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US Senators Raise Crypto Mining Concerns, Propose Government Blockchains

Members of the U.S. Senate Committee on Energy and Natural Resources asked about the cost of cryptocurrency mining and the opportunities for blockchain in the public sector on Wednesday.

Like other crypto-related hearings on Capitol Hill, the hearing – which featured a range of public and private-sector speakers – served in part as an informational session for lawmakers who aren’t very familiar with the technology.

In contrast with past Congressional hearings which at times turned acrimonious toward the concept of blockchain and cryptocurrencies, senators on the Energy Committee largely inquired about how blockchain can be applied to various projects.

The people giving testimony were Robert Kahn, CEO and president of the Corporation for National Research Initiatives; Paul Skare, chief cybersecurity and technical group manager of the Pacific Northwest National Laboratory; Thomas Golden, program manager of technology innovation at the Electric Power Research Institute; Claire Henly, managing director of the Energy Web Foundation; and Arvind Narayanan, an associate professor of computer science at Princeton University.

In remarks, committee chair Senator Lisa Murkowski of Alaska noted the “hearing will examine any cybersecurity advantages that blockchain and similar technologies might offer over other ways of securing our energy infrastructure.”

Mining concerns

The foremost risk discussed at the hearing revolved around the energy needs of cryptocurrency miners. Networks relying on proof-of-work – which require the expense of energy to prove that “work” has been completed – generally require large amounts of energy, such as the bitcoin blockchain, according to Golden.

The witnesses estimated that public blockchains may be using anywhere from one to as much as five gigawatts worldwide, though, as Golden contended, “this is less than 0.1 percent of the global power usage.”

Murkowski remarked that growing demand on the local level from new crypto mining farms can cause stress for utility providers, and may even damage the electric grid. Her concern is that this may translate to increased costs for the provider’s customers.

She asked:

“Can we anticipate the consumer rates and the concern that some might have that, ‘my family and I might not be the ones that benefit from blockchain and bitcoin and yet I’m wondering are my rates going to be expected to pay for this infrastructure?'”

Senator Steve Daines similarly asked how communities can prepare for mining farms moving onto their power grids.

Golden said power utilities should begin having discussions with their communities about providing power for these companies, as a start to solving the infrastructure issue.

But even reinforcing some localities’ grids may not be enough. Henly noted that “bitcoin’s energy use is a substantial concern … we know that bitcoin’s energy use will prevent it from being able to scale.”

Her solution was to look at alternatives to PoW, noting that while they require large amounts of power, proof-of-stake and proof-of-authority algorithms are far more energy efficient, and can pose as feasible alternatives to scaling a blockchain without requiring large amounts of power.

Security questions and federal blockchains

At various times during the hearing, the conversation turned away from perceived problems and toward how blockchain could be applied to the energy sector, including for tracking shipments, validating security protocols or building on other existing technologies.

“I’d like to hone in on the security aspect, because I think it’s one of the most important here today,” Senator Maria Cantwell remarked during an opening statement.

At other points, the senators sought to clarify for themselves different aspects of the technology’s elements. Senator Catherine Cortez Masto, for example, asked about transaction privacy and whether law enforcement officials could be hindered in carrying out their duties.

Senator Bill Cassidy notably asked about specific uses for the U.S. government, asking if it is technically feasible to develop a blockchain for federal governments to track shipments sent from one nation to another. Narayanan confirmed that such a platform is feasible, but would require participation from whichever nations are involved.

And while, like previous hearings, no firm conclusions were reached, Murkowski noted that the hearing was educational for the committee’s members – perhaps setting the stage for more queriers to come.

Lisa Murkowski image via Energy Committee livestream

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CFTC Chair Says Regulator Is 'Behind' on Blockchain

The head of the U.S. Commodity Futures Trading Commission (CFTC) told Congress on Wednesday that the agency is “falling behind” on the subject of blockchain compared to other countries.

Chairman J. Christopher Giancarlo was speaking before the House Committee on Agriculture, addressing questions about the agency’s performance and future agenda. It was during that time that the chairman fielded a question about blockchain.

