back to article America says banks can now transact using so-called stable crypto-coins. What does that actually mean?

The US Treasury Department's Office of the Comptroller of the Currency (OCC) on Monday published a letter clarifying how federally chartered banking groups can use cryptocurrency and associated technology to manage financial transactions. The letter endorses the use of independent node verification networks (INVN), such as …

  1. Anonymous Coward
    Anonymous Coward

    So the end of the dollar

    All the talk of "money transfers" misses the point. Crypto is a money *printing* machine. The number of crypto coins increases, and pegging them to a currency and using them for transfer, leaches value from that currency to the crypto coin. You're handing the keys to the dollar printing press over.

    $8.1 trillion dollars printed by Trump over his term, one third of the economy is simply fresh printed dollars, handed mostly to Republican donors. Billionaires got tax cuts, companies got loans that don't need to be repaid, even tax-exempt churches got free money to buy the televangelist vote. Name a Republican donor that didn't get a massive handout from Trump.

    Republicans are asset stripping the USA. Control the asset, load it up with debt, take the things of value for yourself, let the husk collapse under the dept. Here the asset being stripped is the dollar itself.

    You wonder what damage Trump can do on his way out of the door..... look right here.

    1. bombastic bob Silver badge
      Unhappy

      Re: So the end of the dollar

      someone remind me of how the 1929 stock crash happened, again??

      At the center it had something to do with BANK SPECULATION and the loaning of money to people to PURCHASE STOCK, as I recall...

      Yeah no resemblance *HERE*. Not like crypto-currency COULD be manipulated easily or anything. I heard this happened to the GBP a few years ago. What was the name of that guy wot dun it... "broke the bank of England"... right on the tip of my tongue...

  2. Pascal Monett Silver badge

    "The incongruity between the treatment of cash and cryptocurrency"

    Cash is very different from cryptocoins. Cash is real. It's right there in your hands, and there are tools to check if it's legit.

    With virtual money, I think it is a good idea to have more checks and controls. It ensures that the market is going to stay safe.

    But I would like somebody to explain to me the notion of "stablecoin". I get BitCoin - you churn some software long enough and you get a coin, which you can then use or sell for it's current market value which is established by supply and demand. But how can you "add" virtual coins to state money without either pushing the system out of whack or being guilty of counterfeiting ?

    1. Michael Wojcik Silver badge

      Re: "The incongruity between the treatment of cash and cryptocurrency"

      Stablecoins tie the value of the token to some external resource. That can be a government-backed currency,1 a physical asset such as gold, some other kind of value reserve like a basket of bonds, etc. The aim is to reduce volatility in the token's price. Some stablecoins also allow free or low-cost conversion from tokens to the backing resource, or conversions in both directions (i.e. you can buy and sell tokens through the issuer or some guaranteed third party).

      See "Demystifying Stablecoins" in ACM Queue (should be free access -- I don't think you need an ACM membership) for a good overview of various classes of stablecoins.

      I'm not a cryptocurrency fan,2 but I find the technology and economics interesting. And I don't think they're going away, so it's useful to have some understanding of them.

      1In the literature you'll often see people use "fiat currency" to refer to government currencies, but for this purpose it doesn't matter if it's a fiat or backed currency, and of course there are non-government fiat currencies such as non-stable cryptocurrencies.

      2There's a huge amount of risk tied up in cryptocurrencies. Bitcoin of course has been very volatile. There's currently around $100B tied up in Ether "smart contracts", and a number of studies have shown just how flawed smart contracts are in general (a great many of them are riddled with bugs). I have little appetite for risk. Proof-of-work cryptocurrencies like Bitcoin are wasting a lot of resources. And so on.

      1. Charlie van Becelaere

        Re: "The incongruity between the treatment of cash and cryptocurrency"

        Thanks for that link. That's actually an understandable explanation of the concepts.

  3. GrapeBunch
    FAIL

    Two-pronged.

  4. Claptrap314 Silver badge
    Black Helicopters

    The long march

    Starting with no-knowledge proofs, the technology evolves up to what is now called crypto currency or "coin". Coin threatens the established order for financial services in a similar way to how Netscape threatened Windows. Whether the revolution succeeds or is smothered in its crib (or something in between) is the "interesting" bit. As in "May you live in interesting times, and come to the attention of important people."

    I have always been on the pessimistic side because every implementation of coin that I've seen discussed boils down to majoritarian approval of what goes into the chain--and the established order always has the motivation to throw everything into the fight. Imagine what would happen if every major bank dropped a "few" 100 million $ worth of miners into the pools. Nothing gets approved except what they want approved. That's before we start talking about regulations, laws, and guys with guns & badges "discouraging" anyone too far out of line.

