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U.S. regulators exploring how banks could hold Bitcoin – FDIC Chairman

62 points by washedup 5y ago

sour-taste 5y ago
This seems like exactly the kind of centralization bitcoin is trying to avoid.
- New_California 5y ago
  Fortunately, in Bitcoin whale ownership does not imply control over the network. Fortunately, Bitcoin is PoW and not PoS.
  - arcticbull 5y ago
    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.
    - matheusmoreira 5y ago
      > wasting all the world's resources Not even 0.5% of global energy usage.
      - arcticbull 5y ago
        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 https://digiconomist.net/bitcoin-energy-consumption
        matheusmoreira 5y ago
        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.
      - acdha 5y ago
        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.
        matheusmoreira 5y ago
        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 5y ago
        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.
        matheusmoreira 5y ago
        > How is it not directly comparable? Because banks were never supposed to provide untraceable, uncensorable, unsanctionable, anonymous transactions. They do the opposite. Cryptocurrencies are not banks. They're coins. Analogous to cash which also allows for private transactions. Cryptocurrency is an attempt to create a digital cash system. It has nothing to do with banks. > the average person doesn't care enough to pay more or use something inconvenient Yes, this is why bitcoin failed. Normal people can't transact with it. The world will not change until everyone is transacting in cryptocurrency, leaving USD and all other currencies behind.
    - jessebarton 5y ago
      You should watch This Machine Greens https://www.youtube.com/watch?v=PRN4089qufw&ab_channel=SwanSignal-ABitcoinChannel https://www.youtube.com/watch?v=PRN4089qufw&ab_channel=SwanS...
      - arcticbull 5y ago
        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 5y ago
        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 5y ago
        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.
        panarky 5y ago
        > However, that wasn't really the question at issue. Weren't you the one who brought up the question in the first place? > wasting it isn't green The point is that renewable energy sources tend to produce maximum power at off-peak times. So to serve peak times, we need more wind and solar generation than is required for off-peak times. Since we don't have good ways to store and time-shift electricity, intermittent Bitcoin mining is one way to soak up the excess capacity off-peak to make the generation capacity economical. Should we just turn the windmills and solar panels off during off-peak times? Or should we leave them on and get clean energy at a price that's cheaper than coal?
- trixie_ 5y ago
  Unless you’re implying the banks would be mining as well - that’s the type of centralization Bitcoin tries to avoid.
deleted 5y ago
[deleted]
lisper 5y ago
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.
- TwiceCubed 5y ago
  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.
- henriquez 5y ago
  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.
- matheusmoreira 5y ago
  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.
  - trixie_ 5y ago
    People don’t transact gold either. It is difficult to transport and verify. Gold is though a reliable store of value as creating more is not easy, just like Bitcoin.
    - matheusmoreira 5y ago
deleted 5y ago
[deleted]
aazaa 5y ago
> 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 5y ago
  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 5y ago
    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 passes “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.
    - trixie_ 5y ago
      Bitcoin doesn’t need to be used for everyday transactions, just like gold doesn’t need to be either. That’s not it’s strength. It’s strength is a store of value that is highly resistant to fiat type inflation.
web2sucks 5y ago
Banks print endless amounts of fiat currencies, meanwhile bitcoin is transparent and capped at 21 million. The chancellor can not print more.
- Imnimo 5y ago
  Printing more is always just a hard fork away.
  - stickfigure 5y ago
    And yet bitcoin has proven incredibly resilient to hard forks.
    - legutierr 5y ago
      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?
    - Imnimo 5y ago
      Resilient is not the same as immune, and it only takes one fork to create an arbitrarily large number of coins.
      - neb_b 5y ago
        Sure, but that doesn't mean the majority of the network will switch to using that new fork.
- kube-system 5y ago
  Anybody can print more: https://github.com/bitcoin/bitcoin/network/members https://github.com/bitcoin/bitcoin/network/members
- graeme 5y ago
  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/1453084661043929088 https://mobile.twitter.com/knmjohansson/status/1453084661043...
sebow 5y ago
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.
tehjoker 5y ago
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.
- asasidh 5y ago
  that would only mean real bitcoins will hold a premium over "promise of a bitcoin" held by banks.
- jdhn 5y ago
  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 5y ago
    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.
- trixie_ 5y ago
  Given the thousands of banks, exchanges, services, countries, etc.. holding Bitcoin it’d be practically impossible for any one entity to acquire enough to begin to have any sort of control over the price.
  - tehjoker 5y ago
    True, but central bank regulations could compel many entities to behave in certain ways effectively creating that control.
    - 5y ago
pfisherman 5y ago
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.
naveen99 5y ago
Cryptographic custody of power is important to make sure power is wielded by the people designated to have power by the market. crucially this power can then be anonymous. Makes capture the flag much more difficult for rogue outsiders (outside of the market mechanism).
MR4D 5y ago
FDIC backs dollar deposits with dollars. Seems reasonable to assume bitcoin deposits would be backed by an equivalent bitcoin fund.

