U.S. regulators exploring how banks could hold Bitcoin – FDIC Chairman
reuters.com
reuters.com
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.
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.
You can outsource to an exchange/bank but that gives you an IOU only, and not Bitcoin. The IOU is permissioned, censored, and prone to seizure.
Crypto is an asset class that has cultivated a tremendous amount of interest over the years. Banks want to support crypto in the same way they do other asset classes, but doing so is a minefield.
Offering regulatory clarity here is a good thing. This is not an attack on crypto, nor is it about control. Regulators are just providing a framework to allow banks to work with / hold crypto.
2) Banks need Bitcoin though, because long-term everything else is going towards zero in Bitcoin terms.
I think the a lot of the dream from there is to make it possible to electronically transfer cash. This is currently impossible with conventional money -- the best we can do is transfer deposit records electronically. To make this work we treat deposit records as surrogate cash, and take on a huge amount of systemic risk into the monetary system, which we basically backstop with unlimited government guarantees.
With Bitcoin, at least in theory, we can offer an alternative system. That's not to say that a system can't arise of banks that hold bitcoin deposits and allow you to transfer these deposit record between banks, but the banks need to price in the risk of failure to meet their obligations, so hopefully we can have some mechanism of discounting bank-deposit-bitcoin vs. held-in-wallet-bitcoin. But I think this dream is dying -- there will come a day when you can only buy something with bitcoin, but only with bitcoin deposited in a bank, because it's "easier" and can be unwound, etc., because of correspondence arrangements, and then you'll have the Federal Reserve, that can basically artificially create new "bitcoin deposits", and banks will only let you withdraw 0.01BTC per week, so you'll never notice that they are insolvent, and we'll basically be right back where we started.
On a systemic basis it is slightly more dangerous than cash just because it reinforces the notion that bank deposits are valued at their face value and are thus a cash equivalent. But banks can fail or become insolvent, and because the money sovereign has decided that bank deposits are equivalent to cash, it is obligated to maintain that (through bailouts or other support), while at the same time banks are for-profit enterprises that are taking non-negligible risks (and sometimes explosively tail-heavy risks) to earn income based on their deposits.
Wealthy, envious of seeing their assets outcompeted by crypto are now hoping banks can allow them to further privatize the gains while socializing the losses.
[1] https://www.commonfund.org/blog/is-currency-an-asset-class#:....
Currencies are universally listed at the top of any balance sheet, small or large company alike.
One of the biggest problems that crypto hasn't figured that banking is great at is transaction reversal and fraud-prevention. The banking system uses wire transfers that can be reversed if necessary, bitcoin has nothing like this. If an attacker gets your bitcoin wallet ID and key, say goodbye to your coin. That's it, you have no recourse, and frankly, placing all of the responsibility on consumers to safeguard their digital assets without any sort of recourse is pretty ridiculous.
The crypto community loves to talk a bunch of trash about financial regulation, and some of it is true, but a fair amount of regulation actually benefits consumers in ways that crypto just isn't capable of at this time.
My point is that the speed and cheapness a crypto system comes at a pretty significant risk.
Another major benefit to the banking system is that all solid banks are insured by the FDIC, meaning that if the bank fails, the FDIC guarantees all accounts held by the bank for up to $250k. In order to do this, banks have to meet capital liquidity requirements set out by auditors and meet certain benchmarks. Again, another thing that doesn't exist in crypto but should.
When everything goes smoothly, crypto works great. But if the day ever comes that a big company like Coinbase gets hacked and crypto is exfiltrated, it'll be a real test for the community because these are problems that have been solved for decades.
> In addition crypto exchanges and services have proven pretty reliable.
Look at the mt gox hack, millions upon millions in crypto was stolen in that hack, and there was no recourse for any of those folks. Who knows what is going to happen with Tether? You don't have look that hard to find the kind of financial criminality banking is so often accused of persisting in the crypto community as well.
You want reversibility and fraud prevention? Use an intermediary.
You want irrevocable finality and no intermediaries? You can do that too.
You're free to choose, nobody is forcing you to use one or the other.
