollars or Treasuries. Platforms derive their value from usage.

So Ethereum, Solana, these are a place where things operate on top of and so the more activity that takes place on top of those rails, the more activity that takes place on top of those platforms, the more valuable the underlying token becomes for that network. And then there are things like purely speculative tokens like NFTs, meme coins.

They derive their value from speculation. They're subjective and market driven. I wouldn't say they have any underlying value. So oftentimes when I hear people say why does crypto have value? There's nothing that backs it. That's most commonly true when referencing NFTs and meme coins.

But something like Bitcoin, stablecoins and these platform tokens or cryptocurrencies definitely derive their value from a specific use case. Next is programmability. This is what makes digital assets very unique and fundamentally different from traditional money. Smart contracts are self executing agreements written in code. Here are three examples of how these smart contracts can operate.

Time locks, assets locked for a set period, like a digital certificate of deposit enforced by code. Escrow funds held and released when conditions are met, like an automated real estate closing and then multi signature.

You can have multiple wallets, multiple parties that must approve before funds move, like requiring two signatures on a check, all done programmatically on the code. These are the building blocks as well for something that often commonly referred to as defi.

When you hear the word term defi or decentralized finance, it's usually built on a lot of varying types of very complex but relatively easy to use smart contracts which enable lending, borrowing and trading as well as facilitating code with full transparency in the process.

There are two models for buying and selling which I'd like to focus on briefly before moving on. You have centralized exchanges. Think of Coinbase, think of Kraken. These are the brand names that you hear all the time. I'm sure Members of the Committee probably saw the super bowl ad.

They hold your funds, they're user friendly, super easy to use and highly regulated. But then you also have decentralized exchanges like Uniswap, which operate peer to peer.

Users keep custody of their own assets, which means more control but also more complexity and in my belief also the need for additional rules and regulations to be made around how those systems can function, who hopefully without breaking down the innovation that takes place within them. There are six key benefits that I'd like to move on to.

After talking about the exchanges, I'M going to run through these six quickly and not talk about the text on them because I kind of get into that a little bit later. But the first is financial inclusion.

And I think this is really important when you're thinking about digital assets is oftentimes you get into the Jargon, blockchain, crypto, peer to peer, and I've even referenced some of those terms here today.

We found that in our educational process as satoshi action when talking to lawmakers, regulators and even the General public that focusing too much on the technical Jargon makes it even more difficult for people to understand the technology. I commonly ask lawmakers, do you understand how the Internet works?

Very few understand how the Internet works, including myself, to be honest. But they understand the benefits and the opportunities that the Internet has and they also understand the risks. You know that you can order food, it's going to come to your door, you know you're going to order Amazon, Uber, you name it.

You know, you can virtually have the controller, you know, listening in and speaking and testifying for this hearing today. It's incredibly powerful.

That's what I would like to focus on with regards to digital asset technology when it comes to the educational component is what can it do because it's not going away and we should learn how we can benefit and also avoid the risks of the technology.

So the key really important risk benefits of the technology is the ability to create financial inclusion. There's so many people all over the planet who don't have access to traditional financial rails and even 4% of Americans, which is crazy to think.

And this is a technology where you simply, no matter who you are, where you're from, are able to access it. Transparency is also radically transparent. The costs are lower. It helps with dollar dominance, as we mentioned before, as well as grid stabilization, which is something I'll get into. And it's also an economic growth engine.

So here's some of the real world use cases so we can really bring it into focus on how this technology can help Californians. On the financial services side, you have cross border remittances. You're right on the border with Mexico. There are many people that are coming and going. They have family Members that are across the border.

I myself used to live in Juarez, Mexico, right across from El Paso. There was a lot of activity that was taking place in the border there and people are commonly sending money back and forth. It's a very costly and sometimes even dangerous activity because you know my father who lives in El Salvador today, same thing.

Though some people will send money down to him, has to go walk and get the physical cash and actually take it somewhere, which can be incredibly dangerous in a country like El Salvador. So digital asset technology streamlines that entire process. It drops the cost of sending transactions down to pennies, and also it's completely virtual.

