There are now two types of PayPal dollars, and one is better than the other
jpkoning.blogspot.com
jpkoning.blogspot.com
But punishing good behavior is a terribly idea at all time and in all places: whatever combination of Paypal, and the regulators, and this Paxos outfit that have decided to raise the bar on Internet money compared to forms of Internet money that we've all taken for granted since forever? That's a good thing.
It's very complicated in the details, but roughly, fractional reserve lending done by traditional banks and the money supply created thereby only works because it's in fact enmeshed in an a stupendous net of regulations, and guaranteed by things like the FDIC, and a bunch of stuff. Fractionally-backed, loosely-regulated Internet money is a very bad idea whether it's stored in MySQL or a blockchain.
If Wall St. has show us anything since 1987 at least, it's that if we don't keep them on a very short leash, they're going to blow up the economy and stick John Q. Taxpayer with the bill as often as possible. This is true whether the database is DB2 or a ledger, which is one of the key points the author makes.
I like my banks and other adult financial institutions because I have recourse through federal regulators or FINRA if they cause me harm. I have no such protections with PayPal. The lesson is to have accounts at real banks that plug into real time payment systems, where your funds are FDIC insured or invested in government securities with no risk of failure.
The comparison made by author and which I'm trying to defend against a pitchfork mob, is between PyUSD and the PayPal "dollars" we've all known and loved since Elon Musk had a receding hairline. And I think the author makes a very convincing case that PyUSD is a strict improvement on the status quo.
So maybe it can get better still, and maybe it will, and maybe FedNow will accomplish that. But better today is better today. I'm only arguing that going after a couple of companies and some regulators that have improved the status quo shouldn't get their teeth kicked in because of what database technology is used in the technical implementation.
But in terms of trashing the work of everyone who has worked on a blockchain in a public forum: `git` is a blockchain by any reasonable "degenerate Merkle tree" definition. Barbara Liskov who is the first female Turing winner (and would have gotten her Turing a lot sooner if it weren't for sexism) has been running a research group at MIT on PBFT for like 10 years. IO-HK has more Turning/Able/Fields-type folks than fucking Google per capita and might be pushing RenTech per-capita.
In 1995 the Internet had like three massive use cases: Usenet, penis pill spam, and porn, and by egress, mostly porn. Nothing wrong with porn, but but nothing wrong with some idiots trading Pokemon cards of monkeys for too much money either if this is a free country.
Tulip-scam Level 1 blockchains with a clear incentive for the treasury holders to make transactions expensive because they want to pump the fuck out of some stupid token and skip town before the bill comes due? Yeah, I think we're over that now.
But take it up with Linus and all the fucking Turing winners if you think the tech never has and never will have any legitimate application.
IO-HK's products page is just a list of 2020-era buzzwordy wallet & smart contract junk I've never heard of that all smells like dead fish.
[1] https://en.wikipedia.org/wiki/Git
[2] Well, except in the context of Bitcoin, https://en.wikipedia.org/wiki/Byzantine_fault
"Hash trees are used in hash-based cryptography. Hash trees are also used in the InterPlanetary File System (IPFS), Btrfs and ZFS file systems[4] (to counter data degradation[5]); Dat protocol; Apache Wave protocol;[6] Git and Mercurial distributed revision control systems; the Tahoe-LAFS backup system; Zeronet; the Bitcoin and Ethereum peer-to-peer networks;[7] the Certificate Transparency framework; the Nix package manager and descendants like GNU Guix;[8] and a number of NoSQL systems such as Apache Cassandra, Riak, and Dynamo.[9] Suggestions have been made to use hash trees in trusted computing systems.[10]" [1], and if you still have a difference of opinion, get Wikipedia edited if you can.
> Uses >> Cryptocurrencies >> Smart contracts >> Financial services >> [Blockchain video] games
You know, all those dead fish smelly things from the 2020/2021 hype bubble, just like this junk from Paypal, and whatever IO-HK is faffing around with. You don't get to claim all possible usages of a tree data structure as retroactively part of the blockchain movement.