He noted that the regulator is hamstrung in certain ways – for example, Giancarlo said that the CFTC can’t operate a node on a blockchain operated by a banking consortium – despite being invited to by those institutions – because the sharing of information and data is considered a gift and therefore is something the CFTC can’t accept.

Similarly, the CFTC cannot purchase or rent the ability to run a node because it would require an appropriations bill through Congress. As a result, he said, “by the time we go through all that, this thing is already launched.”

Instead, he advocated for a bill introduced by Rep. Austin Scott which would grant the regulator the ability to accept shared data – something that would give the CFTC a leg-up on the topic.

“We’re falling behind. Just two days ago the Bank of England announced that they’re putting in a new bank-to-bank payment system in the UK and it’s going to be blockchain-complaint,” Giancarlo said during the hearing.

He went on to explain:

“[The Bank of England has] had the last four years … to participate in all these blockchain beta tests that we have not been able to participate in and they’ve been able to get comfortable with the technology and now they’re incorporating it. I feel we’re four years behind because we do need to test it, we do need to understand it so we can do a better job as regulator before I then come to Congress and say we need money to to build something.”

The ironic part, Rep. Michael Conaway quipped, is that the CFTC does have legal authority to demand information after the blockchain is launched, but current laws prevent the regulator from looking at the information prior to that point.

Giancarlo agreed, saying “we do have subpoena authority [but] that’s probably the wrong way to get involved.”

Eye on the market

Giancarlo also addressed the regulator’s ability to oversee cryptocurrencies specifically, noting that the regulator is limited to commodities and futures contracts, as well as fraud and manipulation.

That being said, he added, “the amount of ink that’s devoted to [cryptocurrency] far outweighs their real role in the economy.”

He explained that the total market capitalization of all cryptocurrencies “is probably less than one publicly traded company,” adding:

“The best model I like to point to in the 1990s when a Democrat White House and a Republican Congress worked together around this thing called the internet and took a ‘first-do-no-harm’ approach. Regulation came slowly and let the technology evolve.”

“I think we need to stay close to it, we need to be careful, but I think we can let it develop a little bit before we run in with regulation,” he concluded.

Christopher Giancarlo image via House Committee on Agriculture

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US Congressman Calls for Ban on Crypto Buying and Mining

A U.S. lawmaker has called for a blanket ban on cryptocurrency buying.

Congressman Brad Sherman is no stranger to controversial statements on the subject – back in March he called cryptocurrencies “a crock” – and during the Wednesday hearing of a subcommittee for the House of Representatives Financial Services Committee, he went so far as to advocate keeping Americans out of the market entirely.

“We should prohibit U.S. persons from buying or mining cryptocurrencies,” the California Democrat declared. He added that, beyond cryptocurrencies being potentially used as a form of money in the future, it can currently be used by tax evaders and rogue states seeking to bypass U.S. sanctions.

One of the panelists, Norbert Michel, director for the Center for Data Analysis at the Heritage Foundation, pushed back against the idea that criminal use should define cryptocurrencies as a whole.

Michel told the subcommittee:

“Yes it is true that criminals have used bitcoin, but it’s also true that criminals have used airplanes, computers and automobiles. We shouldn’t criminalize any of those instruments simply because criminals used them.”

“Those components I believe are the main barriers to widespread adoption in the U.S,” he added.

No love for CBDCs

Though much of the hearing revolved around general monetary policy and history, the crypto-specific portions revealed a general opposition to the idea of a central bank digital currency (CBDC).

To quickly recap: a number of central banks around the world have been investigating the idea of using some of the technology concepts behind bitcoin and other cryptocurrencies as part of new, wholly digital money systems. The idea is that the tech can boost transparency and efficiency.

But some of those looking into the subject have warned that it could amplify the risk of bank runs, and several institutions have sworn off the idea entirely following their research.

Alex Pollock, a senior fellow at the R Street Institute, blasted the concept during Wednesday’s hearing, declaring it “a terrible idea – one of the worst financial ideas of recent times.”

Other committee members couldn’t help but agree that the idea, at the very least, raised more fundamental questions about how blockchain and cryptocurrencies actually work.

