[HN Gopher] U.S. regulators exploring how banks could hold Bitco...
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U.S. regulators exploring how banks could hold Bitcoin - FDIC
Chairman
Author : washedup
Score : 52 points
Date : 2021-10-26 17:17 UTC (5 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| pfisherman wrote:
| This seems rather concerning. I am by no means an expert on
| banking or finance, but would this not create massive risk of
| contagion should the price of Bitcoin collapses?
|
| I am all for people being able to experiment and bet their own
| money on cryptocurrencies, but I do not think that it is right
| for the general public to be exposed to this kind of risk.
| sebow wrote:
| Well this is one simple reason why i don't recommend/hype up
| crypto anymore(or many other "decentralized" technologies).
|
| Anyone who has been in the space could have seen it from miles
| away.
|
| If people want truly decentralized,secure and anonymous money,
| you have to work from bottom upwards, starting with an
| infrastructure that's not centralized: think mesh networks,and
| you build on top of that.The obvious trade-off is there:
| performance, usability,etc, but at that point the target audience
| is vastly different.
|
| Software "decentralization" is ~pointless considering the fact
| that if a country(US) or in best-case scenario a couple countries
| decide that it's over, well it is over, because they can quite
| literally pull the plug.Arguably Starlink looks like the next
| best choice, which from other aspects is even worse.
| web2sucks wrote:
| Banks print endless amounts of fiat currencies, meanwhile bitcoin
| is transparent and capped at 21 million. The chancellor can not
| print more.
| graeme wrote:
| USD money supply increased 9.7% in 2021.
|
| What about crypto? 70-80% of the trades are denominated in
| USDT. The USDT money supply increased 227% in 2021.
|
| So you have hyperinflation of the currency used in crypto. It
| makes sense that the price of bitcoins denominated in USDT has
| gone up, this reflects the money supply increase.
|
| Very little Bitcoin trades against USD and likely those at the
| center of inflation in crypto are paying out money to preserve
| the USD-USDT peg and preserve the illusion that crypto is
| priced in USD.
|
| https://mobile.twitter.com/knmjohansson/status/1453084661043...
| kube-system wrote:
| Anybody can print more:
| https://github.com/bitcoin/bitcoin/network/members
| Imnimo wrote:
| Printing more is always just a hard fork away.
| stickfigure wrote:
| And yet bitcoin has proven incredibly resilient to hard
| forks.
| legutierr wrote:
| By what metric has Bitcoin been resistant to hard forks?
| How many forks would there have to be for it not to be
| deemed resilient?
| imtringued wrote:
| Ok, but why would you want to prevent consenting adults from
| making promises to each other?
|
| The credit nature of money has become extremely natural to me
| to the point that I cannot imagine how any other system could
| possibly make sense.
|
| I've been playing a game where you can create BUY and SELL
| contracts with a deadline for payment and delivery. If I set
| the deadline to 20 days and I sell something for 100k the buyer
| has a 100k liability and the item he bought as an asset and I
| have a 100k asset and the item I sold as a liability. Now that
| I am certain I will receive 100k some time in the future I can
| buy something for 100k the exact same way. The GDP rose by 200k
| even though neither of us had any money. Ultimately money only
| acted as a mechanism that lets us settle the contracts.
|
| When you think about it, promising things to each other is
| completely natural but just like barter it only works between
| two people and the 100k have to be paid in a single batch (a
| limitation of the game). As soon as you introduce a third party
| things get complicated. A owes B but C does not trust A so he
| does not let B "pay". There has to be a sort of centralized
| entity that keeps track of the creditworthiness of everyone.
| That's a bank.
|
| A promises to sell X widgets for Y. The bank takes that promise
| and grants liquid credit (money) in accordance to A's
| creditworthiness. A receives the liquid credit and can give it
| to B. B can use the liquid credit to pay C who trusts the bank
| but not A. The reason they ultimately accept the bank's money
| is quite simple. The bank owes the creditors products and the
| debtors owe the bank products. When debtors receive money by
| selling products they simply pay their debt off which also gets
| rid of the liquid credit.
