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Former top official says Fed should ‘Maybe’ create ‘FedCoin’ to rival Bitcoin

99 points by djacobs 8y ago

zitterbewegung 8y ago
It could create FedCoin. But, instead it will allow the investment banks to make it for them and then sign off on whatever they makeup because they can not only make it legal but make it easy to use. Then the government would just let those coins that pass through this with open arms. Regulation now is the biggest part of an ICO and if you are an investment bank and want a big piece of the distributed ledger pie you probably are already figuring out how to do this. I was at a meeting with laywers who wanted to understand what an ICO is. KYC and AML laws are now the big problems on implementing an ICO. 2017 was the start of the ICO boom and 2018 will be the start of the enforcement. Expect a bunch of coins to disappear.
- garmaine 8y ago
  > 2018 will be the start of the enforcement For what it's worth, I've been hearing "X will be the year of regulatory enforcement" since 2014. So far all we've seen is a very level-headed and even-handed approach targeting just the outright scams. "year of regulatory enforcement" in the crypto currency space is becoming a bit like the "year of linux on the desktop" meme.
  - zitterbewegung 8y ago
    Except IRS has guidance on ICOs and it has become a real big problem that bullshit ICOs are out there. If large investment banks are interested in the space then regulation will eventually come forth. Remember that Coinbase was asked to reveal people who made trades over $10,000. I was at a conference with someone who gave a speech saying that ~80% of all ICOs are fraudulent. I think that is a bit low in my opinion.
    - garmaine 8y ago
      I think the actual facts you gave regarding enforcement support my point, don't they? All we've seen so far is very targeted, specific actions against the most egregious offenders, whether it is outright scams and ponzi schemes or a financial institution handling billions of dollars worth of transactions while trying to avoid reporting anything. Basically if you're running a ponzi scheme, an investor con, an unlicensed custodial bank, a non-conforming public securities offering, or a money-laundering operation, expect some agency of the Feds to come calling. But, uh.. duh? That has nothing to do with whether you are handling crypto currency or not. So far we haven't seen action against legitimately innovative, non-scammy operations in this space. Just the offenders that are quite clearly and quite brazenly flipping their middle finger to the regulations.
      - zitterbewegung 8y ago
        Up to this point yes . Sorry I think I read your post too fast . Right now at this time you are right . I think I may be changing my concept of what will eventually happen. I thought it was a sure thing but now it’s something completely different .
        garmaine 8y ago
        Yeah, I was myself quite shocked at the (lack of) enforcement against some of the wild west ICOs in the ethereum space, and the ethereum founders & foundation especially. Even rather annoyed -- I've for years been saying they'll go to jail, and turning down very lucrative opportunities by people in that space that would have made me very wealthy today, because I thought they were certain to see massive fines and possible jail time. But they actually got a grandfathered exception and not even a slap on the wrist. Doesn't exactly motivate me to conservatively follow the rules in the future :(
  - dnomad 8y ago
    Yes, the SEC will continue to take a very light touch. There's no upside to them cracking down on ICOs. The only people losing money are the people who mostly understand the risks of cryptocurrencies and "invest" anyways. The SEC may get serious when grandmothers lose money or there's blood in the streets. Until then there's a kind of regulatory sovereignty that must be defended on a pro forma basis eg the slam-dunk enforcement actions and various announcements that "some ICOs are securities but we won't say which, never the less it's our decision to make and nobody else's." The only real risk to the SEC is that some other regulator like the NFA or the CFTC will step in and say "these coins are currencies and we're gonna regulate them" or "these coins are commodities and we're gonna regulate them."
    - JumpCrisscross 8y ago
      > There's no upside to them cracking down on ICOs To add: enforcement resources are limited. Every cryptocurrency fraud investigated is a bread and butter fraud ignored. While caveat emptor isn't the law of the land, justice is a slow-turning mechanism. What will be enforced in the long term need not be addressed in the short.
- mirimir 8y ago
  > Expect a bunch of coins to disappear. If the Feds can make it disappear, it was worthless anyway.
lettergram 8y ago
Pretty sure the USD is enough.
- garmaine 8y ago
  It would be the USD; that's the point.
- wmf 8y ago
  You can't transfer USD electronically without using banks or third-party services that are trying to skim basis points off the entire economy. In theory a well-implemented FedCoin could be more neutral and efficient.
  - geofft 8y ago
    That's not a limitation of USD. If the Fed wanted to create an API that let you do that and sidestep banks, they could. (And if they couldn't because a government agency can't casually destroy an industry like that, that restriction applies to FedCoin, too.)
    - wmf 8y ago
      Indeed, and I think an implementation of "FedCoin" would probably be better off without a blockchain, given that you're trusting the government anyway.
  - dnomad 8y ago