And I think we agree about the failure of what used to be called "Web 3": it was an experiment that became a hype cycle that got hijacked by the unscrupulous and my bet is that history will mark the spectacular collapse of FTX last fall as the "end of Web 3".
But behind all the headlines and scandals and shit, a lot of serious distributed systems pros were doing real research and writing real code, and that stuff represents a bunch of tools in our toolbox as engineers that we didn't have 5 or 10 or 15 years ago, and I think it's foolish to throw the baby (tools) out with the bathwater (exit scam scandals).
All you have to do is pick up a newspaper on either side of the blood/crip political knife fight and you'll see a bunch of problems that the Internet created directly or indirectly and haven't solved yet, and many if not most of them are related to "proving things".
- We're having arguments about vote tallies, and who "double spent" their vote - We're having arguments about who created a piece of IP that got vacuumed up by a big AI model - We're having arguments about who should be able to post their views on the Internet (i.e. at all) and how to prevent political grand mal seizures from censoring dissenting opinion - The story on international remittances is still a nightmare, and wildly impacts some of the most vulnerable members of our global community - USDC or something is still the only way I know about to get paid by an overseas employer in any kind of timely way without a nightmare set of bank interactions and also be totally above-board regarding e.g. taxes and stuff
The list goes on, and while I don't think this is totally demonstrated yet, as a long-time distributed systems guy, I think it's at least plausible demonstrably (and in my opinion even pretty likely) that some of the tools that went in the toolbox in the last 10 years (and got inadvertently funded by token scam assholes: win) are pretty friggin adjacent to any solution I can think of to any of these.
Curiously, Crypto-critics like to do the same, aka Ben McKenzie / Stephen Diehl "it's 30y old technology".
I agree that it isn't helpful to use "blockchain" to mean git.
You're a long-term hacker news community member. Like all of us, you pride yourself on the rational exploration of technology. Does "They've had more than a decade to find a single usecase other than crime, and they haven't" strike you as a particularly rigorous argument? Why would a decade be the magic number? Might there be more objective or intrinsic metrics of realization of potential than a set number of years? For example, Ethereum invented the crypto app layer and launched eight years ago, so perhaps ten years is both arbitrary and incorrect?
You seem to be somebody who is certain that crypto is- paraphrasing- useless for anything but crime. Given your conviction in this view, what up-to-date evidence do you have? For example, how would you contrast the capabilities of modern non-blockchain payment systems, like FedNow or India's UPI, versus the emerging network of public blockchains? If you can't answer the question, maybe your strong conviction is unjustified?
It seems that many technologists in the HN community have been whipped into an anti-crypto frenzy by crypto's many scams and now, blinded by rage and disgust, are unable to pursue any semblance of the kind of rational inquiry that otherwise is a fixture in their intellectual lives.
If you have a substantive argument about how PayPal, or Paxos, or the regulators have blown this, or why it's a net-negative, or why this case is so exceptional that you aren't "closing the tab" this time: I will listen with avid interest, and I imagine everyone else on the site will do the same.
But as someone who takes too many cheap shots at groups of people too large and too diverse to generalize about too often myself: chip in on all of us being better.
If you think it's a bad thing, explain why. My read is that it's a net improvement in a flawed world, and if I've got that wrong, I'd like to get un-wrong.
But it's pretty much an unwritten rule of HN that "shitty X technology" and cavalier uses of the word "criminal" are party fouls (which I still make, I'm also working on this).
My read is that the consensus view of the community is that prohibition of e.g. drugs or prostitution or selling sex toys or whatever is stupid and ways around those things are necessary, and I'm basically sure that it's a consensus view that there are regimes in the world where being a criminal is the only ethical move. So even if "Bitcoin is for Drugs", I still think an argument with some meat on it's bones is merited here.
From there it's (heavily) implied, but we move on to effectively asserting that anyone who has touched a byzantine fault tolerant consensus mechanism is a priori also someone who should be slammed into a 1-bit, good/evil generalization.