So there's no need to go show up, grab the cash and move it to another place. You just get it right into your digital wallet. Small businesses also oftentimes are paying anywhere from 2 to 3% for their daily processing fees.

As a former small business owner myself, I can attest to the pain that goes into how much money we just have to spend to be able to accept our money.

With stablecoin payments, you can accept money for pennies on the dollar, and you can process it and receive it nearly instantly whenever you make a transaction or the traditional financial system, it can take days, sometimes weeks to get your money.

In a crypto universe, in a stablecoin universe or bitcoin universe, you can get your money fully settled within minutes, sometimes seconds. And when I say settled, I think it's important to understand that when you go and you pay for your Starbucks coffee, the money is being processed.

It can take days, sometimes up to a week, for the money to actually end up in their bank account. That is all technically wiped away with regards to how this technology operates. The moment the transaction is sent, within seconds, maybe minutes, the full settlement takes place and that person can end up going on and using the money.

And I think this is critically important when you're talking about small business owners, because they oftentimes run on razor thin margins. They have rent to pay, they have employees to pay. By getting their money quicker and faster, they can run their businesses more effectively and efficiently. Tokenization is a burgeoning area.

You've got real world assets on the blockchain, Real estate, Treasury bonds, all transparent, all verifiable. On the energy side, which I'll get to in a little bit here, so I'm going to skip past it for the sake of time.

There's some incredible energy benefits that the state can take care of, including managing the massive amount of curtailed wind and solar power that is happening here in the state. So who's already building in the space? On the consumer side, PayPal, Visa, MasterCard are all building stablecoin infrastructure. Over 15,000 businesses accept digital asset payments.

On the institutional side, JP Morgan built a private blockchain processing billions daily. BNY Mellon offers custody. Goldman Sachs, Fidelity, Morgan Stanley, Citi and Schwab all have digital Asset services. And the OCC granted five National Trust bank charters to crypto firms in December 2025. This is institutional adoption at scale, at pace.

Now let me go deeper on the bitcoin mining and energy component that I mentioned a couple of times here. The energy narrative around bitcoin mining has changed dramatically. Over 52% of mining energy comes from sustainable sources, up from 37% in 2022 mining. And there needs to be more work done there. In my opinion.

Mining has created over 31,000 jobs and contributes 4.1 billion annually to the GDP. A huge number of these facilities are being built in rural parts of the country, creating real economic growth for communities that have been left behind.

And over 43 billion in AI and data center contracts have been built on top of mining infrastructure because these sites already have the power, including that AI workloads need.

And as a brief note there, I think it's really important to note that when a bitcoin mine sets up and it is building and is operational, and an AI data center comes in and takes over that infrastructure, that is actually saving ratepayers and also taxpayers money. And I'm happy to answer questions about that later.

And Mr. Porter, I'm going to interrupt your overview and setting the context of what crypto and blockchain actually is. We do have the controller, as you mentioned on video call, she does have another engagement to get to.

So we'll put a pause on your overlay, have her give her remarks, ask her questions, and then revert back to you.

That sounds great. Chair, would you like me to stay seated here? You can stay there.

That's fine. She'll be on tv, obviously. Thank you, sir. Yep, absolutely. And Madam Comptroller. All right.

Can you hear me okay? Yes, thank you. All right, thank you very much, colleagues. I thoroughly enjoying that presentation. Thank you for just giving us a base level on the types of blockchain technology that is out there, but formally. Good afternoon, everyone. My name is Malia Cohen. I'm the state controller.

And thank you, Chairman Valencia and Committee Members, for just giving me an opportunity to provide you an update on the implementation of SB822, which is a Senator Becker Bill, which relates to unclaimed property and virtual currency.

Now, I'm particularly pleased to be discussing this topic during Unclaimed Property Month, which is a time when we remind Californians that billions of dollars in forgotten assets are waiting to be reunited with their rightful owners. As you know, my office administers California's Unclaimed Property Program. We collect unclaimed intangible assets.

We safeguard them and work diligently to return them to their owners. State law covers all intangible assets, assets such as bank accounts, stocks, insurance policies and trust interests. The type of assets that are in circulation are always evolving, as we heard from the previous speaker.