    There's no reason at all the government couldn't give every citizen a bank account and let them wire funds to each other. In fact this used to be exactly the case: any citizen could walk into the Post Office and open a savings account [1]. Like most services that didn't benefit the rich and actually benefited the poor it got shutdown once the neoliberals took over in the 70s. Nowadays 7-10 percent of the population is unbanked and forced to rely on criminal pay day lenders, check cashers or hiding money in their cars. FedCoin would have one benefit though over a traditional banking system and that is surveillance. It'd be very interesting to have a public, error-free record of eactly how much money each citizen is receiving or has. If it ever did happen and people could see in perfect black and white just how ridiculously unequal the country is I don't think the republic would survive much longer after that. Which is why this article is kinda hilarious. Even the central bankers, supposedly the smartest men on the planet, don't grasp that this is the whole reason private banks exist: to obfuscate cash and risk flows. Like that's the point [3]. We wouldn't have an economy if private banks couldn't do their thing. An economy based on any kind of public ledger without private banking (and private ledgers) would be radically different. [1] https://en.wikipedia.org/wiki/United_States_Postal_Savings_System https://en.wikipedia.org/wiki/United_States_Postal_Savings_S... [2] https://www.americanprogress.org/issues/economy/reports/2014/10/30/99967/millions-of-americans-are-outside-the-financial-system/ https://www.americanprogress.org/issues/economy/reports/2014... [3] https://www.interfluidity.com/v2/2669.html https://www.interfluidity.com/v2/2669.html
garmaine 8y ago
> But what if central banks themselves entered the game? What would happen if the Federal Reserve, or the European Central Bank or the Bank of Japan used blockchain technology to create their own virtual currencies? Besides, that is, having some cryptocurrency fans’ heads explode? Maybe some of the wacko nut-jobs out there in cryptocurrency fandom. But most would welcome this with open arms. It would mean that you could create smart contracts denominated in fiat, or trustless exchanges, or trustless covered shorts on the price of bitcoin, etc. What's the downside?
- BaronVonSteuben 8y ago
  I'm probably one of those "wacko nut-jobs out there" that you refer to, so you may just want to dismiss my point outright with ad hominem. However, I don't think any of us wacko nut-jobs would care about fed coin, as long as they don't go after competing coins. In fact, I welcome the competition. As long as it's free competition, may the better, less manipulable, coin(s) win.
  - garmaine 8y ago
    Why competition? This isn’t a zero sum game.
    - 21 8y ago
      It is. You either store value in dollars, euros, gold, real estate, art or bitcoin. You can't "dobule spend" the same value.
      - garmaine 8y ago
        The market cap of bitcoin going up does not make the market cap of gold, usd, or real estate go down. Total aggregate wealth is not zero/fixed sum.
smittywerben 8y ago
"we don't see any immediate systemic risk issues" - Warsh, 11 July 2007 https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-110hhrg38388.htm https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-11...
- wmf 8y ago
  Please be specific; the link between the financial crisis and a hypothetical FedCoin is not at all obvious.
  - vijayr02 8y ago
    Not OP, but I think the point being made is that his prior judgement on financial matters doesn't exactly inspire confidence. That said, I have some sympathy for any policy maker giving public statements in an overheated economy: the seeds of the crisis have already been laid and the statements one makes may actually precipitate the crisis rather than avoid it...
  - azernik 8y ago
    The connection is that this is the same person making both predictions.
anonymous5133 8y ago
They should create it just to show that it will be a failure.
alex_young 8y ago
How about fedDigitalCash? It's crazy that I pay a few percent of every transaction to visa for no reason every time I buy anything in 2018
- aserafini 8y ago
  Yes, paying a few % on every transaction to move kilobytes of information over a network is absurd. The true cost is less than pennies but the EMV cartel led by VISA has successfully kept the price many orders of magnitude higher, employing anti-competitive tricks like: hiding the cost to consumers by contracually preventing retailers from increasing prices for VISA payments.
  - i386 8y ago
    You are underestimating the cost of maintaining such a network and underwriting the risk of fraud. Before anyone chimes in here with a neckbeard and a “but [libertarian blockchain drivel]” I do not think the effective monopoly that visa has on transactions is a good thing nor do I think it’s the best system.
  - kuschku 8y ago
    The funny part is that EC (a German-only card network that stands for the E in EMV, with MasterCard and VISA being the M and V) has less than 0.125% fees for the smaller retailers, and even less for larger ones – you basically only pay the interchange fees. This is why e.g. ALDI for many years only took EC, but not MasterCard or VISA.
  - PeterisP 8y ago
    Free/cheap digital payments exist (eg. EU SEPA credit transfers); for credit cars, however, the majority part of the cost (and thus price) is not just making the payment but ensuring that payments are reversible in case of fraud and other disputes, and that customers can get their money back even if the money can't be recovered from a fraudster. If you'd add a reputable escrow service, dispute resolution system and fraud insurance on top of any cryptocurrency, these features will drive the cost up just as high or more.
