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Here's the press release (pdf): http://static1.squarespace.com/static/55f73743e4b051cfcc0b02...

This sounds exciting. My gut reaction was that the banks aren't going to use it for actually transferring money, but as a way to notarize transactions that will be acknowledged by the whole group. It does sound like a cool way to verify everything going on among a network of players.

And there's a lot of weird hate towards bank on HN. I know they're not great, but it's really not helping the conversation to just say things like "woooo banks are scary!"

//edit: A key quote from the press release:

> The group will collaborate on research, experimentation, design, and engineering to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability, and audit.

It's a shared ledger system! So, really no need to have it be bitcoin. It does make sense. It'll be great to see the confused looks on lawyer's faces when they try to lobby to change the blockchain history.

View on HN

Banks aren't scary, they're a-hole dinosaurs. Banks epitomize centralized authority and regulation. Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed, and yet they have recently and repeatedly failed. In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market.

Now consider where the tyical HN reader comes down on these issues. So yeah. Not a lot of love for banks.

>Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed

Sure, in a magical world where 100% of people pay back their loans. 2008 happened for a reason

I'm not sure what you're point is here. There is no magical world 2008 or not, never do you see 100% of people paying back their loans.

Conservatively managing loans means minimising lending to people likely to default, and leveraging enough to cover those who do. You do not need 100% of people to pay back their loans to turn a profit, charging interest is what makes this manageable and guarantees a profit.

If you conservatively run a consulting business, you can 'guarantee' a profit too.

While I agree that bankers hold too much influence in politics, this line of thinking is obviously incorrect. First, bankers have margins and compete like any other entity. If they are too conservative they will not get enough borrowers to cover the cost of their staff and facilities. Furthermore, to just earn a profit is not enough, a banker needs to earn a profit consummate with its market capitalization. Most banks are publicly traded, after all.

Well, there's no guarantee of profit. You cannot predict 100% of the time who will pay you back. It's pedantic, but it means there is _no_ guarantee of profit

Of course, you can get pretty close to 100%, but it's a balance of risk and reward, like most things.

Proper and conservative management includes due diligence wrt the borrower's ability to pay.

right, but GP was implying that profit is guaranteed because of the interest rate differential. If you have any costs at all (even just operating costs), then that profit is not guaranteed

I'm not a fan of banks nor of the amount of money they get for their services, but there's no "guaranteed profit"

2008 wouldn't have happened if the banks did their due diligence, they got greedy and the rest of us had to pay for their mistakes.

They got greedy like everyone else, they couldn't have made subprime loans if consumers didn't ask for them.

You are going to find always consumers of cheap money. That's a fact. Specially if you going searching for them actively as the banks did before the crisis.

There is a reason because controls have to be in the side of the lender.

Banks, and everyone else, are always going to be greedy. The source of the problem was not greed (that is a constant) but deregulation, that have not been properly corrected.

> 2008 happened for a reason

2008 happened because some d-heads decided to throw in the same bucket loans with good ratings and loans with junk ratings. And also because borrowing money was cheap, making it easy for a lot of people to borrow money when they should not have been able to in the first place. A pretty good definition of a bubble. Oh, and thanks to the Fed.

Don't forget Uncle Sam. "Subprime" means lending money to people with a poor credit history. The government was cheerleading the whole way because it allowed poor people to buy houses... until interest rates went up and they could no longer afford their adjustable rate mortgage payments.

The sustainable way to get more lower income people into home ownership is to reduce housing prices (e.g. by increasing the supply of housing). Subsidizing and encouraging mortgages does the opposite of that -- instead of making housing cheaper it makes borrowing money cheaper, which makes housing prices go up. Which means existing home owners love it and new home owners like it... until all the people who couldn't get a loan in a normal market demonstrate why they couldn't get a loan in a normal market.

Nope, not so. Banks don't borrow money from depositors and lend it to borrowers. They create the money they issue as a loan. Sadly, no one understands this: https://en.wikipedia.org/wiki/Money_creation

Everybody can create new money. Not just banks.

Let me give you an example. I'm worth $100. We agree I lend you $1,000,000. Sure, I don't physically have $1,000,000 but I can still make a loan to you and give you some piece of paper telling you you have $1,000,000 deposited with me. My assets have increased by $1,000,000 (loan amount) and my liabilities have increased also by $1,000,000 (what you have deposited with me). I'm still worth $100 but I created $1,000,000 of new money.

This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this.

So I don't understand what's your point.

I'm pretty certain what you have described constitutes some form of fraud.

You're both wrong. Come on.

If you, private Bank Lubos, only have $100 on hand but have a customer who wants a $1,000,000 loan, you don't just write a piece of paper. You would go to the U.S. Fed Reserve (central bank) and take out a loan for $999,900 with interest..

The central bank creates the $999,000, and the private bank charges a premium on the interest rate.

What about the other $900?

Rounding error :)

The special thing that banks do is take deposits. This is tightly regulated in most countries.

Anyone can lend money, as you say.

>This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this.

You can't create $1,000,000 in a spendable form. Banks can. What you have proposed is the creation of some sort of worthless security which, yes, anybody can do.

Some Bank of England economists published some interesting research exploring this earlier this year: http://www.bankofengland.co.uk/research/Documents/workingpap...

> Banks borrow money for less than they lend it effectively guaranteeing a profit if properly [...]

Competition should erode that risk free profit pretty quickly..

That is not observed in practice.

Hence the `should'. In any case, banks do compete in practice. Even if not for the customers, then at least for capital.