Congressman Bill Foster asked about blockchain immutability, saying “the promise of blockchain is a non-falsifiable ledger … [what] remains an unsolved problem in the digital world is how do you authenticate yourself?”

Payments boon

On a more positive note, Dr. Eswar Prasad, senior professor of Trade Policy at Cornell University, argued that the existence of cryptocurrencies had the potential to impact the financial services system, particularly the payments system, in positive ways.

According to Prasad, cryptocurrencies could “make transactions much easier … and bring down the cost,” but the benefits are limited at the moment.

Michel himself noted:

“It is certainly difficult to imagine a cryptocurrency replacing the U.S. dollar as long as the Federal Reserve acts as a moderately good steward of the national currency, but it is for this very reason that Congress should eliminate barriers that impede people from using their preferred medium of exchange.”

Ultimately, the hearing was cut short in order to make way for a House vote.

However, just prior to dispersing the attendees, chairman Andy Barr noted that cryptocurrencies will “continue to have a greater and greater impact on our financial system,” making it a topic the committee would likely have to “revisit” once again.

You can follow CoinDesk’s live coverage of the hearing on Twitter.

Image via House Financial Services Committee 

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CFTC Official to Congress: Don't Be 'Hasty' With Crypto Rules

The director of the Commodity Futures Trading Commission (CFTC)’s fintech initiative cautioned against what he called “hasty regulatory pronouncements” during a Congressional hearing on Wednesday.

The remarks from Daniel Gorfine, director of LabCFTC, were directed toward members of the U.S. House Committee on Agriculture which, as reported by CoinDesk, sought testimony on the issue of cryptocurrencies and digital assets. Alongside Gorfine were former JPMorgan blockchain lead Amber Baldet, former CFTC chair Gary Gensler and A16Z managing partner Scott Kupor.

Gorfine framed his remarks from the perspective that many different things can be considered “commodities” – but not all of them would warrant attention from U.S. regulators.

“It’s only when we start to see the rise of futures or swaps products built on those commodities that we have kind of direct oversight,” he remarked, going on to state:

“We all have the shared goal to bring clarity and certainty to the market but [we] also need to be sure that we are thoughtful in our approach and do not steer or impede the development of this area of innovation. Indeed, while some may seek the immediate establishment of bright lines, the reality is that hasty regulatory pronouncements are likely to miss the mark, have unintended consequences, or fail to capture important nuance regarding the structure of new products or models.”

Gorfine would return to that point several times during the hearing, which began at 10 a.m. local time.

“It’s important that we’re not hasty in figuring out what the contours are of applying securities law and then the commodities framework,” he remarked.

Congressional sentiment

The hearing notably provided a window into what some members of Congress think when it comes to the subject of cryptocurrencies – though it wasn’t positive in some cases.

For example, Rep. Collin Peterson remarked that, in his view, much of the cryptocurrency ecosystem “seems like a Ponzi scheme” and asking “what’s behind this?”

It was Gensler who offered a response, stating that “there’s really nothing behind gold either … what’s behind it is a cultural norm, for thousands of years we liked gold.”

“We do it as a store of value, so bitcoin is a modern form of digital gold. It’s a social construct,” he continued.

In other cases, committee members simply wanted more information on how cryptocurrencies exactly work.

“We’re creating another money supply here as I see it. I just don’t know how that works. Our dollar sets the mark for the world. I can’t visualize how this would work,” Rep. Rick Allen commented.

But it was Michael Conaway, the chairman of the committee, who perhaps had one of the most notable – and telling – remarks about bitcoin, coming at the very end of the hearing and just days after the U.S. Justice Department claimed it had traced bitcoin transactions conducted by 12 Russian intelligence officers accused of hacks during the 2016 presidential election.

“As long as the stupid criminals keep using bitcoin it’ll be great,” Conaway quipped.

Want to read CoinDesk’s full by-the-second coverage of the hearing? Follow our stream on Twitter here

Daniel Gorfine image via House Agricultural Committee

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Congress Is Now Holding Two Crypto Hearings This Wednesday

Congress is set to hold not one but two separate hearings related to cryptocurrencies on Wednesday.