  - 8y ago
toufique 8y ago
Answer: No thanks.
natch 8y ago
Ugh.
geofft 8y ago
What is a "blockchain"? To me, a blockchain is a way of solving double-spend problems in a Merkle tree maintained by open distributed consensus, by using some scheme to resist Sybil attacks. The scheme is not necessarily proof-of-work, but the fact that there's a double-spend problem and you're solving it is key to the idea. If you don't have a double-spend problem because all your transactions commute (e.g., Certificate Transparency), you don't have a blockchain, just a Merkle tree. Which is great, you don't have to incur the costs of mining at all, nor do you need to think about mining incentives and structures. If you're not using distributed consensus because you have a central coordinator, you don't have a blockchain either, and again, you get to not think about mining. Whichever transaction reaches the coordinator first wins, so double-apend becomes irrelevant. If the Fed wants to build FedCoin, I don't see any reason why they should refuse to be the central coordinaor and instead outsource consensus to the internet. I don't see any reason why they would, if they want to influence monetary policy at all—70% of Bitcoin mining last year was in China, which meant that it would have been straightforward for China to (globally!) freeze a Bitcoin address, and a little more complicated but still possible to prioritize or throttle certain transactions. Maybe being protocol-compatible with Bitcoin or ERC20 or something would help, but fundamentally this would be an API to transfer USD, not a decentralized system. See also patio11's Tweet https://twitter.com/patio11/status/583698553614143488 https://twitter.com/patio11/status/583698553614143488 "Most advantages of Bitcoin which matter are captured by, and improved upon by, a LAMP app which simply holds account balances." If the Fed wants to build that app, great!
- clhodapp 8y ago
  It could be reasonable to somehow have control over things like the difficulty of mining or to be able to spawn new currency at a reduced cost via some sort of master certificate while still allowing transfer without communicating with a central coordinator system. A distributed system is a lot less likely to go down or become completely compromised.
  - GauntletWizard 8y ago
    The properties of "unlikely to go down" don't require a trustless blockchain; the attributes of being resistant to a node being compromised don't require trust beyond consensus. git is unlikely to go down and verifiable. Copies of a git repo verified by gpg signatures and repos that only accept commits that pass verification requires only as much distribution as running three instances. The fed can do all of this without giving up any control.
travmatt 8y ago
HN previously discussed a Bank of International Settlement Report on Central Bank Cryptocutrencies - https://news.ycombinator.com/item?id=15278063 https://news.ycombinator.com/item?id=15278063
SI_Rob 8y ago
The basic premise of this headline represents a complete failure to grasp the point of a cryptocurrency, which is to take the power of money issuance away from incumbent authorities who can back it with physical force (that is, states), and devolve it into a first order power available to any social group. The paradoxical claim that a centralized bank could ever issue currency based on the presumption of decentralized support is epitome of misapprehension, or at least misappropriation of jargon. The Fed already has "FedCoin" for all intents and purposes, and does not need the cooperative casino incentive system known as a blockchain in order to compel rules-compliant participation from its users.
- kchoudhu 8y ago
  We tried the "anyone can issue money" model in the 1800s, all it led to was bank runs and scams. The current system exists for a reason. If the blockchain crowd wants to relearn those lessons, they are welcome to, as long as they keep their shenanigans out of the real economy and away from people who don't want anything to do with the experiment.
  - mozumder 8y ago
    ... while minimizing the wasteful environmental impact of blockchains due to the power requirements of each transaction. This is probably the one "feature" of blockchains that will kill it, since they're based on proof-of-lots=of-work, and work needs power.
    - bitreality 8y ago
      Blockchain as it exists today is a proof of concept. It shows that people can use code to create a monetary system. The system does not need to be backed by any government or physical good guaranteeing its value. This proof of concept can now manifest itself in a variety of formats. Many of which we cannot fathom today, because they haven't yet been invented. There are many intelligent people now working on this problem and improving the way a blockchain works, or even pulling from that proof of concept and rethinking the solution without traditional blockchain. People are too heavily focused on what the technology is capable of right now. That is irrelevant. The industry is in its infancy. Up until 5 years ago, the only blockchains that still exist today in any meaningful format are Bitcoin and Litecoin. Litecoin is just a Bitcoin clone. Just wait and see how this space will develop over the next 10, 20, 30 years. The proof of concept is that people will assign value to digital assets without any authority backing them. That's the most important development.
azernik 8y ago