|
| The reason why banks print endless amounts of fiat is therefore
| quite simple. People are so good at business, they keep making
| an exponentially growing amount of promises to each other. They
| are so good at keeping their promises that inflation has been
| incredibly low despite record low interest rates.
|
| Now Bitcoin. I don't know what to tell you. It's extremely
| speculative because nobody knows how much it is supposed to be
| worth. Nobody knows how much it is supposed to be worth because
| people haven't even done something as simple as promise to work
| to create the Bitcoin. If nobody promises to accept your
| Bitcoin then what is the point? It's an asset without a
| liability on the other side. Money isn't supposed to have any
| inherent value. It's not supposed to have a net worth in
| itself. The dollar as a unit of account isn't worth anything,
| the debt and credit that are measured in dollars are. Add up
| all debt and credit and you end up with 0.
| [deleted]
| [deleted]
| aazaa wrote:
| > Some banks have already begun dabbling in these areas without
| regulatory clarity. Earlier this month, U.S. Bancorp (USB.N)
| announced it was launching a cryptocurrency custody service for
| institutional investment managers.
|
| This is fascinating. Within a mere 10 years, Bitcoin has gone
| from a toy to something now intersecting directly with the US
| banking system.
|
| With each integration point, Bitcoin gets more difficult to
| legislate out of existence or destroy through capricious police
| action. Aside from Tether, this is one of the biggest risk
| factors cited by those who have studied Bitcoin in detail.
| mywittyname wrote:
| The fear that governments were going to take down bitcoin was
| always overblown. It has a basis in the libertarian idea that
| governments hate & destroy all good things, and bitcoin is a
| good thing, thus the government will hate & destroy it.
| Regulators were skeptical at first, but that quickly gave way
| to accommodation.
|
| But this is what success always looked like for bitcoin. Most
| people want the ability to assign custodians to their assets;
| they want people to be able to identify their assets from other
| peoples' assets; they don't care about the ability to bury
| digital treasure somewhere. And importantly, most people invest
| with an eye on ROI, not for some philosophical purpose.
|
| Bitcoin is mainstream, and has been for a while. And now the
| mainstream buyers are want mainstream financial management
| structures which are opposed to the views of the people who
| bought btc before it was cool.
| jimbob45 wrote:
| BTC is mainstream in all the ways that don't matter.
| Fundamentally, it doesn't work for everyday transactions. The
| only transactions for BTC now are through exchanges where the
| exchange never actually passed "physical" ownership to the
| bankee. That's antithetical to the whole point of BTC.
|
| BTC now is just mass FOMO over not coming in to the Ponzi
| scheme early enough to still make money.
| ch33zer wrote:
| This seems like exactly the kind of centralization bitcoin is
| trying to avoid.
| New_California wrote:
| Fortunately, in Bitcoin whale ownership does not imply control
| over the network. Fortunately, Bitcoin is PoW and not PoS.
| arcticbull wrote:
| Sure it does, if they own all the money they can just buy all
| the miners. PoS just elides the step of wasting all the
| world's resources.
| jessebarton wrote:
| You should watch This Machine Greens https://www.youtube.co
| m/watch?v=PRN4089qufw&ab_channel=SwanS...
| arcticbull wrote:
| Manufacturing solar panels and giant wind turbines, then
| generating a bunch of power, and then wasting it isn't
| green. It's greenwashing.
|
| However, that wasn't really the question at issue.
| jessebarton wrote:
| Bitcoin incentivizes miners and energy companies to use
| otherwise wasted energy. It incentivizes them to innovate
| in the energy industry unlike other networks bitcoin is
| able to pay the people that innovate and build better
| technologies in the space.
| arcticbull wrote:
| No, it really doesn't. It incentivizes the use of the
| cheapest energy. That's why PE firms are re-opening coal
| power plants. Burning waste coal is about the worst thing
| you can do with it. Flaring needs to stop, too.