Last week, CoinDesk reported that the House Committee on Financial Services is set to hold its latest gathering on the subject, this one honing in on the question of crypto as a new form of money. A memo published since that news first broke notably states that members will examine “the extent to which the United States government should consider cryptocurrencies as money and the potential domestic and global uses for cryptocurrencies.”

That same day, the House Agriculture Committee will hold a hearing entitled “Cryptocurrencies: Oversight of New Assets in the Digital Age.” In a statement, chairman Michael Conaway explained that the hearing seeks to “shed light on the promise of digital assets and the regulatory challenges facing this new asset class.”

It’s a noteworthy statement, declaring that at least some in the U.S. national legislature hold the view that cryptocurrencies constitute a new kind of asset.

“Our committee has a deep interest in promoting strong markets for commodities of all types, including those emerging through new technology,” Conaway added.

Together, the hearings represent a double-header of sorts, and CoinDesk has confirmed both hearings will be live-streamed from Capitol Hill, Washington, DC. The Agriculture Committee hearing will take place at 10 a.m. EST while the Financial Services Committee’s hearing will occur at 2 p.m. EST.

According to the Financial Services Committee memo, the witnesses set to appear are: Dr. Rodney Garratt of University of California Santa Barbara; Dr. Norbert Michel of the Heritage Foundation’s Center for Data Analysis; Dr. Eswar Prasad, a senior fellow at the Brookings Institution; and Mr. Alex Pollock, a senior fellow for the R Street Institute.

Capitol Building image via Shutterstock

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Lawmakers to Discuss If Crypto Is 'The Future of Money' Next Week

Cryptocurrencies will take center stage once again on Capitol Hill next week.

The U.S. House of Representatives Financial Services Committee announced Thursday that it would host a hearing titled “The Future of Money: Digital Currency” on Wednesday, July 18.

Though the Committee, headed by Chairman Jeb Hensarling, has yet to announce a full list of participating witnesses, CoinDesk confirmed that the event will be livestreamed on its website.

Past hearings by the Committee have seen lawmakers discuss cryptocurrencies through the lenses of terrorism financing and fraudulent investments, as previously reported by CoinDesk.

That being said, it seems the topic of next week’s hearing is more geared towards debating the utility of cryptocurrencies as a form of money.

It is a timely topic in light of an increasing interest in cryptocurrencies as a potentially useful monetary tool for governments and more specifically, central banks, around the world. In March, the Bank of International Settlements, what some consider as the central bank to central banks, argued cryptocurrencies backed by central banks could in fact fuel faster bank runs during periods of financial instability.

Other countries including Canada, Finland and South Korea have weighed in on the matter, though responses have been mixed with trepidation.

Capitol Hill flags image via Shutterstock

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Senator: Cryptos Pose 'Host of Challenges' for Congress

Cryptocurrencies are “tailor-made” for foreign powers hoping to influence American elections, a security consultant told a group of U.S. senators on Tuesday.

Scott Dueweke, director of threat analysis company DarkTower, was one of several witnesses appearing before the Senate Subcommittee on Crime and Terrorism to discuss the potential use of cryptocurrencies by foreign agents in order to influence American elections. He argued that lawmakers must focus on identity solutions to prevent undue foreign influence on upcoming elections.

“There is a global shell game being played now,” by people hoping to bypass financial disclosure rules, he said. As a result, they are purchasing political advertisements and donating to certain parties in efforts to influence elections.

Dueweke added:

“They exchange one form of money for another … fiat currency in and fiat currency out, but in between you’re going to have these multiple layers of cryptocurrency that are going to be impossible to track.”

Another witness, Financial Integrity Network vice president David Murray, noted that cryptocurrencies can be used by foreign entities to avoid detection when donating to political parties or politicians.

He contrasted the use of cryptocurrencies with donations made through financial institutions.

“When donors use financial intermediaries such as banks to execute donations, the location of the financial intermediary is a data point that campaigns can use to identify foreign donors,” he explained.

Senator Sheldon Whitehouse, the ranking Democrat on the subcommittee who lead the questions during the hearing, said that “cryptocurrency can be used for money laundering in elections,” and therefore pose a “host of challenges for Congress and regulators.”