Banks don't actually borrow the money. They create it. The fact that people don't understand and are completely unaware of this is THE problem with the banking system: http://www.theguardian.com/commentisfree/2014/mar/18/truth-m...

You're confusing private banks with central banks. I don't think anyone is surprised that the U.S. Fed reserve regulates the money supply in part by creating it.

Nope. This is how money is created by both central and commercial banks. When commercial banks do it it's a loan. When the Federal Reserve for example does it they are buying a government bond. Same process. Alas, if only people knew.

Buying assets (e.g. bonds) is one of the channels the Fed reserve uses to put new cash into circulation. Another channel is loaning the new money out, with interest, to private banks.

Private banks aren't creating money, the central bank is. You've confused the two.

The money that the central bank creates is central bank money/high-powered money/M0. The money that private banks create is the money in general circulation, i.e. M2. M2 is much bigger than M0.

M2 is derived from M0, which is created by the central banks. The person was clearly under the impression that private banks were creating M0.

I don't know. It's easy to over-interpret what somebody intended to say.

Which brings me to your own "M2 is derived from M0". There are certainly interpretations of that statement with which I would agree, but there are also interpretations which are seriously dubious. For example, the interpretation that "there is a causal mechanism from the quantity of M0 to the quantity of M2" is highly doubtful. The economists who actually study those things seem to come down mostly on the side of endogenous money, which says that the causality is the other way around: "changes in M2 drive changes in M0" - or rather, they did before interest rates went to the zero lower bound, at which point the two quantities became decoupled.

If I borrow $100 from Bob (deposit), and turn around and immediately lend the same $100 to Charlie (loan), is that creating money? This is essentially what a commercial bank does, except on a much larger scale. If this is creating money, then anyone can create money, not just banks.

The Federal Reserve, on the other hand, can create money from nothing and use that to buy government bonds, like they did with QE.

Yes, you've increased the amount of money available to people to borrow (M2) by $100.

it affects inflation, if not as much as M0 does iirc. (its been a while since I've taken econ, so i'm a little fuzzy on that)

Yes, it would expand M2 money supply and affect inflation, but I don't think the scenario I painted was what Kinnard had in mind when he wrote "Banks don't actually borrow the money. They create it." To 'create money' under my scenario, you have to borrow it from someone else first.

You're not accounting for fractional reserve banking, where the banks only need to keep a certain amount of deposits on hand, and can loan the rest out to other people. For example, you deposit $100 into a bank. They keep, say, $20, and loan Erin $80 out to another person. This essentially creates money out of thin air since you still legally own that $100 dollars, and but now Erin has $80, bringing the total amount of money in our little economy to $180.

This all works fine assuming you don't try to withdraw all $100 since they only have $20 on hand. Nor would it be good if Erin defaults on her debt. Or the bank collapses. This is what FDIC is there to protect, where the government will create new money in case things collapse.

Indeed.

And what will Erin do with that money? She will give it to Tony in exchange for some service. What will Tony do? Pay that into his bank account. Which means the bank now has an extra $70 (assuming they keep a $10 reserve) that it can loan out, bringing the total amount of money in our economy to $250.

Also that $80 that Erin borrows will need to be paid back with interest. Say the interest is $20. She pays back $100. The bank now has $120. That $20 that she paid back had to come from somewhere. Say she sold a blanket she knitted to Paul to make that extra $20. Where did Paul get that money from? He had to borrow it from the bank. And the cycle continues...

> but now Erin has $80

Yeah but Erin had to put his house for getting his loan.

Disclaimer, I'm not an economist, but I'll leave a brain dump anyway ...

Everyone's a bit confused. Or talking at cross purposes.

* Central banks create M0 (either paper currency, or electronic equivalents - original fiat money). (I had to say fiat, or some gold bug would complain that gold is the real money).

* Banks borrow money, lend it out again, then when the money comes back to the banks they keep recyling it in an infinite cycle, creating M0/fr amount of broad money (M2?).

* Then other infinite cycles create even broader money, but let's forget about that.

A lot of people (especially bitcoin and gold proponents) forget is that the government can still create M0 if it's not just greenbacks (by lending out "imaginary" gold or bitcoins - as long as someone will take an IOU from the government in return for a little bit of interest). Banks can create M2, as long as someone will take their IOUs (with interest). You can ban lending, but since the critics of money usually lean Libertarian, that's not an argument you often get.

What some post-keynesians and some economically literate marxists (and maybe MMTists, I don't actually know what they're on about) suggest is that the fraction can suddenly change.

Boom - lowering fractional reserves, which means the total amount of broad money keeps increasing.

Bust - banks try to lower fractional reserves, which makes the total amount of broad money contracts.

The fraction is often treated as a constant, but if it suddenly changes (or the desired target suddenly changes), it can have a massive impact.

Banks get very comfy lending out money with very low reserve rates (effectively the multiplier of money), because whenever there's a crisis the government will "print" M0, and hand it over. So as long as the banks don't act more irresponsibly than every other bank, they can't fail. "Macroprudential" reforms (telling banks to stop it when they lend to much, or risk fines / penalties) is becoming fashionable for this very reason, since telling banks they'll all go bankrupt is about as credible as a teacher yelling "If the class isn't quiet I'll expel the lot of you!".

I like to consider the human side - in the asset bubble that occurs when M2 is rapidly growing, everyone wants to work hard and save hard, because otherwise they'll never get on the property ladder. That creates a boom, then a bust when they realise it's a Ponzi scheme. Economists who know better talk about high investment, then a crash in investment when the money suddenly dries up.

So, a theory of regulatory practise might be to shoot a child every so often. Then the rest of the class would be quiet, certainly for a period of time.