| Transmission of power is about 97% efficient within the
| current network, and there's a whole world of things we
| can do with that energy - desalination, metalworking.
|
| [edit] Given a choice between reliable power coming out
| the back of a coal furnace in town and unreliable power
| in the middle of nowhere coming out the back of a waste
| plant and a solar farm, for probably 50% more, I know
| which I'd pick if I were running a business.
|
| This is again greenwashing.
| matheusmoreira wrote:
| > wasting all the world's resources
|
| Not even 0.5% of global energy usage.
| acdha wrote:
| It's a small fraction of the global energy usage but
| that's far more than the traditional banking system
| _despite_ being used by an infinitesimal fraction of
| people. This is like saying RISC-V manufacturing
| generates less pollution than x86 without noting the
| difference in marketshare.
| stickfigure wrote:
| Don't forget that "the traditional banking system"
| requires large standing armies and navies. The reason
| random countries can't print dollars is that there are 20
| aircraft carriers floating around the world ready to bomb
| them back into the barter age. That cost has to be
| factored in.
| arcticbull wrote:
| No, it really doesn't. The army defends the nation and
| currency is an emergent property of the nation, but the
| army isn't out there with guns making sure people accept
| dollars. If you switched to Bitcoin and killed the US
| dollar, the army would still be needed to protect the
| country, to protect America's business interests abroad,
| its political interests abroad and its people. That would
| be true even if the currency was old shoelaces. The US
| army long predates the fiat dollar by about 200 years and
| there is absolutely, indisputably, no path to reducing
| cost or energy expenditure on the army when switching to
| a different currency.
|
| Countries that use other countries currencies (in the way
| El Salvador uses the US Dollar) still _have armies_ and
| some countries that use their own fiat dollars (Japan,
| Iceland) have _no_ armies.
|
| These two are uncorrelated.
|
| Unless there's some straight line between, say, switching
| to Bitcoin and Xi Jinping realizing Taiwan was always its
| own country and grabbing some Baijiu with Tsai Ing-wen.
| acdha wrote:
| That's a very reductive view ignoring all of the other
| things which depend on governments. For example, most
| cryptocurrency users depend on having functional police
| and court systems, the open internet, etc. -- do we add
| that to their costs as well?
| matheusmoreira wrote:
| Energy use by traditional banking is not at all
| comparable. Banks have none of the properties Bitcoin was
| envisioned to provide. Fundamentally, bitcoin is not even
| a bank, it's more like cash. It makes no sense to compare
| the two.
|
| That energy usage is supposed to buy us a monetary system
| that's completely independent of government.
| Uncensorable, untraceable, unsanctionable, anonymous, the
| works. It literally doesn't matter how much energy it
| uses, as long as those properties are achieved. The
| problem is BTC failed at all of them. It really is a
| waste to spend all this energy mining BTC when better
| projects like Monero exist.
| acdha wrote:
| How is it not directly comparable? People use cash,
| checks, wire transfers, credit cards, etc. to make or
| receive payments all of the time. There's no reason why
| you can't compare those from the user's perspective -- if
| I want to buy a cup of coffee, how long does it take, how
| much does it cost, how hard is it, etc.?
|
| > It literally doesn't matter how much energy it uses, as
| long as those properties are achieved.
|
| This is like saying it doesn't matter how slow it is as
| long as your computing machine is Turing complete. It
| doesn't matter if you achieve those properties on an
| unworkable system and it especially isn't true that more
| than a tiny fraction of people value them above cost or
| utility -- a drug deal might care a lot about untraceable
| but the average person doesn't care enough to pay more or
| use something inconvenient.
| arcticbull wrote:
| Writing a few bytes into a ledger is consuming 0.5% of
| global energy, but of course it's also consuming a
| country worth of power and generating a country of
| e-waste. So far, and that's just limited by the current
| price. Its trajectory is clear. [1]
|
| [1] https://digiconomist.net/bitcoin-energy-consumption
| matheusmoreira wrote:
| That energy is supposed to buy us something. A
| distributed ledger which is supposed to provide us
| valuable qualities such as anonymity, uncensorability,
| total economic freedom in general.