He considered the idea of using legislation to enforce more stringent identity requirements on individuals donating to a political campaign – a push that Dueweke argued is crucial.

“Combining better forensics to understand the source of funds, tied to stronger identity attribution for those placing political ads is critical,” Dueweke said. “We have to be able to identify the people that are fanning these flames.”

Scott Dueweke image via Senate Subcommittee on Crime and Terrorism 

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DHS Official Tells Congress Blockchain Uses Are 'Almost Limitless'

“I think the applications are almost limitless.”

So said Douglas Maughan – who serves as the Science and Technology Directorate’s cybersecurity division director, a group within the Department of Homeland Security – before two Congressional subcommittees on Tuesday. Maughan’s remarks came during a wider discussion on the application of blockchain to supply chains, joining a panel of witnesses that included Maersk head of global trade digitization Michael White, UPS vice president of global customs brokerage staff Chris Rubio and Nuby Law IPR counsel Robert Chiaviello.

Announced last week, the “Leveraging Blockchain Technology to Improve Supply Chain Management and Combat Counterfeit Goods” hearing is the second such event hosted by the  House Science, Space and Technology Committee’s Oversight and Research and Technology subcommittees this year.

As expected, the session was largely educational in nature. But even still, as articulated by Maughn, such discussions can have a significant impact on the work being done by U.S. agencies on the blockchain front.

According to Maughn, the Science and Technology Directorate “must aggressively work with its research, development, test and evaluation partners throughout government and industry so Homeland Security applications of blockchain and distributed ledger technology are effective and trusted.”

Indeed, in his “limitless” remark, Maughan suggested that the scale of work was spread throughout the U.S. government.

“I think the applications are almost limitless and it’s up to the departments or agencies as to how to address that,” he told the subcommittees, later noting that not every potential use case requires a blockchain.

‘There must be a better way’

White, appearing on behalf of shipping giant Maersk, framed the firm’s move toward applications of blockchain as a way to break up the iceberg-like state of shipping today.

He began by describing how the shipping industry works at present, noting in particular that “the industry operates much as it does or has since the introduction of shipping containers in the 1950s.”

Transactions are filed through fax machines and documents about shipments are sent by way of carrier mail – and can sometimes arrive too late, he said, adding:

“Container shipments can also be delayed because essential paperwork has not caught up with the goods they are carrying. Everyone agrees that there must be a better way but no single participant can effect change … in 2016 Maersk and IBM began a collaboration with the goal of digitizing supply chain.”

That collaboration utilized a blockchain to create an immutable, but efficient record, he said.

UPS’s Rubio expanded on this concept, noting that “by having the ability to track any product from the beginning of its journey through the supply chain, blockchain may provide a solution to unknown or unverified product origins.”

“In fact, we are already seeing this tech used to track origins of various products,” he went on to say.

When asked how exactly blockchain can help the shipping industry, White remarked that “blockchain is especially suitable for that because you can enable the parties which have a right to see and have access to information and see that information has not been tampered with or modified in any way, shape or form.”

“By posting information in real time to the supply chain data can be shared and that can streamline the flow of goods. The benefit to the consumer is they can receive their product sooner,” Rubio asserted.

What the members said

Though the session largely saw the witnesses sharing their views and input on blockchain, the hearing did present some opportunities for subcommittee members to offer a window into their thinking on the technology.

At the outset, Rep. Ralph Abraham – who chaired the hearing – positioned the event as one that would look at both private and public-sector use.

“We recognize [blockchain] technologies can benefit both the public and private sectors, and seek to understand just how,” he told attendees.

As might be expected, the subject of cryptocurrencies crept into the hearing, with one lawmaker suggesting that those present ought to look into “the technology beneath it.”

“If we can overlook the stigma of cryptocurrency and look at the technology beneath it I think we can see [useful applications],” Rep. Barry Loudermilk of Georgia remarked at one point.

Rep. Don Bayer of Virginia declared that, in his view, the U.S. ought to play a major role in advancing the tech more broadly.