62 points by washedup 5y ago

sour-taste 5y ago

This seems like exactly the kind of centralization bitcoin is trying to avoid.

New_California 5y ago
Fortunately, in Bitcoin whale ownership does not imply control over the network. Fortunately, Bitcoin is PoW and not PoS.
- arcticbull 5y ago
  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.
  - matheusmoreira 5y ago
    > wasting all the world's resources Not even 0.5% of global energy usage.
    - arcticbull 5y ago
      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 https://digiconomist.net/bitcoin-energy-consumption
      - matheusmoreira 5y ago
        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.
    - acdha 5y ago
      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.
      - matheusmoreira 5y ago
        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 5y ago
        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.
        matheusmoreira 5y ago
        > How is it not directly comparable? Because banks were never supposed to provide untraceable, uncensorable, unsanctionable, anonymous transactions. They do the opposite. Cryptocurrencies are not banks. They're coins. Analogous to cash which also allows for private transactions. Cryptocurrency is an attempt to create a digital cash system. It has nothing to do with banks. > the average person doesn't care enough to pay more or use something inconvenient Yes, this is why bitcoin failed. Normal people can't transact with it. The world will not change until everyone is transacting in cryptocurrency, leaving USD and all other currencies behind.
  - jessebarton 5y ago
    You should watch This Machine Greens https://www.youtube.com/watch?v=PRN4089qufw&ab_channel=SwanSignal-ABitcoinChannel https://www.youtube.com/watch?v=PRN4089qufw&ab_channel=SwanS...
    - arcticbull 5y ago
      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 5y ago
        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 5y ago
        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.
      - panarky 5y ago
        > However, that wasn't really the question at issue. Weren't you the one who brought up the question in the first place? > wasting it isn't green The point is that renewable energy sources tend to produce maximum power at off-peak times. So to serve peak times, we need more wind and solar generation than is required for off-peak times. Since we don't have good ways to store and time-shift electricity, intermittent Bitcoin mining is one way to soak up the excess capacity off-peak to make the generation capacity economical. Should we just turn the windmills and solar panels off during off-peak times? Or should we leave them on and get clean energy at a price that's cheaper than coal?
trixie_ 5y ago
Unless you’re implying the banks would be mining as well - that’s the type of centralization Bitcoin tries to avoid.

deleted 5y ago

[deleted]

lisper 5y ago

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.

TwiceCubed 5y ago
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.
henriquez 5y ago
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.
matheusmoreira 5y ago
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.
- trixie_ 5y ago
  People don’t transact gold either. It is difficult to transport and verify. Gold is though a reliable store of value as creating more is not easy, just like Bitcoin.
  - matheusmoreira 5y ago

deleted 5y ago

[deleted]

aazaa 5y ago

> 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 5y ago
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 5y ago
  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 passes “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.
  - trixie_ 5y ago
    Bitcoin doesn’t need to be used for everyday transactions, just like gold doesn’t need to be either. That’s not it’s strength. It’s strength is a store of value that is highly resistant to fiat type inflation.

web2sucks 5y ago

Banks print endless amounts of fiat currencies, meanwhile bitcoin is transparent and capped at 21 million. The chancellor can not print more.

Imnimo 5y ago
Printing more is always just a hard fork away.
- stickfigure 5y ago
  And yet bitcoin has proven incredibly resilient to hard forks.
  - legutierr 5y ago
    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?
  - Imnimo 5y ago
    Resilient is not the same as immune, and it only takes one fork to create an arbitrarily large number of coins.
    - neb_b 5y ago
      Sure, but that doesn't mean the majority of the network will switch to using that new fork.
kube-system 5y ago
Anybody can print more: https://github.com/bitcoin/bitcoin/network/members https://github.com/bitcoin/bitcoin/network/members
graeme 5y ago
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/1453084661043929088 https://mobile.twitter.com/knmjohansson/status/1453084661043...

sebow 5y ago

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.

tehjoker 5y ago

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.

asasidh 5y ago
that would only mean real bitcoins will hold a premium over "promise of a bitcoin" held by banks.
jdhn 5y ago
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 5y ago
  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.
trixie_ 5y ago
Given the thousands of banks, exchanges, services, countries, etc.. holding Bitcoin it’d be practically impossible for any one entity to acquire enough to begin to have any sort of control over the price.
- tehjoker 5y ago
  True, but central bank regulations could compel many entities to behave in certain ways effectively creating that control.
  - 5y ago

pfisherman 5y ago

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.

naveen99 5y ago

Cryptographic custody of power is important to make sure power is wielded by the people designated to have power by the market. crucially this power can then be anonymous. Makes capture the flag much more difficult for rogue outsiders (outside of the market mechanism).

MR4D 5y ago

FDIC backs dollar deposits with dollars. Seems reasonable to assume bitcoin deposits would be backed by an equivalent bitcoin fund.