(See analogy above, do not assume I see this as good educational practise)

You do not understand central banking at all.

Banks do not create money out of thin air: central banks do. Through loans to charter banks and bond purchases, the Federal Reserve creates (or destroys) money whenever the internal one day inter-bank loan market interest rate is above (or below) a certain guideline (the "interest rate").

On the other hand, if I deposit $100.00, the bank is allowed to loan a certain percentage of it to someone else. That is fractional reserve banking. Let's say the bank operates with a 2% reserve. I deposit $100.00, they loan $98.00 to Johnny. A naive understanding of the system would lead you to think that the bank "created" $98.00 because the sum of the balances of yours and Johnny's bank account is $198.00; it did not. If Johnny doesn't pay his loan back, they're out $98.00. Your deposit is a liability for the bank. The loan is an asset. So in this situation, the bank has $100.00 in liabilities, $98.00 in assets and $100.00 in reserve.

When too many people don't pay their loans back, you have a bank run. Part of the reason the Federal Reserve system exists is to avoid this situation by allowing the banks to borrow from a lender of "last resort" if this were to happen.

When you say money, you mean M0. When GP says money, they mean M2.

Indeed. I think what I'm trying to clear up is that the "money" created by banks is not "free money". It is a carefully crafted game of musical chairs on the bank's balance sheet. Bottomline is, the loan is an asset and the deposit is a liability. Banks don't create M0.

No, but nobody cares about M0. It's M2 that creates demand in the marketplace. As soon as a bank fails, all that created M2 disappears from circulation and that's what crashes economies ("too big to fail"). In a full-reserve banking system (M0 = M2) nobody would care about crashing banks.

> Bottomline is, the loan is an asset and the deposit is a liability.

I used to be as skeptical as you about the full-reserve crowd but that point is actually what got me thinking: banks are the only players in the economy for whom giving out loans is a balance-sheet extension (what you're describing). They're worth more, the more loans they give out.

For everybody else, giving out a loan doesn't change their net worth! They're just exchanging one asset (money) against another asset (an IOU from someone). In other words: banks are special and are not allowed to fail, because we let them create money.

For anyone else not up to spec on the lingo:

Definition of M0, M1, M2, M3, M4 [1]

>Different measures of money supply. Not all of them are widely used and the exact classifications depend on the country. M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash. M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country. M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.

[1]: http://lexicon.ft.com/Term?term=m0,-m1,-m2,-m3,-m4

"Banks do not create money out of thin air: central banks do."

I think that's not exactly true. The reality is that banks make loans and then search for the reserves. So, in practice, are the credit departments in commercial bank who decide if new money is created. Central banks can influence this by making the creation of new money cheaper or expensive.

http://www.economonitor.com/lrwray/2013/08/15/banks-dont-len...

To anyone interested in these issues, I recommend Modern Money Theory ( http://neweconomicperspectives.org/modern-monetary-theory-pr... ).

Money is largely created by commercial banks. Let me quote from a 2014 report by Bank of England titled "Money creation in the modern economy."[0] Follows selection of excerpts from the report's Overview section.

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans."

"Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."

"Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits."

"The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’."

I recommend reading the whole report. It is meant to be readable by the non-academic and is not dumbed down either. The report is part of Bank of England's Quarterly Bulletin from 2014[1], it contains other similar articles like "Money in the modern economy: an introduction."

[0](http://www.bankofengland.co.uk/publications/Documents/quarte...) [1](http://www.bankofengland.co.uk/publications/Pages/quarterlyb...)

Money != Wealth

Not to disagree with the point you're making, but relying on a bunch of references to Bank of England sources is not really an un-biased argument. They have a vested interest in you assuming they're doing "the right thing" but have also been implicated in the whole LIBOR scandal[1], so I now tend to take their press releases with a handful of salt.

[1]: http://www.theguardian.com/business/2015/may/27/bank-of-engl...

As well as the $98.00 loan to Johnny they can also loan $98.00 to Sue, $98.00 to Jane, $98.00 to Dave etc, all from the original $100 deposit.

My understanding of fractional reserve banking, if they operate with a 10% reserve, they can loan up to $900 of the $100.

So with 2% it's much more than that.

Banks do borrow money from the central bank occasionally, though mostly they just sell government bonds to the central bank in exchange for money.

The general thrust of what you're saying is correct, though: If you want to understand how money enters the circulation among the general public, you absolutely have to look at banks. The central bank and the government have almost nothing to do with it outside of their regulatory function.

The bank system create money, but individual banks borrow money all the time.

The amount of confusion surrounding this post says it all. Very smart people are like dark age europeans debating health best practices. Why don't people know how the bedrock component, Money itself, of the economy works?

> In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market.

I'll just guess you're American.

America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers.

Governments are intended to serve the whole of society. If you elect a government that decides society is best served by private enterprises which are solely interested in making a profit and aren't bound by laws saying they have to serve the entire community responsibly, what do you expect?

And here's a tip for you: "disrupting" banks isn't going to work out well either. If banks are taxi's, what will the bank equivalent of Uber look like?

A company that hires thieves to run it's operations, and every 100th customer has their funds stolen by a member of staff.

Banks don't need more competition to be better. They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't.

I disagree, the structure is inherently centralised. What you are describing is more centralised control as the fix for too much centralisation. Centralisation concentrates power, that power is always going to be manipulated and perverted by those in the right places. You can't fix this with extra layers. You need an entirely new system, tear it down and start again - all of it - it's not fit for purpose. In it's place you need a decentralised systems whose intrinsic dynamics give rise to the properties we desire. Which is exactly what human social structure provides - when operating on the small scale - a balance between selfishness and altruism. Scale it up to it's current size and degrade the role of altruism and you end up in this catastrophic fuck up.