“I believe America should take the lead in blockchain research,” he said.

Capitol Hill image via Shutterstock

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What to Expect When Congress Talks Blockchain Tuesday

A pair of Congressional subcommittees will continue their fact-finding mission on blockchain during a hearing tomorrow.

Tomorrow’s session will be more narrowly focused compared to a similar hearing held by the House Committee on Science, Space and Technology’s Research and Technology and Oversight Subcommittees in February.

While that event cast a broad net – covering blockchain applications beyond the realm of cryptocurrencies – the one on Tuesday will hone in on the tech’s use in supply chain management.

A representative for Lamar Smith, the chairman of the House Science Committee, told CoinDesk that the hearing will host “experts in intellectual property, cybersecurity, as well as shipping and logistics.”

These include Douglas Maughan, who serves as the cybersecurity division director for the Department of Homeland Security’s Science and Technology Directorate; NUBY Law PR counsel Robert Chiaviello; Michael White, who serves as head of global trade digitization for Maersk; and Christopher Rubio, the vice president of global customs brokerage staff for UPS.

It’s this group, press secretary Brandon VerVelde says, that will help steer the committee’s thinking on blockchain’s use in this area.

“The committee has an interest in supply chain risk management (SCRM) through our jurisdiction over the National Institute of Standards and Technology, or NIST, which has worked extensively on SCRM,” VerVelde said, adding:

“This hearing is intended for information-gathering for the committee members. We look forward to learning a lot from the witnesses.”

Indeed, those hoping for the kinds of fireworks seen in February when the heads of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) hearing before the Senate Banking Committee – or during a House hearing on initial coin offerings in March – will likely be disappointed, given its info-gathering nature.

What lawmakers are saying

Rep. Roger Marshall, in a statement to CoinDesk, referred back to the Science Committee’s past work and framed tomorrow’s gathering as a continuation of that process.

“This hearing will build upon the previous one, which explored the science behind blockchain technology. I know the intent of the hearing is to be informative but look forward to seeing where the discussion will go and the questions my colleagues ask,” he said.

According to Illinois Representative Randy Hultgren, the conversation will focus in part on how the tech can solve issues around intellectual property theft – a potential hot-button issue considering the Trump administration’s recent statements on IP theft by the Chinese government.

“This hearing will help examine how new technologies are improving the ways in which consumers can be better informed about where their products are coming from, how companies can validate a secure, ethical supply chain and how U.S. intellectual property can be better defended against unlawful practices,” Hultgren said in a statement.

That push for transparency – particularly on the front of counterfeit goods – is highlighted in the hearing charter published ahead of the event.

“The hearing will focus on how this technology can be leveraged to provide greater supply chain visibility and combat the distribution of counterfeit products,” the document states.

Congress image via Shutterstock

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US Lawmakers to Hear Case for Blockchain Supply Chain

Lawmakers in the U.S. Congress are set to hold a hearing on blockchain tech’s use in global supply chains next week.

Two subcommittees of the U.S. House Committee on Science, Space and Technology – for Research and Technology, and Oversight – will meet on May 8, a newly published notice reveals. The hearing is entitled “Leveraging Blockchain Technology to Improve Supply Chain Management and Combat Counterfeit Goods.”

Members of those subcommittees last held a hearing on the tech in February, when they examined possible “emerging uses” for blockchain. As CoinDesk reported at the time, the session served primarily as an informational session for U.S. lawmakers, a number of whom sought to learn more about blockchain. A representative for the SS&T Committee said at the time that members wanted insight on the “basics” of the tech and that “any potential future committee action on the subject will be informed by the hearing.”

Next week’s hearing is the first to hone in on a specific use case – supply chain management – that has garnered interest from a number of major corporates around the world.

Indeed, major businesses such as Samsung and Alibaba have considered or launched pilot projects around the tech’s use for tracking the global shipment of goods. Late last month, for example, Alibaba accelerated a previously revealed test project focused on combatting food fraud.

Around the same time, tech giant IBM unveiled an initiative will several notable firms from the jewelry industry focused on improving transparency in supply chains for the precious stones market.

Capitol Hill image via Shutterstock

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