|
| The problem is bitcoin has failed to deliver on these
| promises. It truly is a tragedy that so much energy is
| being wasted on BTC specifically. It should be redirected
| towards Monero.
| lisper wrote:
| The irony here is truly staggering. The _whole point_ of
| cryptocurrencies is to _eliminate the need_ for trusted third
| parties, and _especially_ to eliminate the need for trusted third
| parties who are so heavily regulated that they are essentially
| arms of the government, like banks. Still, it is far from clear
| (at least to me) whether the FDIC chair is being clueless or
| devilishly clever here.
| pjc50 wrote:
| The point of cryptocurrencies is "number go up". Or at least
| that's why the marketing has been successful.
|
| There's a secondary market in "offshore accounts for everyone",
| via the shadow-banking stablecoins like Tether.
| kube-system wrote:
| Trusted third parties exist because people demand their
| services. The problems that arise when you stuff cash under
| your mattress are the same problems that are leading people to
| turn to third parties to transact in Bitcoin. Bitcoin didn't
| eliminate these problems, it is simply a system that
| intentionally ignores them.
|
| Even darkweb markets have turned to escrow services.
| matheusmoreira wrote:
| Bitcoin failed that requirement. Expensive transactions ensure
| that nobody will attempt to move their coins in order to
| actually transact. The exchanges turned into banks instead.
|
| Also, the risks associated with physically holding substantial
| wealth in bitcoin cannot be ignored. It's just like storing
| lots of cash at home. We should have the option to store it at
| a bank if we want to.
| New_California wrote:
| Yes, there should be options. Not your keys, not your Bitcoin
| though!
|
| You can outsource to an exchange/bank but that gives you an
| IOU only, and _not_ Bitcoin. The IOU is permissioned,
| censored, and prone to seizure.
| mywittyname wrote:
| I don't think he's being either devilish or clueless.
|
| Crypto is an asset class that has cultivated a tremendous
| amount of interest over the years. Banks want to support crypto
| in the same way they do other asset classes, but doing so is a
| minefield.
|
| Offering regulatory clarity here is a good thing. This is not
| an attack on crypto, nor is it about control. Regulators are
| just providing a framework to allow banks to work with / hold
| crypto.
| elliekelly wrote:
| The FDIC Chair is a woman, Jelena McWilliams.
| New_California wrote:
| 1) Banks owning some Bitcoin does not imply Bitcoin _needs_
| banks.
|
| 2) Banks _need_ Bitcoin though, because long-term everything
| else is going towards zero in Bitcoin terms.
| andrewla wrote:
| Was that the whole point? "Chancellor on brink of second
| bailout for banks" is to me more germane. Not allowing the
| state to issue money at will is more of a core tenet.
|
| I think the a lot of the dream from there is to make it
| possible to electronically transfer cash. This is currently
| impossible with conventional money -- the best we can do is
| transfer deposit records electronically. To make this work we
| treat deposit records as surrogate cash, and take on a huge
| amount of systemic risk into the monetary system, which we
| basically backstop with unlimited government guarantees.
|
| With Bitcoin, at least in theory, we can offer an alternative
| system. That's not to say that a system can't arise of banks
| that hold bitcoin deposits and allow you to transfer these
| deposit record between banks, but the banks need to price in
| the risk of failure to meet their obligations, so hopefully we
| can have some mechanism of discounting bank-deposit-bitcoin vs.
| held-in-wallet-bitcoin. But I think this dream is dying --
| there will come a day when you can only buy something with
| bitcoin, but only with bitcoin deposited in a bank, because
| it's "easier" and can be unwound, etc., because of
| correspondence arrangements, and then you'll have the Federal
| Reserve, that can basically artificially create new "bitcoin
| deposits", and banks will only let you withdraw 0.01BTC per
| week, so you'll never notice that they are insolvent, and we'll
| basically be right back where we started.