> America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers.

America's lack of free markets more like. Between the bailouts and increased regulations, bad behavior has been rewarded and good actors (including small community banks) have been hit pretty hard.

> If you elect a government that decides...

The problem with thinking government is the solution is that popular opinion is cyclical:

https://en.wikipedia.org/wiki/List_of_Presidents_of_the_Unit...

So whatever power you give to government to "set things right" and "ensure fairness" will be used (in probably less than 10 years) by someone else do do something "unfair" and "corrupt".

> They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't.

I reject that the dichotomy is government on one side and corporations on the other. Most of the time, they are on the same side. Corporations campaign and get regulations and handouts friendly to their business models and push out competition. On a local level, sure, you have taxi lobbies getting strict rules that eliminate competition. On the federal level, we have laws on the books that allow jail time for violating copyright, which is basically violating a business model. I could see civil penalties, but jail time?

> America's lack of free markets more like.

The good bits of US healthcare are the bits provided and paid for by the government. It's a weird combination of expensive (the US government pays more per capita than any other healthcare system; and insurance is expensive) and hard to access.

> On the federal level, we have laws on the books that allow jail time for violating copyright, which is basically violating a business model. I could see civil penalties, but jail time?

I agree that jail should be avoided for non-violent criminals. Isn't copyright law a combination of civil penalties (for people who just download stuff) and criminal penalties (for people who operate a business based on downloading stuff)? So if I download a bunch of movies they can sue me for loss of earnings of those DVDs, but if I burn those movies to DVDs and sell them it becomes criminal?

> The good bits of US healthcare are the bits provided and paid for by the government.

Like the part where I have to spend hundreds of dollars to see a doctor for something silly? Most of the time I go to the doctor, he doesn't tell me anything any nurse couldn't (and it's probably something I knew myself, walking in). So costs go up. That's all government.

See also the basically unchanging pay-for-treatment model with is more-or-less mandated by acts of Congress. Want to create a medical retail startup that charges flat rates based on outcomes somehow? List all of the risks in that plan. How many of them are due to government regulations?

To be fair, maybe medical regulations are fair, but acting like the private sector ruined healthcare is ignoring the tradeoffs of those kinds of regulations.

> loss of earnings of those DVDs

Exactly. Violating a business model. So the company should be able to recoup their losses in civil courts if it's unfair competition.

https://en.wikipedia.org/wiki/Criminal_Copyright_Law_in_the_...

I know I shouldn't bite, but fuck it.

> Like the part where I have to spend hundreds of dollars to see a doctor for something silly? Most of the time I go to the doctor, he doesn't tell me anything any nurse couldn't (and it's probably something I knew myself, walking in). So costs go up. That's all government.

a) if it's something 'you already know yourself', why are you going to see a doctor?

I've been to see a doctor (apart from return visits for a followup, or health certificates for my visa/work permit) a total of twice, in the last 10 years I'd say. Once I sliced my finger open (and it had to be cauterised) the other I had a weird allergic reaction to something and developed a rash. In that time I've had literally hundreds of cold's, the flu 3 times (in one year!) and plenty of small cuts bruises etc.

Why didn't I go to the doctor for all of those? Because I don't need a doctor to tell me "drink fluids|take over-the-counter medicine|put a band-aid on it|keep warm" for basic health care. If you are visiting the doctor every time you have a cold or flu, maybe you need to stop complaining about your government being inefficient and start taking some personal responsibility.

b) just because it costs 'hundreds of dollars' in America doesn't mean it has to. It's not a coincidence that your government is known around the world as being pretty ridiculous when it comes to getting shit done. Australia has universal health care, and there was recently a huge issue when the then-newly-elected government tried to introduce a $7 co-payment for each visit to a doctor.

> How many of them are due to government regulations?

American government regulations. Just because you have crazy laws, doesn't mean the rest of the world does.

I love how "being American" makes one somehow obsessed with free market and all that other hogwash that is apparently embedded in the hearts and minds of every American. I don't expect anyone to apologize for their place of birth, and I would ask that the same in kind.

No one asked you to apologise.

From an outside view, American society by and large seems to embrace unregulated 'free market' concepts and/or minimising the government's ability to have any kind of impact on society.

The person I replied to claimed that Banks are the problem, and specifically mentioned the 2008 financial crisis, which was the result of banks doing things they never should have, because they are either not bound by laws about their behaviour, or they're not punished appropriately when they break said laws.

> Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed

Is like saying that every salesman or shop in the world "buys things for less than he sells it" — it paints a picture of "free money" while completely forgetting all the work and service to society that goes into that process. In case of salesmen and shops, it's logistics; in terms of banks, it's risk management. Modern financial system is one of the most important achievements of our society: it's overwhelmingly effective in managing risks and enabling creation of countless big and/or high-risk projects while maintaining stability. It may seem counter-intuitive when you're faced with recession, but when you look how things rolled out in countries that tried to follow planned economy, communist systems, or, on the other hand, full of corruption "capitalism" that is China, you see how good is the western, first-world capitalism is in comparison.

If banks weren't run by people but were some kind of natural phenomenon, like say a mineral you can find in the ground, then we wouldn't be able to blame them. Instead we'd blame ourselves for being foolish enough to risk our money with them. That's what we've done, we've trusted banks with our retirement savings and what-not but didn't do our due diligence. If they also provide some good that we really want, then probably governments would regulate our use of them. Just as is done with oil, certain controlled plant species, etc. The problem is that governments don't all regulate bank use well enough to prevent chain reaction problems and customers aren't competent to make those risk assessments themselves.

