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Comment by xyzzyz | Hacker News Reader

A crypto backed 1:1 by USD is a great idea, the trick is finding a way to actually guarantee the backing currency & exchange rate.

It's actually pretty lousy idea, because in practice it's exactly what we already have in normal banking system, where the "bank-USD crypto", that is, the numbers in your bank accounts, are already backed 1:1 by actual government USD, with government regulations backing the companies and the exchange rate.

If you can freely exchange cryptocoins to USD, there's absolutely no reason to ever consider a stablecoin, unless your goal is to evade money laundering, KYC, etc regulations, hence Tether.

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> "bank-USD crypto", that is, the numbers in your bank accounts

Thanks for saying so. I see so much hype about digital money from people that apparently have never used direct deposit and a debit card, which is exactly digital money.

Yes, significant hype around digital money is about providing services to the underbanked/unbanked that people with the privilege of a bank account and debit card take for granted.

That's an important and needed service.

It is! And things like M-Pesa show it it can be done effectively and in short order when designed right. Which is part of why I find Bitcoin hype frustrating; it has clearly been way less effective.

Bitcoin maximalism is a distracting and inept attempt at making something, that is no more than a conspiracy theory, the fundamental basis of a "next-gen" financial system.

If you think the banks keep 1:1 reserves, you are in for a big surprise. Ever heard of Fractional Reserve Banking?

Under FDIC, any account less than $100K or so will be redeemed at par, even if the bank is completely and totally insolvent. Your checking account is actually probably backed 1:1 in reserves because your bank needs the cash on hand to match withdrawals at any time; it's your savings account that is less likely to be so reserved.

Furthermore, even in a fractional reserve banking scenario, your bank will have 1:1 assets backing it up, since the money it loans out is counted as an asset, although it needs to be recognized that the loan is valued at less than par because of the risk of default. There is quite a lot of legal regulations on what capital can back up accounts, and the minimum ratios of various kinds of quality of capital.

The FDIC limit is $250K: https://www.fdic.gov/deposit/deposits/faq.html

I believe the FDIC insurance was updated to 250k a decade ago.

Bank reserves are 1:1. If a bank's reserves ever dip below that ratio, the bank is insolvent, and is in deep shit.

Only a fraction of those reserves are cash. Hence fractional reserve. The remainder aren't liquid, but they are worth enough to cover the reserves, under best accepted accounting practices.

Tether's non-cash reserves largely consist of "A money launderer stole our money, but pinky swears that they'll give it back." It's not like a fractional reserve bank, it's just a straight up fraud. It's why despite many assurances from Tether, it has still not been independently audited.

> there's absolutely no reason to ever consider a stablecoin

Although Tether's purpose has largely been to avoid regulation, and participate in cryptocurrency speculation, a stablecoin would be superior for actual commerce. Bitcoin has failed for commerce, to some extent because of instability and speculation.

Being able to use something equivalent to cash to transact digitally, with client-side security seems like a desirable technology to me.

stablecoin would be superior for actual commerce

Superior to bitcoin, surely, but no superior to dollars. I have absolutely no difficulty with using my dollars to pay for anything I want.

The biggest reason one might not want to use dollars is to conceal one's identity, and while I admit that there exist valid uses for that, most of the market for anonymous commerce is illegal activity.

A lot of people don't use dollars, and/or find the USD/$local_currency exchange process cumbersome and expensive.

Online shopping exists in other countries too, and you don't need dollars to buy things online there.

Very true, but AFAICT it's not as easy in many countries. Shopping across borders is pretty expensive; currency conversions take a chunk.

Online shopping is instant, and I will have my physical goods within a week or two in most countries around the world, and my digital goods instantly. And there are several layers of fraud protection on top of that.

The currency exchange rate is a minor price to pay for such a convenience.

Meanwhile with <insert literally any cryptocurrency here> it’s just a simple <convoluted 20-step process not even guaranteed to work and with no consumer protection>.

the exchange process for cryptocoins is far worse in approximately every locale.

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