Looks quite close to the way the Basis people (http://www.basis.io/ http://www.basis.io/) talk about a central-bank-run version of their currency, where the bank can target a level of inflation and let the system do the rest.
gesman 8y ago
It’s not “should”. More like “when”
Bluestrike2 8y ago
There's an interesting paper[0] from the Bank of England that considers the challenges and opportunities central bank issued cryptocurrencies might entail. 0. https://www.bankofengland.co.uk/working-paper/2016/the-macroeconomics-of-central-bank-issued-digital-currencies https://www.bankofengland.co.uk/working-paper/2016/the-macro...
deleted 8y ago
[deleted]
thisisit 8y ago
Another clickbait piece. Reading through the byline: If cryptocurrency and blockchain technology really are the future of money, the world’s central banks need to get involved, a former Fed governor argues. Isn't that a big "if"? And in that case, the real headline should be - "If Cyrptocurrency is the future Feds should build a Fedcoin says a former Fed Governor". And I think people who talk about how banks/Visa might be affected by cyrpotcurrency should take some time to read this: https://www.forbes.com/sites/francescoppola/2018/04/21/bitcoin-banks-and-a-whole-lot-of-fud/#1548eecb21f1 https://www.forbes.com/sites/francescoppola/2018/04/21/bitco... HN link: https://news.ycombinator.com/item?id=17000721 https://news.ycombinator.com/item?id=17000721
DoctorOetker 8y ago
"It would be quite a twist if a technology whose most ardent fans are motivated by distrust of central banks became a key tool for those banks." It's the other way around: the fact that publicly provable and verifiable financial systems are possible, yet the central banks didn't work this out (what they should have been striving for from the start), nor improve on it for another decade now is what fuels distrust of the old blindly trusted financial systems.
- ghthor 8y ago
  Pretty much nails this on the head. The FED failed at its mission and is due for disruption. Considering how poorly our democratic system is working, it's too going to come from private or open source industry.
nabla9 8y ago
The money part of the technology is not important for central banks. Underlying technology allows more useful solutions than cryptocurrency. What Fed and others in banking want is new forms of distributed accounting and settlement processes. You can apply the cryptographic technology for verifying and connecting database rows across institutions in a way that is both transparent, private and secure. If there is a public ledger online, it can be audited by anyone.
mikro2nd 8y ago
Not sure why NYT is taking some "former governor's" opinion on this. Let's take a look at what the Fed itself (themselves?) think. Quite recently (2018-04-16): "The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies" at https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies https://research.stlouisfed.org/publications/review/2018/02/... In a nutshell, the St. Louis Fed thinks there's no good case for central banks to get involved in creating cryptocurrencies (though there is a case for fiat electronic money). ISTR that the Swiss National Bank expressed pretty-much the same opinion, too, not more than a few weeks ago.
- stephen_g 8y ago
  It's worth noting that most central banks already do have electronic money (called 'central bank reserves'), which commercial banks use for settling inter-bank payments between each other, as well as transfers to and from the Government (Government spending into private bank accounts, tax transfers to the Government from private bank accounts, and the purchasing of Government bonds and securities). What the linked paper is talking about (it's also part of the Swiss proposal) is to provide accounts for private individuals (not just banks and large financial institutions) to access this kind of money. The advantage is zero risk of losing your money (unlike commercial banks it wouldn't require the Government having to bail anyone out or insure anything), but the downside is reserves don't attract any interest.
jrq 8y ago
Isn't that what a line of credit is? Or a debit card? It's got a history of spending, it's very hard to double spend, and its completely traceable? Sometimes I think fed has learned from Bitcoin that they don't trust us with Bitcoin, and they shouldn't trust us with cash either. I don't feel like they really give a shit about what a distributed ledger actually accomplishes and how it protects users. Additionally, mining. Mining is a huge problem in my eyes because it wastes a ridiculous amount of energy to not produce anything. I'd love to just buy-in with my credit card or with cash, and have those coins generated (until supply is depleted) to meet the value at that time. If fedcoin worked like that, that'd be neat. Otherwise, it's just an energy sink, and I think we should start being more conscious at where all this energy is going. Side question, HNers who use Bitcoin, why are you using bitcoin? Why aren't you using monero? If it's just convention, then switch! That's how conventions change!
0x445442 8y ago
If I can't buy, let's say... heroine completely anonymously with FedCoin then I think the whole spirit of the initial vision has been violated. Call me crazy but I don't think this is what's envisioned by those that would advocate for something like FedCoin.
contingencies 8y ago
China already has WeChat money. It's literally everywhere. To the point where, you often spend days without touching money. People now sigh and groan and ask for the manager to get the key to open the till if you insist on paying with cash.
retox 8y ago
They want to do away with unaccountable physical cash. Another method of tracking and control. They will keep their gold of course.