I don't quite understand why you need some of the strong cryptography properties when you have a small, known group of players all of whom are tied together by enforceable contractual relationships.

What can this private blockchain do that a vanilla shared database with change logs can't do?

Heard of Libor?

This, yes. Some institutions have problems with bad actors, and this sort of stuff can limit that risk.

Sound bank-y enough? :-)

Provide assurances that nobody is modifying the data behind the scenes (i.e. there's no room for making a change and deleting it from the change logs). They probably have other solutions for this too, but the blockchain is likely simpler to implement and validate.

Just because you have a contract doesn't mean you have an way to prove when someone has broken it. When financial data is involved, you can't trust anyone.

The innovation of Bitcoin is achieving consensus about information cryptographically protected against tampering with pseudonymity. Neither reaching consensus nor cryptographically protecting data is new, it's really only the added pseudonymity. If you don't need it, you can build much more efficient systems without the need for a proof of work or stake or whatever.

I never really felt Bitcoin was all that pseudonymous - it's trivial to connect a blockchain address to an individual.

The blockchain elegantly solves a number of problems that had individual solutions, but does it in a way that is easy to repeat and extend while not having any obvious gaps.

It's trivial? Can you tell me which addresses are mine?

I am just jumping into this for fun to play devil's advocate. "Trivial" is probably the wrong word to use, but I can see it being "trivial in some situations vs. how hard people imagine it might be".

If I were to file a lawsuit against you as an individual, or prosecute you as a government agency, then probably yes I could. First, I can probably simply compel you declare them during discovery. I will allege that you're engaging in fraud and money laundering as part of shielding your assets against a debt that you owe me (let's say). I will explain that you've purchased bitcoins on an exchange for the purpose of shielding and hiding your wealth. (You're declaring bankruptcy in order to get out of a debt.)

We'll discover how much you've transferred to the exchanges that you do business with by compelling you to declare it, or by subpoena. You're now in the position of proving what happened to that money, where it went, and demonstrating that it's not still an asset. Enough people have heard about bitcoin and Silk Road on the news that there's a good chance a judge will see this as shady behavior, especially if you're not cooperative in revealing information.

If you have purchased bitcoin mining hardware and mined the blocks yourself, then we'll probably find that out during deposition. I'll figure out how much hardware you have and what its estimated hashrate is. You can keep the actual bitcoin addresses secret from me, but the fact of the wealth created by them will not be secret from a court, and you'll have a steep hill to climb to keep the bitcoin addresses and the amounts you've earned secret without contempt of court. If you've transmitted nontrivial amounts of money that's obviously going to a bitcoin exchange, or left any trail of financial records of purchases of bitcoin mining hardware, or if you disclose by answering honestly during deposition, and refuse to explain what's happened to those coins, then it will be obvious to a court that you're engaged in black market activity, money laundering, or are shielding your assets. An honest citizen doesn't hide their bank account information and activity from a court in circumstances where it's relevant.

If you have left no connection whatsoever between your traditional identities like your bank accounts, and with your bitcoin identities (like through an exchange), then it will be harder, especially if you lie under oath and claim you don't have any. For example: maybe you got into bitcoin in the early days when you could mine on a PC. You held onto those coins for years and are now a bitcoin millionaire. You recently bought mining hardware in a server farm you've never seen with those coins anonymously, and you're now mining more coins. This you could probably keep secret. If there's been any conversion with USD without a lot of anonymity, then there's going to be an obvious trail that will show up in a civil or criminal investigation.

Now, to be fair, I cannot find this information out about you, you being an anonymous person I know nothing about over the Internet. However, I also have no cause to care. If I have any cause to care, like if we have business dealings, then I will have enough information to leverage this process against you. Furthermore, it's not like I can find out your bank account number or credit card number either. The point I'm making from this is that bitcoin is not more anonymous than those instruments unless you've gone really far down the opsec road, buying mining hardware in cash, and engaging in money laundering to keep these secrets, lying under oath, etc. But to be fair that is an advantage. If you buy bitcoins in cash, you can spend them online anonymously. I would not describe any of this as "trivial" necessarily, but at the same time, I also feel like if you and I were to get into any legal altercation involving finances and money, I could probably do it. Though you do retain the power to keep them secret by risking contempt of court.

I could not personally because I don't care to. But a blockchain address is like any other piece of metadata: once associated with you, it's no longer anonymous. You can create another one easily.

And I actually think that last part (lightweight account creation) may be what the banks are after here. It allows them to obfuscate transactions on the wire by using one-time accounts so that other banks not involved in the transaction know who is transmitting what from looking at the blockchain -- while at the same time providing enough transparency and security that banks can independently validate transactions they were involved in.

No, the key innovation of Bitcoin is that it enables establishing a consensus in a distributed system. That's what the blockchain does. Pseudononymity, by contrast, is nothing special, and arguably all electronic systems can trivially have pseudononymity because how can you really say which real-world entity something virtual corresponds to anyway? Bitcoin is no more pseudononymous than if I generate some random PGP keys with fake names and start signing and sending messages with them.

>Bitcoin is no more pseudononymous than if I generate some random PGP keys with fake names and start signing and sending messages with them.

That sounds like a very anonymous way of distributing messages. Bitcoin's anonymity is more like having an unregistered bank account whereas BB (before bitcoin) all bank accounts were registered in one way or another. You don't even need an 'account' to accept a payment, u just need a magic number, though there is arguably not a difference. I feel like you're talking about network layer anonymity and everyone else is trying to talk more basic protocol.

