3 ms·

In the EU we have had rapid digital transfers for years now, I can transfer cash to my wife or my brother and it will be in their account in seconds of me press

by WJW 6y ago

In the EU we have had rapid digital transfers for years now, I can transfer cash to my wife or my brother and it will be in their account in seconds of me pressing the "authorize" button. It works fast, it's cheap and I think it has had maybe one or two failures in the past five years. I don't see why a distributed ledger would be a big improvement for such a system, though I'd be happy to hear more. Like you say, when the central bank is managing it you have already done away with "trustless" since the central bank itself is the trusted party. At that point, why bother with blockchains and the like. Just have the central bank manage a big database and be done with it.

mtrycz2 6y ago
Imagine being able to audit the total supply of money printed by your central bank. Or to audit that your retail bank indeed has the reserves it claims. And "audit" not as in "spend millions on an auditing firm to do it for you", but audit as in "independently verify it yourself on your own computer".
- rlpb 6y ago
  That would just require the ledger to be published; no need for it to be a "distributed ledger".
- _peeley 6y ago
  One problem with this (and a common misunderstanding of crypto as an "anonymous currency" by the general public) is that it would allow everyone to see exactly how much money everyone else has in their accounts, what they're spending their money on, etc. With Bitcoin there's at least a degree of pseudonymity if you're careful about publicly linking your wallet to your identity, but I could imagine that's not really possible for state-sponsored currencies. Having a cryptographically verified history of everything my government is spending on would be cool, but due to the nature of the distributed ledger it would require private citizens be put under the same microscope. At least with the alternative of one central bank controlling one central database, there's some degree of restriction to personal information (I'd imagine the bank wouldn't let any average Joe request ledger data on their neighbor just for fun, but public interests would be fair game).
- deleted 6y ago
  [deleted]
- notahacker 6y ago
  But you wouldn't be able to meaningfully audit a retail bank at all by looking at the ledger, because meaningfully auditing a retail bank involves understanding their loan portfolio (in particular whether the entities loaned to are likely to default more than predicted in future and whether assets loans are secured against retain their value). You're not going to get all that from a transaction ledger, and particularly not one designed with privacy in mind Simply knowing how many reserves the bank holds gives you no indication whatsoever of its solvency.
- WJW 6y ago
  Is that what bitcoin enthusiasts do? I did not expect that, given the state of Tether and the general sketchiness of the ecosystem.
  - mtrycz2 6y ago
    The Tether scam needs to end asap. People are silent about it because Tether pumps their bags, sadly.
kolinko 6y ago
Coming from EU, I absolutely agree on this one. There is also an API standard that banks are required to implement now. There are no smart contracts in those systems though, and I guess it will take a long time to implement that - if ever. And without smart contracts you can have no tokens, DeFi and whatnot.
wcoenen 6y ago
The way we think about money is as a global ledger. However, the reality is a lot more complicated if you look at what goes on under the hood of those "rapid digital transfers". The money in your bank account exists only as a liability of the bank. It is just a number in the bank's database. And each bank has their own database. So transferring money from bank A to bank B means that bank B must agree to take on the liability, in exchange for something else. Most of the time, the illusion of a global ledger is maintained, but it can break down when the system is under stress (e.g. financial crisis of 2008). Introducing a CBDC would fix this, and would make money work the way we already think it works.
- notahacker 6y ago
  Sure, but the "commercial bank money" layer is a feature rather than a bug of the system from the point of view of central bank and commercial banks alike (investment costs and risks are reduced by readily available credit at a predictable price, and the broad money supply is elastic in response to demand) and it makes no difference at all to those on either side of the transfer. If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0
  - wcoenen 6y ago
    > If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0 Scenario 5 in this whitepaper hints that the ECB is considering a CBDC for this reason nonetheless. (Some other reasons are also given in the other scenarios.) They also talk about how a CBDC would be competition for commercial bank money, so the consequences indeed do need to be carefully considered. https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_...
- erispoe 6y ago
  > It is just a number in the bank's database. Yes, this is how money works and is created today through fractional reserve lending. This has the tremendous advantage of being able to finance economic growth on credit, with a corresponding inflation risk that needs to be managed. That's a feature not a bug.

by WJW 6y ago

mtrycz2 6y ago

Imagine being able to audit the total supply of money printed by your central bank. Or to audit that your retail bank indeed has the reserves it claims. And "audit" not as in "spend millions on an auditing firm to do it for you", but audit as in "independently verify it yourself on your own computer".

rlpb 6y ago
That would just require the ledger to be published; no need for it to be a "distributed ledger".
_peeley 6y ago
One problem with this (and a common misunderstanding of crypto as an "anonymous currency" by the general public) is that it would allow everyone to see exactly how much money everyone else has in their accounts, what they're spending their money on, etc. With Bitcoin there's at least a degree of pseudonymity if you're careful about publicly linking your wallet to your identity, but I could imagine that's not really possible for state-sponsored currencies. Having a cryptographically verified history of everything my government is spending on would be cool, but due to the nature of the distributed ledger it would require private citizens be put under the same microscope. At least with the alternative of one central bank controlling one central database, there's some degree of restriction to personal information (I'd imagine the bank wouldn't let any average Joe request ledger data on their neighbor just for fun, but public interests would be fair game).
deleted 6y ago
[deleted]
notahacker 6y ago
But you wouldn't be able to meaningfully audit a retail bank at all by looking at the ledger, because meaningfully auditing a retail bank involves understanding their loan portfolio (in particular whether the entities loaned to are likely to default more than predicted in future and whether assets loans are secured against retain their value). You're not going to get all that from a transaction ledger, and particularly not one designed with privacy in mind Simply knowing how many reserves the bank holds gives you no indication whatsoever of its solvency.
WJW 6y ago
Is that what bitcoin enthusiasts do? I did not expect that, given the state of Tether and the general sketchiness of the ecosystem.
- mtrycz2 6y ago
  The Tether scam needs to end asap. People are silent about it because Tether pumps their bags, sadly.

kolinko 6y ago

Coming from EU, I absolutely agree on this one. There is also an API standard that banks are required to implement now. There are no smart contracts in those systems though, and I guess it will take a long time to implement that - if ever. And without smart contracts you can have no tokens, DeFi and whatnot.

wcoenen 6y ago

The way we think about money is as a global ledger. However, the reality is a lot more complicated if you look at what goes on under the hood of those "rapid digital transfers". The money in your bank account exists only as a liability of the bank. It is just a number in the bank's database. And each bank has their own database. So transferring money from bank A to bank B means that bank B must agree to take on the liability, in exchange for something else. Most of the time, the illusion of a global ledger is maintained, but it can break down when the system is under stress (e.g. financial crisis of 2008). Introducing a CBDC would fix this, and would make money work the way we already think it works.

notahacker 6y ago
Sure, but the "commercial bank money" layer is a feature rather than a bug of the system from the point of view of central bank and commercial banks alike (investment costs and risks are reduced by readily available credit at a predictable price, and the broad money supply is elastic in response to demand) and it makes no difference at all to those on either side of the transfer. If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0
- wcoenen 6y ago
  > If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0 Scenario 5 in this whitepaper hints that the ECB is considering a CBDC for this reason nonetheless. (Some other reasons are also given in the other scenarios.) They also talk about how a CBDC would be competition for commercial bank money, so the consequences indeed do need to be carefully considered. https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_...
erispoe 6y ago
> It is just a number in the bank's database. Yes, this is how money works and is created today through fractional reserve lending. This has the tremendous advantage of being able to finance economic growth on credit, with a corresponding inflation risk that needs to be managed. That's a feature not a bug.