It takes 30 seconds of reading the rest of the the thread, or twice that searching, to know who Ms. Liskov is, and enough about her achievements to understand why she is a recipient of the most highly regarded award in computer science. Which makes it's a very dicey proposition to sweep that into the "bad" category of the 1-bit generalization. It takes 2 hours tops to read the Jepsen website enough to know that this technology is a lot more interesting than just "HODL for lambos". So I'm a "fuck that" there too.
You've also managed to wrap some double-digit percentage of all the distributed systems people on HN into this good/evil bifurcation as though doing anything on BFT ever is like selling Oxycontin to teenagers like the Sackler family or something, whether or not any of them ever made a dime speculating on cyber money. So fuck that too.
The word slur doesn't refer solely to racial epithets and stuff like that, a slur can be a backhanded dog whistle as well.
It takes a lot to get me to follow someone this far down a reply chain these days, but this is pretty fucking epic.
The strictly utilitarian game-theory play with zero risk is to concede nothing, walk away, and sink the sunk cost.
The ethical high road answer is to concede that you were out of line and watch all be forgotten thereby, which has a utilitarian premium as well: you’d make a friend.
The stupid answer is to raise 2,6 off suit repeatedly with someone representing suited royalty who has clearly committed to shoving the flop on principle.
You do you, but I see two good calls and one bad call.
The context is that crypto assets are a scam and people constantly got scammed with them, so NYDFS has stepped in and basically said "You know all those practical considerations we've made surrounding reasonable approaches to holding people's money? You get the benefit of none of them". It's much more economically efficient to allow institutions like Paypal do something a little bit smarter than just sit on the money, but there has to be a consideration of risk vs efficiency. What's happened with NYDFS is crypto companies have been so bad that they've basically lost all privileges that make the operation efficient.
Paypal is not a bank. Customers who use it as a bank risk losing some or all of their money. That's absolutely true. But Paypal is pretty clear that money exists in it's system as part of a way of transfering it, not as the equivalent of sitting in a bank. All the major risks of money being in paypayl is that you get scammed sending the money to the wrong person etc.
We now have stablecoins that are being forced to operate as a stablecoin should. When someone buys crypto that claim to be pegged to the dollar, there should be essentially zero risk of price movement. It's not the digital equivalent of a savings account, it's the digital equivalent of cash.
I didn't expect to feel sanguine about this development when I opened the article, but as it turns out, I do.
https://twitter.com/0xCygaar/status/1688592430315036672
The USDC contract also allows for the freezing of addresses.
Unlike PayPal's traditional "black box" dollars, freezing and burning PYUSD are transparent actions broadcast to the network—it can be publicly analyzed and tracked in realtime.
1. Why does the version matter? It all gets compiled down to bytecode upon deployment and maybe the developers chose this version out of familiarity.
2. See the recent cash app glitch for why you’d want to be able to stop everyone transferring if you had a bug. This gives me more confidence than if it didn’t exist like some other crypto projects which get fully drained due to lack of this functionality. (Only for centralized protocols.)
3. Future proofing for AML / terror regulations. Be mad at your lawmakers if you don’t like this. See tornado cash for what happens if you have lack of controls.
4. This is something you absolutely have to have? Like, I don’t get why this is a point at all. How do you expect to credit users if not by increasing the total supply by the dollars they deposit?
This includes rules that they can fine you for "misinformation" (these rules have flip flopped a few times, not sure the current iteration).
Bluntly, I won't do business with Paypal. They do bad business. I encourage you to also not do business with them. Using Eth as a backing token doesn't make it any better when they still have the option to just nuke your money with no controls.
Number 4 being included just peeves me a lot because it seems like proper OOP to decouple increasing supply from any other logic they have to accept deposits.
I like the pressure that crypto infrastructure builds within. The general discrimination against crypto on the regulatory front creates these outcomes that are better than the other custodial system, and ironically more in line with bitcoin’s original anti-leverage ethos.
What’s missing are consumers that are discerning because there are a lot of ineligible and poorly managed crypto offerings.
So the regulators are helping, the criticism against crypto is helping, but the organizations offering well designed and well managed products are not what people gravitate towards.