Consensus in a distributed system is not the innovation of Bitcoin, just propose a new block and let all parties digitally sign the block if they consider it valid. If more than half of the parties have signed the block it is considered accepted. This of course requires knowing the parties because otherwise a single party could just cast arbitrarily many votes.

And here lies the innovation of proof of work schemes, preventing one party from casting arbitrarily many votes by making votes expensive. This also is no innovation of Bitcoin, Bitcoin just put all the pieces together. But if you don't need pseudonymity and can know the involved parties there is no need for proof of work, i.e. you can easily replace mining with an identity verification process. And you get a system that is in some sense better because you remove the possibility to obtain more voting power by buying more hardware.

The system you're describing is not distributed, though. There has to be some centralized arbiter of which keys are considered valid members of the system. This list of keys is vetted and is kept up to date on all end systems.

It doesn't work without that centralized arbiter because then you'd end up with situations where each party has their own separate list of other parties that they consider vetted, and this falls out of sync, and the blockchain completely falls apart as there is no longer consensus on whether any given block is valid or not.

I will agree that the banks can probably come up with a centralized arbiter that works for them, and thus they don't need blockchain technology, but that isn't a counter to my assertion that the blockchain's key innovation is that it allows decentralization in a way that was never before possible.

You could and probably should just include the information about parties joining, leaving or changing keys in the blocks so that there is no ambiguity about the involved parties. The fundamental issue is really making sure that a new party is authentic and not the equivalent of a fake account of an existing party.

You could come up with something like the process when verifying a domain for a certificate, creating a special DNS entry or serving some specific content at a specific address. This doesn't really work because nobody stops you from registering arbitrarily many domains, it is just meant as an example that the process does not necessarily require a central authority.

But there is a hard problem here, who is a party and gets one vote? Could a bank just create ten shell companies and then obtain eleven votes? Bitcoin kind of sidesteps this problem by implicitly declaring you a separate party if you possess some mining hardware and weighs your voting power by the hash rate of your hardware.

So you are definitely right, Bitcoin achieves a degree of distribution that is probably really hard to do without a trusted central authority that has the power to decide who is a separate party and who is not.

If the number of parties is small you could maybe still do it in a distributed way with some manual work. If a new bank wants to join they broadcast a request, use something like the mentioned DNS record to prove that the request is genuine and then all existing parties have to manually decide whether to accept or reject the new party and cast a corresponding vote. But this obviously doesn't scale well.

Rather than everyone throwing their own half-correct answer into this thread, just read this: https://en.wikipedia.org/wiki/Proof-of-work_system

Not necessarily. You could just have the members vote on whether to add or remove keys from a valid-key list. This basically amounts to putting the list of valid keys on the blockchain itself.

There's a chicken-egg problem there that requires a central arbiter to bootstrap, but the central arbiter then immediately becomes powerless.

That seems like a great idea ...

You might be interested in Sidechain Elements.

The blockchain provides an immutable store of data. Access to that data may or may not be assured, but the data will be there regardless of whether it's accessed or not.

An immutable data store of data would be a new type of storage system the world has never seen before. Up until now, things stored in a database have always had a decent amount of probability they wouldn't stay there forever.

It would be nice to be able to pay a decent amount of stored value to keep some truths as universal truths, where the probability of losing those truths approaches zero. I think there are truths that are worth keeping around and ones that are not.

Figuring that bit out is the next hard thing.

There are existing algorithms that do that. E.g. Paxos, Raft, 2PC.

Real breakthrough of Nakamoto is devising a scheme where whole network is protected against Sybil attack. I.e. there is no need to don't trust or register parties who participate in the network.

All elements of Bitcoin, such as proof of work, crypto ledger, merkle trees, etc were already known. Nakamoto combined them in a way which solves an unsolved problem.

Wouldn't it be much simpler just to distribute copies of the change log?

Probably very little. Still, if I were a bank, I would want to be on top of researching anything that could someday replace me, including the blockchain.

Or even better, Bitcoin already solves the problem and the Blockchain is already running.

What is GS going to contribute?

DING! DING! DING! WE HAVE A WINNER!!

The answer is: Nothing, other than increase costs of maintenance and support.

Protect against tampering/provide evidence of tampering. That said, calling that "a blockchain" is really pushing it, because the anti-tamper properties are provided by Merkle trees alone, and those have been around far longer than the blockchain.

> And there's a lot of weird hate towards bank on HN.

I think that's because of the egalitarian ideas readers of HN subscribe to (is that a big leap of faith?). Bankers getting new fangled tech is watching the f......s who brought the world economy to its knees getting shiny new toys. Hard to be happy about that.

>egalitarian

Meritocratic, perhaps. HN is pretty Libertarian, and Libertarianism is the polar opposite of egalitarianism. It's the equal opportunity vs equal outcome divide.

Either way you cut it, we're pretty bent against the incumbent.

Maybe those with non-conforming views simply decide to keep their mouths shut for fear of some kind of retribution which could be either written or downvotes by the majority that are reading a particular story or comment thread.

I'd encourage you to speak your mind. I purposely upvote comments I don't agree with as long as they're constructive to the conversation.

The status quo seems to more or less think of itself as meritocratic, too.

> The status quo seems to more or less think of itself as meritocratic, too.

Those successful in the status quo at any point in time are inclined to perceive, or at least portray, that status quo as meritocratic.

This probably shouldn't be surprising.

Different members of HN have different views. It's not a homogeneous body, and different articles will draw out different groups.