MT Gox was the biggest exchange in the world when it was hacked in 2014 and billions in bitcoin was stolen, it's account holders were totally left to dry. The freedom of choice is nonsense in an immutable, decentralized system where stuff like this can happen. If someone gets your private key from you directly or through a hosted exchange, that's it.
There's a secondary market in "offshore accounts for everyone", via the shadow-banking stablecoins like Tether.
Even darkweb markets have turned to escrow services.
This would only affect you if operating an exchange on behalf of somebody (eg Coinbase)
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.
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.
BTC now is just mass FOMO over not coming in to the Ponzi scheme early enough to still make money.
However, that wasn't really the question at issue.
[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.
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?
Apologies if I was unclear. I was referring to the parent's statement that "fortunately, in Bitcoin whale ownership does not imply control over the network. Fortunately, Bitcoin is PoW and not PoS."
My retort was that whales in Bitcoin control such a disproportionate share of the currency that if they wanted to control the network itself too, they could simply buy the miners which isn't really too dissimilar from staking in a proof of stake coin. My understanding is that each mining pool provides roughly the same security as a PoS validator.
When I replied "however, that wasn't really the question at issue," what I meant that the "greenness" wasn't really the crux of my reply, rather I was suggesting that network control falls to those with the most coins regardless of whether you're operating PoS or PoW, the only difference is whether resources are consumed or not along the way.
Not even 0.5% of global energy usage.
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.
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.
> 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.
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.
Countries that use other countries currencies (in the way El Salvador uses the US Dollar) still have armies and some countries that use their own fiat dollars (Japan, Iceland) have no armies.
These two are uncorrelated.
Unless there's some straight line between, say, switching to Bitcoin and Xi Jinping realizing Taiwan was always its own country and grabbing some Baijiu with Tsai Ing-wen. I'm very excited to find out how Bitcoin solves the Hong Kong situation too! And I suppose it'll take care of business in the Sudan? Finally that trip to Yemen is back on the table. C'mon now...
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/1453084661043...
The credit nature of money has become extremely natural to me to the point that I cannot imagine how any other system could possibly make sense.
I've been playing a game where you can create BUY and SELL contracts with a deadline for payment and delivery. If I set the deadline to 20 days and I sell something for 100k the buyer has a 100k liability and the item he bought as an asset and I have a 100k asset and the item I sold as a liability. Now that I am certain I will receive 100k some time in the future I can buy something for 100k the exact same way. The GDP rose by 200k even though neither of us had any money. Ultimately money only acted as a mechanism that lets us settle the contracts.
When you think about it, promising things to each other is completely natural but just like barter it only works between two people and the 100k have to be paid in a single batch (a limitation of the game). As soon as you introduce a third party things get complicated. A owes B but C does not trust A so he does not let B "pay". There has to be a sort of centralized entity that keeps track of the creditworthiness of everyone. That's a bank.
A promises to sell X widgets for Y. The bank takes that promise and grants liquid credit (money) in accordance to A's creditworthiness. A receives the liquid credit and can give it to B. B can use the liquid credit to pay C who trusts the bank but not A. The reason they ultimately accept the bank's money is quite simple. The bank owes the creditors products and the debtors owe the bank products. When debtors receive money by selling products they simply pay their debt off which also gets rid of the liquid credit.
The reason why banks print endless amounts of fiat is therefore quite simple. People are so good at business, they keep making an exponentially growing amount of promises to each other. They are so good at keeping their promises that inflation has been incredibly low despite record low interest rates.
Now Bitcoin. I don't know what to tell you. It's extremely speculative because nobody knows how much it is supposed to be worth. Nobody knows how much it is supposed to be worth because people haven't even done something as simple as promise to work to create the Bitcoin. If nobody promises to accept your Bitcoin then what is the point? It's an asset without a liability on the other side. Money isn't supposed to have any inherent value. It's not supposed to have a net worth in itself. The dollar as a unit of account isn't worth anything, the debt and credit that are measured in dollars are. Add up all debt and credit and you end up with 0.
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.
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.