Paypal USD’s design is okay, in comparison to their fiat offering, but only due to regulators creating more difficult requirements for crypto. It is anti-fragility in action and something crypto enthusiasts have always appreciated about crypto: how it gets more resilient under pressure and can adapt.
Paypal USD as a stablecoin is unremarkable and has the same arbitrary fund freeze capabilities that Paypal always had, but it’s fungibility and addition to the stablecoin space is an improvement.
The real question is, if you have PayPal stablecoins, do you have the keys, or does PayPal? Can PayPal take your crypto money away or freeze it, as they routinely do with Paypal-controlled accounts? That's what really matters.
So at least it's honest.
> Although Paxos has the ability and the right to freeze all USD Stablecoins tokens
Yes Paypal can freeze PaypalUSD on an address level.
Of course self-custody is a bit misleading as they are any way IOU notes.
But this token does have code to freeze your balance of itself, an action controllable by the token contract administrators, which is Paypal.
this is seen in other similarly structured stablecoins.
but the fungibility of being an erc20 token means offloading it is very easy too, there would therefore be no limitations on transfer amounts, no delay in having liquidity based on the time of day or day of the week. No need to rely on Paypal’s interest in redeeming the token for cash again, as you could just swap them onchain for something else more liquid or more speculative the instant you wanted.
Systems like Australia's NPP and associated PayID/PayTo schemes, India's UPI, US FedNow etc replace all of the middle-men clipping the ticket with a close to direct account-to-account transfer, regulated by the appropriate reserve bank or equivalent.
It doesn't work across currency borders (yet) but as these systems ramp up, with their substantially lowered costs and reduced friction, even the big guys like Visa/MC are going to be affected.
And that's even before the central banks work on create their own digital coins (stable by default because backed by the fiat currency issuer).
What I don't understand are the people who - as customers - want to do away with credit and debit cards and replace them with these bank transactions that have no protections.
Any transaction with a business or stranger there will still be a market for something reversible, disputable, and with insurance against scams. They also hook into currently exchanges automatically for you when paying overseas and their jurisdiction for pulling back your money is global rather than just in your country.
FedNow is a Zelle/ACH killer, they don't provide direct-to-consumer services and if your bank or consortium of banks ever issues cards/apps that can be used at new POS systems they will have just invented Visa, and there's no reason Visa won't support settlement with Fednow over ACH. You could already cut out Visa with a "Pay with Zelle" type scheme but there's little appetite for it even in countries where their version of FedNow has existed for years.
That is just wrong though - pretty much in every country out there that has a good direct payments scheme exposed to customers, it is gaining market share at the expense of credit cards. Pix in Brazil and UPI in India are only two such examples, in both countries these are well on the way / are the dominant payment mechanism for ordinary consumers transacting with businesses.
Also reputable lol, the worst businesses needing disputes are national household names. I've gotten fewer issues from random Etsy sellers than my cellular provider.
For example, using Ethereum L2s or other public chains, anybody in the world with a phone will be able to access American T-Bills and equities, lending products, and much more.
Public chains are a better foundation for a global free market economy, and that includes but is not limited to payments.
The crypto dream is dead. If you didn't sell out at the peak of the bubble a couple years ago, I do feel sorry for you.
In this case PayPal's core product seems to be the same as always, they've also added a stablecoin product which you can make a conscious decision to buy. Similarly you can move your money into their savings account which offers additional guarantees.
Presumably in both cases they'd prefer funds are kept as a 'standard' PayPal balance that they can invest to make more profit but if you're going to move your funds out of PayPal why not offer these other options.
The author seems surprised that different financial products offer different levels of protection but different levels of risk Vs reward are what the whole financial world is about. So long as consumers are made aware that's fine.
1. the old school accounts we all know. 2. the PayPalUSD which, as this article explains, is saver and runs on the ETH blockchain. Moreover, it appears to be trading at 0.99 cents to the dollar. That is an arbitrage opportunity right there. 3. The saving account with 0.85 APY and a federal covering of $250000.