Libertarianism in what sense? The contemporary American understanding of the term or the international one?

I think that's a legitimate question. Long ago in college I met some libertarians handing out literature. I'd say they were thoroughly egalitarian ("believing in the principle that all people are equal and deserve equal rights and opportunities"). One of their core points was that authoritarianism (what I'd call the true opposite of libertarianism) tended toward deep inequality.

But the modern American version of libertarianism seems to have become something very different than what I saw of it in the late 80's.

> Long ago in college I met some libertarians handing out literature.

Dude, those were librarians.

> I'd say they were thoroughly egalitarian ("believing in the principle that all people are equal and deserve equal rights and opportunities").

For some (not all) libertarians, "equal rights and opportunities" means that a healthy college grad and a schizophrenic homeless person have an equal right to apply for the same job, and if the latter can't get a job or any support and starves to death in the street, society's hands are clean--after all, they had the same opportunity as anyone.

"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."

> For some (not all) libertarians, "equal rights and opportunities" means that a healthy college grad and a schizophrenic homeless person have an equal right to apply for the same job, and if the latter can't get a job or any support and starves to death in the street, society's hands are clean--after all, they had the same opportunity as anyone.

The libertarian retort is that society's hands are not clean. Whether a homeless person starves without government assistance is a reflection of society. You are not obligated to let it happen just because men with guns don't force you not to, and it is a reflection on you whether you do or not.

And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless. But if you have the support of a majority of citizens then they need only vote with their wallets and no government action is required.

More than that, when you put the burden of helping the poor on the government instead of individual members of society then when the government fails to do what is necessary each person need only shrug and claim "I paid my taxes" to be absolved of their inaction in the face of it.

> And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless.

Not all libertarians find democracy to be legitimate.

> And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless. But if you have the support of a majority of citizens then they need only vote with their wallets and no government action is required.

> More than that, when you put the burden of helping the poor on the government instead of individual members of society then when the government fails to do what is necessary each person need only shrug and claim "I paid my taxes" to be absolved of their inaction in the face of it.

A lot of important things are not well-suited to crowdsourcing and individual choice, though. The canonical example is roads; if enough non-drivers decide they're not interested in paying for interstates that they don't use, then the roads fall into disrepair and everyone suffers--including the short-sighted non-drivers who didn't realize how dependent they are on cheap cross-country shipping for the goods they purchase and consume every day.

Our current social support system has a lot of big problems, but I don't have such a rosy view of humanity that I think individual charity wouldn't be even worse.

> A lot of important things are not well-suited to crowdsourcing and individual choice, though.

Now you're talking about a whole different class of thing. How to fund roads is a completely different problem from how to fund homeless shelters and soup kitchens.

And there is a bit of a conundrum there. A libertarian solution to building roads is: People who own local land will get together and fund roads because it makes their land more valuable, and then to prevent free riding they exclude other local land owners from using the roads unless they contribute.

The main criticism of this (and libertarianism in general) is that now the road building organization is a de facto government. Whoever controls the roads or any other critical infrastructure has a monopoly that allows them to impose any rules they like on everyone else, with no obligation to abide by libertarian principles of governance.

But it has a simple solution in practice: Don't be an absolutist. Have the government build and maintain the roads and similar infrastructure. It can do that without incarcerating millions of people or inducing global financial turmoil through unwise policies.

Well, part of Libertarianism is opposite of egalitarianism. Left-Libertarianism isn't, and I'd wager there are quite a few around here, which may be confused with their right-wing counterparts when speaking about many issues regarding the State.

https://en.wikipedia.org/wiki/Libertarian_socialism

> HN is pretty Libertarian, and Libertarianism is the polar opposite of egalitarianism.

That's a pretty bold claim. On HN we see the recurring "growing inequalities are bad"-posts whining all the time. Libertarians are not against inequalities in the first place, so I'd say HN is rather not too Libertarian, while there are certainly more Libertarians here than on other communities.

Sorry, there is nothing about equal opportunity in Libertarianism. If anything, it is against it.

Libertarianism does nothing to equate chances of new born human. All that he is and will be is mostly determined by family he is born into. Example: HN entrepreneurs were mostly born into rich families.

Egalitarianism is about equality of opportunity. I.e. you will not be prevented from becoming rich as fuck, but expect that passing all that wealth of money onto your children will be a bit harder and other children's education will be paid from your taxes.

And the third beast: communism. Equality of opportunity and outcomes.

It's sad how (in the US) right-wing people have managed to completely overshadow the long and rich history of Libertarianism, both in Europe and in the US - though to be fair, liberals had already done to the same to them :)

This hate is well earned in my opinion and the global banksters worked very hard to attain this privilege and therefore no one should fight them and try to take it away from them.

We believe in meritocracy, egalitarianism and equal opportunity disdain for all bad people after all.

"Egalitarian" and "HN" do not belong in the same sentence. Unless the sentence is "The zeitgeist of HN tends to a profound contempt for the ideas typically associated with egalitarian thinking".

We practice a strange perversion of meritocracy. Sure. But there are a number of egalitarian ideals we do subscribe to. We're really a culture built on self-enhancement. Unfair advantages take people out of a self-enhancing mode. They just start seeking advantages. We don't like that.

Saying the bankers "brought the world economy to its knees" in 2008 isn't that much better than saying the tech industry did the same with the first dot-com crash. It is a huge oversimplification and assigning blame in that way dissolves everyone else of their responsibility in the situation. It means we haven't learned our lesson and the process will simply repeat itself at some point until we do.

Wasn't dotcom bubble mostly an American issue though? The banking crisis was actually world-wide.