99 points by djacobs 8y ago

It could create FedCoin. But, instead it will allow the investment banks to make it for them and then sign off on whatever they makeup because they can not only make it legal but make it easy to use. Then the government would just let those coins that pass through this with open arms. Regulation now is the biggest part of an ICO and if you are an investment bank and want a big piece of the distributed ledger pie you probably are already figuring out how to do this. I was at a meeting with laywers who wanted to understand what an ICO is. KYC and AML laws are now the big problems on implementing an ICO. 2017 was the start of the ICO boom and 2018 will be the start of the enforcement. Expect a bunch of coins to disappear.

garmaine 8y ago
> 2018 will be the start of the enforcement For what it's worth, I've been hearing "X will be the year of regulatory enforcement" since 2014. So far all we've seen is a very level-headed and even-handed approach targeting just the outright scams. "year of regulatory enforcement" in the crypto currency space is becoming a bit like the "year of linux on the desktop" meme.
- zitterbewegung 8y ago
  Except IRS has guidance on ICOs and it has become a real big problem that bullshit ICOs are out there. If large investment banks are interested in the space then regulation will eventually come forth. Remember that Coinbase was asked to reveal people who made trades over $10,000. I was at a conference with someone who gave a speech saying that ~80% of all ICOs are fraudulent. I think that is a bit low in my opinion.
  - garmaine 8y ago
    I think the actual facts you gave regarding enforcement support my point, don't they? All we've seen so far is very targeted, specific actions against the most egregious offenders, whether it is outright scams and ponzi schemes or a financial institution handling billions of dollars worth of transactions while trying to avoid reporting anything. Basically if you're running a ponzi scheme, an investor con, an unlicensed custodial bank, a non-conforming public securities offering, or a money-laundering operation, expect some agency of the Feds to come calling. But, uh.. duh? That has nothing to do with whether you are handling crypto currency or not. So far we haven't seen action against legitimately innovative, non-scammy operations in this space. Just the offenders that are quite clearly and quite brazenly flipping their middle finger to the regulations.
    - zitterbewegung 8y ago
      Up to this point yes . Sorry I think I read your post too fast . Right now at this time you are right . I think I may be changing my concept of what will eventually happen. I thought it was a sure thing but now it’s something completely different .
      - garmaine 8y ago
        Yeah, I was myself quite shocked at the (lack of) enforcement against some of the wild west ICOs in the ethereum space, and the ethereum founders & foundation especially. Even rather annoyed -- I've for years been saying they'll go to jail, and turning down very lucrative opportunities by people in that space that would have made me very wealthy today, because I thought they were certain to see massive fines and possible jail time. But they actually got a grandfathered exception and not even a slap on the wrist. Doesn't exactly motivate me to conservatively follow the rules in the future :(
- dnomad 8y ago
  Yes, the SEC will continue to take a very light touch. There's no upside to them cracking down on ICOs. The only people losing money are the people who mostly understand the risks of cryptocurrencies and "invest" anyways. The SEC may get serious when grandmothers lose money or there's blood in the streets. Until then there's a kind of regulatory sovereignty that must be defended on a pro forma basis eg the slam-dunk enforcement actions and various announcements that "some ICOs are securities but we won't say which, never the less it's our decision to make and nobody else's." The only real risk to the SEC is that some other regulator like the NFA or the CFTC will step in and say "these coins are currencies and we're gonna regulate them" or "these coins are commodities and we're gonna regulate them."
  - JumpCrisscross 8y ago
    > There's no upside to them cracking down on ICOs To add: enforcement resources are limited. Every cryptocurrency fraud investigated is a bread and butter fraud ignored. While caveat emptor isn't the law of the land, justice is a slow-turning mechanism. What will be enforced in the long term need not be addressed in the short.
mirimir 8y ago
> Expect a bunch of coins to disappear. If the Feds can make it disappear, it was worthless anyway.

lettergram 8y ago

Pretty sure the USD is enough.