But with the signing of Senate Bill 822, we have the processes and guidelines in place for how to manage digital assets as well. Unclaimed property and SB822 I want to give you kind of a historical overlay.

The foundation of California's unclaimed property law was established in 1950595565 years ago, long before the advent of Bitcoin or blockchain technology, and probably long before the advent of all of us in this room. The law was therefore silent on how virtual currency could be treated when it becomes abandoned.

And without clear statutory processes, forgotten or otherwise abandoned, digital assets simply remained with the holders indefinitely. So there was no defined pathway for reunification. That is why I sponsored Bill that's why I sponsored Bill SB822.

The Bill created a clear legal framework for how abandoned digital assets were reported, I how they were safeguarded, and most importantly, how they were returned. It ensures that California implements best practices, which is our standard. It provides meaningful consumer protections and it offers practical workable guidance for holders of virtual currencies. But there's something that's very important.

Most importantly, it ensures that digital assets are treated the same way we treat any other property belonging to Californians. So if it is lost, we work to return it. So I want to provide a little bit of context. I want to talk a little bit about digital currency and SB822.

Bitcoin was introduced in 2009 and Erythrium followed in 2015. These assets have existed long enough for accounts to become dormant due to death due to relocation, forgetfulness or just General lost contact.

While thousands of additional tokens have been created, the majority of reportable assets under SB822 today will consist primarily of Bitcoin and and Erythrium, ethereum and roughly 20 other established digital currencies. Now, over time, additional asset classes including stablecoin, tokenized assets and non fundable tokens may also become reportable.

But SB822 was drafted broadly so that California's protections can keep pace with with the innovation. It is important to clarify what the law does and what it doesn't cover. So if an individual maintains a private wallet and personally controls their private keys, those digital assets will never become reportable as unclaimed property.

SB822 applies only to applies only to third party custodial arrangements, so such as digital asset exchanges or banks where assets are held on behalf of customers, these arrangements are unique. These arrangements function similarly to brokerage accounts.

Based on our review, account records from several major digital asset exchanges have identified more than 1 million accounts but belonging to California residents with no owner initiated activity during the three year period ending June 30, 2025 and at the time of the review. The aggregate value of these dormant $100 million.

The market may fluctuate, which it naturally does, but our responsibility doesn't. SB822 places strong emphasis on outreach, strong emphasis on due diligence before any assets are transferred to the state. And in fact the statute defines quote contact end quote very broadly.

So if an owner logs into their account even once during a three year period, that action prevents the account from being deemed abandoned. The goal is clear. We want assets to remain with their owners. Whenever possible, digital asset holders must conduct outreach. They must. Outreach includes certified mail for accounts valued at $50 or more.

However, email email outreach will almost always occur first, and we strongly encourage holders to exc exceed the statutory minimum. The requirements in SBA 22 represent simply a floor, not a ceiling. And experience from other states suggests that effective outreach can reduce abandoned accounts totals by as much as 50%, particularly among higher value accounts.

So for accounts that remain inactive, holders file a preliminary notice report within my office. And before any transfer occurs, the state comptroller's office conducts its own outreach, including address verification and coordination with the Franchise Tax Board.

So additionally, our review indicates that Social Security numbers are on file for approximately 80% of these accounts, significantly enhancing our ability to locate the owners. Only after these combined efforts would digital assets be transferred to a state contracted digital asset custodian. Selecting the custodian is going to be one of the most complex components of implementation.

While many firms provide digital asset custody, quite frankly none have prior experience in managing unclaimed assets. Unclaimed digital assets within a state program. So what we suggest is we must ensure regulatory oversight, insurance protections, indemnification of the state, and full compliance with California contracting standards. Custodians must also be licensed by the Department of Financial Protection and Innovation.

At the same time, we are building internal procedures from the ground up. No state has fully implemented a comprehensive unclaimed digital asset program. We are on the cutting edge, developing reporting instructions, claims workflows, database adaptations, FAQs, training materials and evidence standards for digital asset claims.