I realize this sounds like I'm ducking your question, but it starts to get into the oversimplification comment I made earlier. The answer depends on what exactly you mean by dot-com bubble and banking crisis. The late 2000s recession was certainly worse than the early 2000s recession, but both involved a lot more than simply the banking crisis and the dot-com crash respectively.

Not my field however I feel you have a mis-understanding.

You are talking about a shared ledger system, then saying that bitcoin has no part of it.

Bitcoin is the token of PoW. So all the miners confirm transactions on the blockchain and in turn are rewarded with bitcoins. This keeps the miners doing their job, and the main reason the bitcoin ledge is immutable.

If you remove the bitcoin from the ecosystem then it will be down to the banks to secure their own blockchain with their own mining pools at which point the banks control all the mining, you lose the trusted status of the ledger. As with the main block chain if a miner gets 51% of the mining then they can do a number of attacks to change the shared ledger.

What I am getting at, I do not see how blockchain technology works without a token to validate it (be it bitcoin/bankcoin/englandcoin/fuckcoin. However if that token is only controlled by the banks are we not back right where we started? with banks having a private ledger between themselves that they can change.

Blockchain/bitcoin work because the people securing the network have an incentive to keep the system going. The only people interested in securing the banks blockchain will be the banks, unless they offer their customers mining equipment, but the day a bank shares its ability to mint value is the day I prove that well something unthinkable.

The banks blockchain will just become another private database that is not secured in the real world in anyway and in turn losses the status of an immutable ledge.

We will see

Its a private blockchain, their is a usecase. The its enougth for the banks to trust each other, it might not be to prove to 'the public' but within the private agreements of the banks it counts as trused.

The problem is that you want a revolution and this is evolution.

> However if that token is only controlled by the banks are we not back right where we started?

They never wanted to change it.

For them it might just be about improving the verifiabilty compared to the current system. They need not have broader aims then that and a blockchain between banks can help with that.

See: https://blog.ethereum.org/2015/08/07/on-public-and-private-b...

This could count as collusion and anti-trust.

What happens when a smaller bank that isn't a member of this chain tries to do business with the network? Do these smaller banks lose-out competitively by not being a member? Who is the governing body approving access - the competition?

>And there's a lot of weird hate towards bank on HN. I know they're not great, but it's really not helping the conversation to just say things like "woooo banks are scary!"

Well, in fairness, one of the last times a bunch of banking organizations joined forces on some shiny new innovation was MERS, the Mortgage Electronic Registration System...which facilitated the fraud that helped cause the housing crisis. --------- https://en.wikipedia.org/wiki/Mortgage_Electronic_Registrati...

http://www.ritholtz.com/blog/2013/04/states-fight-back-again...

> And there's a lot of weird hate towards bank on HN.

Four million wrongful foreclosures in 2009-2010 alone: http://crooksandliars.com/heather/review-finds-4-million-peo...

That means four million families' homes illegally stolen from them.

Don't pretend this is some goofy hippie fuck-the-man thing. When someone commits that much theft, a rational person doesn't leave them alone with the silverware.

The irony about the hate is that having a decentralized way to do things like this is actually going to help unseat some of the banks' powers.

No, what this does is reduce the need for clearinghouse entities, such as Depository Trust Company, National Securities Clearing Corporation, the Fixed Income Clearing Corporation, and The Options Clearing Corporation. There's a back-end bookkeeping system in finance which tracks who owns what. That's where blockchain technology applies. Banks can't do this themselves, because there's a mutual mistrust problem. So there are all those clearinghouse companies, which maintain the databases.

This is a great observation, I didn't realize that clearinghouses were a thing. John, have you thought about what other backend bookkeeping systems could benefit from using blockchains?

So the solution is moving to a new method and process driven by the banks, and with the removal of third party oversight? No thanks. If there is a system, it can, and eventually will, be gamed.

I'll don't buy this BS about the block chain, when the power to verify it centralizes power in the hands of those that can afford the most computing resources.

A few notes:

Being the people or group who can afford "the most" computing resources is not enough, at least as that expression is commonly used. To make an analogy, Bill Gates is the US citizen with the most wealth, but you'd need to join hundreds or thousands of people to gather 50+%, which is what you need to launch the attach you're mentioning.

Also, it's not true that only they would get the power to verify it; everyone can verify the transactions on the blockchain. What they would gain is the ability to double-spend their Bitcoins, and not without getting noticed by the rest of the network.

If they don't have miners or Bitcoin, then who is securing the ledger?

The banks. A selected, privileged number of nodes within the system will validate and sign blocks themselves.

That seems to leave them with the same problem where a single bank can lie and cause problems.

Over 50% of the nodes have to be compromised in order to double spend, or change the history of the shared ledger.

So assuming all of the banks have the same number of nodes/the same computing power, it would take >50% collusion to cheat the system.

Well if each block has to be signed with 50% of the banks that reduces trust by some degree, however this still can be done more efficiently with a relational database.

That's what they have now. A third party clearing house (presumably using a relational database) that is the central authority on all intermediary transactions. Creating a blockchain is about removing that third party and instead breaking the trust up between the participating banks.

Weird hate? Most of the problems we are facing now with the economical system is because banks ARE CREATING MONEY OUT OF NOTHING and then decreasing the actual value of EVERYTHING, and moving power to those who are in good terms with them, effectively setting in stone a rule of power system that enslaves people to their home mortgages and jobs they dont want to work on.

"Weird hate", yeah it might be weird if you don't understand what they are doing. And they are masking it in this veil of complexity, when in reality it's very simple.

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