garmaine 8y ago
It would be the USD; that's the point.
wmf 8y ago
You can't transfer USD electronically without using banks or third-party services that are trying to skim basis points off the entire economy. In theory a well-implemented FedCoin could be more neutral and efficient.
- geofft 8y ago
  That's not a limitation of USD. If the Fed wanted to create an API that let you do that and sidestep banks, they could. (And if they couldn't because a government agency can't casually destroy an industry like that, that restriction applies to FedCoin, too.)
  - wmf 8y ago
    Indeed, and I think an implementation of "FedCoin" would probably be better off without a blockchain, given that you're trusting the government anyway.
- dnomad 8y ago
  There's no reason at all the government couldn't give every citizen a bank account and let them wire funds to each other. In fact this used to be exactly the case: any citizen could walk into the Post Office and open a savings account [1]. Like most services that didn't benefit the rich and actually benefited the poor it got shutdown once the neoliberals took over in the 70s. Nowadays 7-10 percent of the population is unbanked and forced to rely on criminal pay day lenders, check cashers or hiding money in their cars. FedCoin would have one benefit though over a traditional banking system and that is surveillance. It'd be very interesting to have a public, error-free record of eactly how much money each citizen is receiving or has. If it ever did happen and people could see in perfect black and white just how ridiculously unequal the country is I don't think the republic would survive much longer after that. Which is why this article is kinda hilarious. Even the central bankers, supposedly the smartest men on the planet, don't grasp that this is the whole reason private banks exist: to obfuscate cash and risk flows. Like that's the point [3]. We wouldn't have an economy if private banks couldn't do their thing. An economy based on any kind of public ledger without private banking (and private ledgers) would be radically different. [1] https://en.wikipedia.org/wiki/United_States_Postal_Savings_System https://en.wikipedia.org/wiki/United_States_Postal_Savings_S... [2] https://www.americanprogress.org/issues/economy/reports/2014/10/30/99967/millions-of-americans-are-outside-the-financial-system/ https://www.americanprogress.org/issues/economy/reports/2014... [3] https://www.interfluidity.com/v2/2669.html https://www.interfluidity.com/v2/2669.html

garmaine 8y ago

> But what if central banks themselves entered the game? What would happen if the Federal Reserve, or the European Central Bank or the Bank of Japan used blockchain technology to create their own virtual currencies? Besides, that is, having some cryptocurrency fans’ heads explode? Maybe some of the wacko nut-jobs out there in cryptocurrency fandom. But most would welcome this with open arms. It would mean that you could create smart contracts denominated in fiat, or trustless exchanges, or trustless covered shorts on the price of bitcoin, etc. What's the downside?

BaronVonSteuben 8y ago
I'm probably one of those "wacko nut-jobs out there" that you refer to, so you may just want to dismiss my point outright with ad hominem. However, I don't think any of us wacko nut-jobs would care about fed coin, as long as they don't go after competing coins. In fact, I welcome the competition. As long as it's free competition, may the better, less manipulable, coin(s) win.
- garmaine 8y ago
  Why competition? This isn’t a zero sum game.
  - 21 8y ago
    It is. You either store value in dollars, euros, gold, real estate, art or bitcoin. You can't "dobule spend" the same value.
    - garmaine 8y ago
      The market cap of bitcoin going up does not make the market cap of gold, usd, or real estate go down. Total aggregate wealth is not zero/fixed sum.

smittywerben 8y ago

"we don't see any immediate systemic risk issues" - Warsh, 11 July 2007 https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-110hhrg38388.htm https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-11...

wmf 8y ago
Please be specific; the link between the financial crisis and a hypothetical FedCoin is not at all obvious.
- vijayr02 8y ago
  Not OP, but I think the point being made is that his prior judgement on financial matters doesn't exactly inspire confidence. That said, I have some sympathy for any policy maker giving public statements in an overheated economy: the seeds of the crisis have already been laid and the statements one makes may actually precipitate the crisis rather than avoid it...
- azernik 8y ago
  The connection is that this is the same person making both predictions.

anonymous5133 8y ago

They should create it just to show that it will be a failure.

alex_young 8y ago

How about fedDigitalCash? It's crazy that I pay a few percent of every transaction to visa for no reason every time I buy anything in 2018

aserafini 8y ago
Yes, paying a few % on every transaction to move kilobytes of information over a network is absurd. The true cost is less than pennies but the EMV cartel led by VISA has successfully kept the price many orders of magnitude higher, employing anti-competitive tricks like: hiding the cost to consumers by contracually preventing retailers from increasing prices for VISA payments.
- i386 8y ago
  You are underestimating the cost of maintaining such a network and underwriting the risk of fraud. Before anyone chimes in here with a neckbeard and a “but [libertarian blockchain drivel]” I do not think the effective monopoly that visa has on transactions is a good thing nor do I think it’s the best system.
- kuschku 8y ago
  The funny part is that EC (a German-only card network that stands for the E in EMV, with MasterCard and VISA being the M and V) has less than 0.125% fees for the smaller retailers, and even less for larger ones – you basically only pay the interchange fees. This is why e.g. ALDI for many years only took EC, but not MasterCard or VISA.
- PeterisP 8y ago
  Free/cheap digital payments exist (eg. EU SEPA credit transfers); for credit cars, however, the majority part of the cost (and thus price) is not just making the payment but ensuring that payments are reversible in case of fraud and other disputes, and that customers can get their money back even if the money can't be recovered from a fraudster. If you'd add a reputable escrow service, dispute resolution system and fraud insurance on top of any cryptocurrency, these features will drive the cost up just as high or more.
- 8y ago

toufique 8y ago

Answer: No thanks.