> It would be illegal for PayPal to back its new crypto-based dollars with the assets listed above, yet for some reason it is fine if it backs its traditional dollars with them.
> The second drawback of PayPal's regular dollars is that the assets underlying them don't really "belong" to customers in any strong sense of the word. They belong to PayPal.
> To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal's assets. Nor are they Paxos's. They are yours. No need to squabble with competing vultures for what's left.
> But oddly, PayPal is under no legal obligation to extend these very sensible protections to all of its regular PayPal dollars.
> the third type is insured by the government up to $250,000. PayPal Savings dollars also pay interest, whereas the first two don't, or are prohibited from doing so. PayPal offers this product in conjunction with a bank, Synchrony Bank, which means this third type of PayPal dollar conforms to an entirely different set or rules than the other two: Federal banking law.
Since there is almost no money to be made with the "stablecoin" business model (at least compared to the profits/illicit gains of other crypto business models), the probability that something shady is going on is unfortunately quite high.
When you couldn’t get a return on deposits (or safe government debt) anyway, it didn’t seem completely crazy to park your dollars with a company that doesn’t pay interest either, but at least lets you do highly leveraged trading against hapless crypto retail investors around the world.
Now that the crypto retail boom is over and money has a price again, the notion of sending your dollars to a one-horse-show outfit like Tether or Paxos is much less appealing. They can vanish overnight and you don’t even have the $250k federal insurance like on US bank accounts.
If crypto has demonstrated clear PMF for anything, it's that the world loves stablecoins denominated in dollars.
Here’s an example of how Tether gets used in the real world:
“I’d been hearing rumors about illicit uses of Tether—I’d seen court documents containing intercepted messages from a Russian money launderer promoting it to his clients, for one thing—but pig butchering was the most concrete example I found. People around the world really were losing huge sums of money to the con. A project finance lawyer in Boston with terminal cancer handed over $2.5 million. A divorced mother of three in St. Louis was defrauded of $5 million. And the victims I spoke to all told me they’d been told to use Tether, the same coin Vicky suggested to me. Rich Sanders, the lead investigator at CipherBlade, a crypto-tracing firm, said that at least $10 billion had been lost to crypto romance scams.”
https://www.bloomberg.com/news/features/2023-08-17/my-crypto...
The article is quite clear that Paxos is a regulated Trust Charter, and "...100% backed by the safest sorts of short-term collateral".
Developments in the crypto world have made clear that this doesn't necessarily mean much in this space, so that's why people remain skeptical. Two examples: Prime Trust filed for chapter 11 bankruptcy last month and turned out to have mishandled many millions in customer assets. Fortress Trust was hacked and then bought by Ripple, presumably to cover the losses, just days ago.
Now neither of these are Paxos, and it's possible that Paxos is well managed, but if all the other trees keep falling at some point people are going to judge the forest as a whole.
Tether also claims to be backed by something.
Safest short term collateral? Cash.
A dollar will always be worth a dollar.
For depositors, this is safer than a typical bank subject to bank runs - AS LONG AS the issuer actually holds the backing treasuries.
EDIT: Caveat here is the non-treasury part of the stablecoin backing reserve, e.g. reserves put in a bank. If the underlying bank has a bank run, the stablecoin has a bank run too (effectively without any FDIC insurance, since all stablecoin holders are lumped together, easily exceeding the $250k limit).
You can also add clauses to the contract that allow earlier redemption into the underlying securities with redemption less than X days.
There’s a lot of ways to skin this cat and still pocket the spread in the general case.
Being able to have all your money stolen with no recourse when you misplace your crypto pass phrase is new.
Comparison with bank deposits: Consider March this year, when Circle-issued USDC stablecoin had a "bank run". It wasn't because of their treasury holdings, but because they put reserves in Silicon Valley Bank, which had a bank run. A transitive bank run, if you will. It only recovered because of FDIC insurance, which went above and beyond their legal $250k/person limit.
Treasuries are backed by the full faith and credit of the US government, without any per-person or monetary limits.