| r00fus wrote:
| You see irony, I see a captured government.
|
| Wealthy, envious of seeing their assets outcompeted by crypto
| are now hoping banks can allow them to further privatize the
| gains while socializing the losses.
| arcticbull wrote:
| Whose exactly is "their" assets? Assets belong to people, and
| they're also not broadly stored at banks.
| r00fus wrote:
| Financial instruments are assets as well. Banks handle
| those all the time.
| arcticbull wrote:
| Currencies aren't assets. [1]
|
| [1] https://www.commonfund.org/blog/is-currency-an-asset-
| class#:....
| Kranar wrote:
| One random person's blog post is not sufficient to
| disqualify centuries of economic and accounting
| literature that has classically defined cash to be a
| canonical asset class.
|
| Currencies are universally listed at the top of any
| balance sheet, small or large company alike.
|
| https://en.wikipedia.org/wiki/Asset
|
| https://en.wikipedia.org/wiki/Cash_and_cash_equivalents
| arcticbull wrote:
| That's fair, I was off base. Withdrawn, but I'll leave it
| up so folks understand what you're replying to. Thanks
| for the correction!
| thr0wawayf00 wrote:
| If you actually dig into all of the services that banking
| provides, grandiose statements like this fall apart pretty
| quickly.
|
| One of the biggest problems that crypto hasn't figured that
| banking is great at is transaction reversal and fraud-
| prevention. The banking system uses wire transfers that can
| be reversed if necessary, bitcoin has nothing like this. If
| an attacker gets your bitcoin wallet ID and key, say goodbye
| to your coin. That's it, you have no recourse, and frankly,
| placing all of the responsibility on consumers to safeguard
| their digital assets without any sort of recourse is pretty
| ridiculous.
|
| The crypto community loves to talk a bunch of trash about
| financial regulation, and some of it is true, but a fair
| amount of regulation actually benefits consumers in ways that
| crypto just isn't capable of at this time.
| TwiceCubed wrote:
| The _whole point_ of cryptocurrencies is to scam poor,
| desperate people, and fuck the planet, for the sake of personal
| wealth.
|
| Fuck off and die you soulless cretin.
| richlandlord wrote:
| I don't think the point was to ban centralized options, but to
| allow decentralized options. A system with freedom would allow
| sub-systems with "no freedom" as well
| bingohbangoh wrote:
| It's funny because right now in New York state you technically
| can't trade bitcoin without at least one party having a proper
| BitLicense. [0]
|
| [0]: https://en.wikipedia.org/wiki/BitLicense
| elliekelly wrote:
| There are two pretty ginormous exemptions in the regulation
| that allow transactions in virtual currency without a
| BitLicense: https://govt.westlaw.com/nycrr/Document/I85908c6b
| 253711e598d...
| henriquez wrote:
| Maybe the FDIC thinks they're devilishly clever but are
| actually clueless.
|
| Various world governments have been taking potshots at crypto
| currencies. It's pretty obvious they can't control them, so
| instead they try to undermine them, but thanks to their own
| incompetence they actually make crypto more attractive (and
| intractable) in the process.
| tehjoker wrote:
| It's gonna be pretty funny to watch all the bitcoin people go
| into a tizzy when the banks buy a ton of bitcoin and start to
| regulate the economy by changing the money supply at will. It
| doesn't matter if there's some kind of theoretical cap on the
| supply. Say the bank buys 50% of the money supply, they can then
| double the number of coins at will. If they buy 90%, they can
| increase it by 10x.
| jdhn wrote:
| The only way the number of bitcoins can change is if they
| change the hardcoded amount. JPMorgan could buy 50% of all
| bitoin made tomorrow, but they'll have done nothing to the
| actual bitcoin protocol.
| tehjoker wrote:
| Right, but the number of bitcoins in circulation will change,
| which is what you might consider the "real" bitcoin economy.
| Similarly, with the M1 money supply vs the crazy amounts
| stored up in federal reserve notes.
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