natch 8y ago

Ugh.

geofft 8y ago

What is a "blockchain"? To me, a blockchain is a way of solving double-spend problems in a Merkle tree maintained by open distributed consensus, by using some scheme to resist Sybil attacks. The scheme is not necessarily proof-of-work, but the fact that there's a double-spend problem and you're solving it is key to the idea. If you don't have a double-spend problem because all your transactions commute (e.g., Certificate Transparency), you don't have a blockchain, just a Merkle tree. Which is great, you don't have to incur the costs of mining at all, nor do you need to think about mining incentives and structures. If you're not using distributed consensus because you have a central coordinator, you don't have a blockchain either, and again, you get to not think about mining. Whichever transaction reaches the coordinator first wins, so double-apend becomes irrelevant. If the Fed wants to build FedCoin, I don't see any reason why they should refuse to be the central coordinaor and instead outsource consensus to the internet. I don't see any reason why they would, if they want to influence monetary policy at all—70% of Bitcoin mining last year was in China, which meant that it would have been straightforward for China to (globally!) freeze a Bitcoin address, and a little more complicated but still possible to prioritize or throttle certain transactions. Maybe being protocol-compatible with Bitcoin or ERC20 or something would help, but fundamentally this would be an API to transfer USD, not a decentralized system. See also patio11's Tweet https://twitter.com/patio11/status/583698553614143488 https://twitter.com/patio11/status/583698553614143488 "Most advantages of Bitcoin which matter are captured by, and improved upon by, a LAMP app which simply holds account balances." If the Fed wants to build that app, great!

clhodapp 8y ago
It could be reasonable to somehow have control over things like the difficulty of mining or to be able to spawn new currency at a reduced cost via some sort of master certificate while still allowing transfer without communicating with a central coordinator system. A distributed system is a lot less likely to go down or become completely compromised.
- GauntletWizard 8y ago
  The properties of "unlikely to go down" don't require a trustless blockchain; the attributes of being resistant to a node being compromised don't require trust beyond consensus. git is unlikely to go down and verifiable. Copies of a git repo verified by gpg signatures and repos that only accept commits that pass verification requires only as much distribution as running three instances. The fed can do all of this without giving up any control.

travmatt 8y ago

HN previously discussed a Bank of International Settlement Report on Central Bank Cryptocutrencies - https://news.ycombinator.com/item?id=15278063 https://news.ycombinator.com/item?id=15278063

SI_Rob 8y ago

The basic premise of this headline represents a complete failure to grasp the point of a cryptocurrency, which is to take the power of money issuance away from incumbent authorities who can back it with physical force (that is, states), and devolve it into a first order power available to any social group. The paradoxical claim that a centralized bank could ever issue currency based on the presumption of decentralized support is epitome of misapprehension, or at least misappropriation of jargon. The Fed already has "FedCoin" for all intents and purposes, and does not need the cooperative casino incentive system known as a blockchain in order to compel rules-compliant participation from its users.

kchoudhu 8y ago
We tried the "anyone can issue money" model in the 1800s, all it led to was bank runs and scams. The current system exists for a reason. If the blockchain crowd wants to relearn those lessons, they are welcome to, as long as they keep their shenanigans out of the real economy and away from people who don't want anything to do with the experiment.
- mozumder 8y ago
  ... while minimizing the wasteful environmental impact of blockchains due to the power requirements of each transaction. This is probably the one "feature" of blockchains that will kill it, since they're based on proof-of-lots=of-work, and work needs power.
  - bitreality 8y ago
    Blockchain as it exists today is a proof of concept. It shows that people can use code to create a monetary system. The system does not need to be backed by any government or physical good guaranteeing its value. This proof of concept can now manifest itself in a variety of formats. Many of which we cannot fathom today, because they haven't yet been invented. There are many intelligent people now working on this problem and improving the way a blockchain works, or even pulling from that proof of concept and rethinking the solution without traditional blockchain. People are too heavily focused on what the technology is capable of right now. That is irrelevant. The industry is in its infancy. Up until 5 years ago, the only blockchains that still exist today in any meaningful format are Bitcoin and Litecoin. Litecoin is just a Bitcoin clone. Just wait and see how this space will develop over the next 10, 20, 30 years. The proof of concept is that people will assign value to digital assets without any authority backing them. That's the most important development.

azernik 8y ago

Looks quite close to the way the Basis people (http://www.basis.io/ http://www.basis.io/) talk about a central-bank-run version of their currency, where the bank can target a level of inflation and let the system do the rest.