If you want to transfer treasuries, that can be done, too.
And duration is really short, and rates don't shoot up too much. (You have no credit risk (as long as Congress keeps getting their act together wrt the debt ceiling), but still have rates risk, as measured by duration.)
> the majority of major crypto companies have to be shown to be either incompetent or fraudulent
Now we're just broadening the net from "third parties that back coins with short-term collateral" to "crypto companies"?!
Currently, holding USD and giving out crypto USD makes a lot of money for the holders. Just look at Tether making $850 million last quarter alone.
Source: https://www.bloomberg.com/news/articles/2023-07-31/tether-at...
So, PayPal dollars are not dollars.
"Our third party provider of our stablecoin claims to be backed by dollars, so it is better than dollars"
The differentiation is written in plain English in the article.
Source: I tried to figure out how to get a license in a bunch of states for a side-project and quickly realized I wasn't rich enough to do so.
The graph in the article seems to show that a dollar of the crypto is worth 50 basis points less than an actual dollar.
The answer is neither.
PayPal will happily seize both on a whim and without recourse.
Do not ever leave money you care about in Paypal.
It is likely that they will way less likely freeze the funds that are stored on the blockchain, as everyone will see it happening real time and the general public can also see how much there are frozen coins at any given time from the total circulation.
Paypal has only little problems freezing their regular USD accounts. Yes, people will complain online, but so what? Regular Joe still will assume that it is just some isolated cases and won't be happening to me. No one outside paypal knows how much freezing is happening, and likely inside paypal as well it is not well known information. Meanwhile, the more they freeze the more they have funds for their own bottom line, so incentives are not very well aligned.
I have a gut feeling that this might be "blockchain fixes it" moment.
> Do not ever leave money you care about in Paypal.
Yes, I agree. However paypal is big incumbetent player on the payment market and these products will likely be popular, so it makes a lot of sense to analyze them in detail.
It's a nice feature you get when building payment infrastructure on a public blockchain, compared to PayPal's traditional black box systems.
[1] https://etherscan.io/token/0x6c3ea9036406852006290770bedfcab...
PayPal's stablecoin contract allows for the freezing of funds in any given address.
We've needed a single word to mean exactly this for the longest time. It gets my vote.
PayPal will arbitrarily freeze your funds, suspend your account, and anything else they can get away with with absolutely no quick recourse on your end.
Use PayPal as a payment system and immediately yank the funds out. Anything else is ferociously stupid.
Our company has very low volume through Paypal, we only provide it as a convenience and we had to limit payment amount due to fraud we had in the past, so these are likely the worst conditions you can possibly get.
There's also revolut and payoneer but they have a few red flags looming over them that make me hesitant.
Revoluts auditors BDO stated that they were unable to get a complete picture of some of Revolut’s revenue and as a result it, or other financial balances, could be “materially misstated”.
Former holders of UK banking licences include SVB.
When Parent Co goes bust Child Co credit lines go to zero. Even in the UK where ringfencing and regulation makes it very difficult to have more liabilities than assets (as happened with parent co), banks still have to borrow overnight / short term to fund longer term lending. If you cant borrow from the market you are in trouble.
Hey friends, try starting a money transmitting business or printing your own money, and see how long it takes to get arrested if you don't have both massive investment and friends in powerful places.
PayPal doesn't deserve to hold this special, seemingly untouchable perch in our economy. If we want the wild west, then let everyone else open up the same business. Otherwise, regulate them like a bank. I hope the DOJ goes after them next.
>printing your own money
They're not printing money though. They do the same they've done prior, only now with more transparency. Most HN users have probably interacted with Paypal at some point in their lives, but how many understand what sort of "dollars" they sent or received? Because it's certainly not legal tender. Neither are the digital dollars in your bank account. They're private book money. In the case of banks we outright know most of it isn't even backed by real dollars, thanks to fractional reserve banking. This is a very real concern when you have more money in the bank than the insured amount. And as for Paypal who knows what they're backed by. Holding virtual funds backed by 100% US treasuries is a lot safer than backed by 'trust me bro'.