gesman 8y ago

It’s not “should”. More like “when”

Bluestrike2 8y ago

There's an interesting paper[0] from the Bank of England that considers the challenges and opportunities central bank issued cryptocurrencies might entail. 0. https://www.bankofengland.co.uk/working-paper/2016/the-macroeconomics-of-central-bank-issued-digital-currencies https://www.bankofengland.co.uk/working-paper/2016/the-macro...

deleted 8y ago

[deleted]

thisisit 8y ago

Another clickbait piece. Reading through the byline: If cryptocurrency and blockchain technology really are the future of money, the world’s central banks need to get involved, a former Fed governor argues. Isn't that a big "if"? And in that case, the real headline should be - "If Cyrptocurrency is the future Feds should build a Fedcoin says a former Fed Governor". And I think people who talk about how banks/Visa might be affected by cyrpotcurrency should take some time to read this: https://www.forbes.com/sites/francescoppola/2018/04/21/bitcoin-banks-and-a-whole-lot-of-fud/#1548eecb21f1 https://www.forbes.com/sites/francescoppola/2018/04/21/bitco... HN link: https://news.ycombinator.com/item?id=17000721 https://news.ycombinator.com/item?id=17000721

DoctorOetker 8y ago

"It would be quite a twist if a technology whose most ardent fans are motivated by distrust of central banks became a key tool for those banks." It's the other way around: the fact that publicly provable and verifiable financial systems are possible, yet the central banks didn't work this out (what they should have been striving for from the start), nor improve on it for another decade now is what fuels distrust of the old blindly trusted financial systems.

ghthor 8y ago
Pretty much nails this on the head. The FED failed at its mission and is due for disruption. Considering how poorly our democratic system is working, it's too going to come from private or open source industry.

nabla9 8y ago

The money part of the technology is not important for central banks. Underlying technology allows more useful solutions than cryptocurrency. What Fed and others in banking want is new forms of distributed accounting and settlement processes. You can apply the cryptographic technology for verifying and connecting database rows across institutions in a way that is both transparent, private and secure. If there is a public ledger online, it can be audited by anyone.

mikro2nd 8y ago

Not sure why NYT is taking some "former governor's" opinion on this. Let's take a look at what the Fed itself (themselves?) think. Quite recently (2018-04-16): "The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies" at https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies https://research.stlouisfed.org/publications/review/2018/02/... In a nutshell, the St. Louis Fed thinks there's no good case for central banks to get involved in creating cryptocurrencies (though there is a case for fiat electronic money). ISTR that the Swiss National Bank expressed pretty-much the same opinion, too, not more than a few weeks ago.

stephen_g 8y ago
It's worth noting that most central banks already do have electronic money (called 'central bank reserves'), which commercial banks use for settling inter-bank payments between each other, as well as transfers to and from the Government (Government spending into private bank accounts, tax transfers to the Government from private bank accounts, and the purchasing of Government bonds and securities). What the linked paper is talking about (it's also part of the Swiss proposal) is to provide accounts for private individuals (not just banks and large financial institutions) to access this kind of money. The advantage is zero risk of losing your money (unlike commercial banks it wouldn't require the Government having to bail anyone out or insure anything), but the downside is reserves don't attract any interest.

jrq 8y ago

Isn't that what a line of credit is? Or a debit card? It's got a history of spending, it's very hard to double spend, and its completely traceable? Sometimes I think fed has learned from Bitcoin that they don't trust us with Bitcoin, and they shouldn't trust us with cash either. I don't feel like they really give a shit about what a distributed ledger actually accomplishes and how it protects users. Additionally, mining. Mining is a huge problem in my eyes because it wastes a ridiculous amount of energy to not produce anything. I'd love to just buy-in with my credit card or with cash, and have those coins generated (until supply is depleted) to meet the value at that time. If fedcoin worked like that, that'd be neat. Otherwise, it's just an energy sink, and I think we should start being more conscious at where all this energy is going. Side question, HNers who use Bitcoin, why are you using bitcoin? Why aren't you using monero? If it's just convention, then switch! That's how conventions change!

0x445442 8y ago

If I can't buy, let's say... heroine completely anonymously with FedCoin then I think the whole spirit of the initial vision has been violated. Call me crazy but I don't think this is what's envisioned by those that would advocate for something like FedCoin.

contingencies 8y ago

China already has WeChat money. It's literally everywhere. To the point where, you often spend days without touching money. People now sigh and groan and ask for the manager to get the key to open the till if you insist on paying with cash.

retox 8y ago

They want to do away with unaccountable physical cash. Another method of tracking and control. They will keep their gold of course.