    As for some of the specifics of this particular engagement:

    1) Pegging to a currency is not adding to the pool of that currency. At most, it is a promise to. A promise that gets broken more-or-less every time that matters. Look up the history of currency pegs.

    2) The blockchain is an amazing technology, and will become endemic, with revolutionary results. Reducing the friction in clearing international accounts is perhaps one of the easiest of wins. Coin? See above.

    3) I really don't see the issue with the $3000 cap for coin. Make it $100, for all I care. If I don't want people seeing what is going on in my house, I walk over and pull the shade down. Structured transactions are one of the core features of these systems. Anyone who wants to use coin for privacy purposes should know about them. I assume that the clients support them.

    1. It's just me

      Re: The long march

      You say "Structured transactions are one of the core features of these systems." However, the regulations that mandate currency transaction reports (CTR) on transfers over a certain amount also make structuring transactions to avoid the CTR illegal. So you are giving the authorities a very low threshold to harass anyone they take a dislike to as well as increased opportunity for outright "legal" theft, see the abuse of civil asset forfeiture.

      1. Claptrap314 Silver badge

        Re: The long march

        Remember that article a few months ago where a "vulnerability" was discovered in TOR that only affected people who failed to act in a secure fashion regarding the communication between the exit node and the target site? This is like that.

        Yes, structured transactions are illegal. But the entire point of structured transactions is to make them hard to trace. If the authorities can prove you structured your transaction, then they can prove what the transaction was that you structured. If your goal is to evade the authorities regarding the original transaction, what's the difference?

        1. It's just me

          Re: The long march

          I'm not so worried about criminals breaking another law. As you say, they will always find ways to hide their actions. I was arguing against your point 3 which boiled down to "you have nothing to worry about if you have nothing to hide" I'm more worried about the government using these laws to persecute and/or steal from lawful users of the system. Lowering the "suspicious amount" threshold from $10K to $3K means that a lot more innocent transaction will come under their scrutiny and there are already too many examples of people being relieved of their money by the authorities for the "crime" of carrying too much cash.

  5. katrinab Silver badge
    Meh

    "With stablecoin, rather than using SWIFT or Fedwire, which is very slow and antiquated, I can transfer $1m in 15 minutes, probably for about a dollar."

    With BACS, it is possible[1] transfer £250,000 in about 3 seconds, for £0.

    [1] Your bank may set a lower limit, most do, typically starting at £10,000, because they want to check larger payments for fraud prevention reasons, and that takes time and costs money.

    1. Anonymous Coward
      Anonymous Coward

      With fraud, it was also stated in the article it would help reduce fraud risk. How exactly would it do that. Its a none reversible means of transfer, without the other end sending the 'coinage' back or the network used having reversable transfers.

      It will increase fraud risk. Fraud would need to be detected before it hits the block chain.

      1. katrinab Silver badge
        Flame

        The thinking is that it reduces the risk of someone going into /var/db or wherever, and editing the database files in a hex editor. But when bank fraud takes place, that is not what happens. Also, blockchain fraud is several orders of magnitude higher than bank fraud.

    2. LDS Silver badge

      SEPA Instant Credit Transfer allows to transfer up to 100,000 euro in under ten seconds. In the whole SEPA area. My banks charges 0.60 euro for an instant transfer.

    3. Crypto Monad

      Here here. The fed talks about "the speed, efficiency, interoperability, and low cost associated with these products", but if it's blockchain by proof-of-work, it is slow and inefficient *by design*. In other words, it's intentionally difficult and expensive to be a miner, and the transaction participants ultimately pay the transaction costs.

      Why not just notarise a ledger, and be done with the proof-of-work? The Fed can create its own ledger and simply sign transactions. Such as service would be so cheap as to be essentially free - participants could pay a small annual subscription to maintain the infrastructure.

      1. a pressbutton

        Why not just notarise a ledger, and be done with the proof-of-work?

        ... you mean like a normal bank account?

    4. Weylin

      Many transfer services will split your transfer into smaller amounts i.e. £25,000 to avoid charges.

    5. JohnMurray

      More likely to check it because of money-laundering ... I wonder ... I expect the Colombian stablecoin may be on the way,,,

  6. ecofeco Silver badge

    What does it mean?

    It means the bank have found some dodgy way to exploit the hell out of it and screw the rest of it.

    Exaggeration or have we forgotten the past?

    1. DoctorNine

      Re: What does it mean?

      The banks are counting on the certainty of a very short memory in the public. Just remember how easily they convinced regulatory agencies and even Congress that no one needed the Glass-Steagall Act in the US. It's like mom and the cookie jar. As long as the incentive remains, attempts to subvert economic safety systems will occur. Regardless of the state of the law. And because electronic banking systems have the largest potential for illicit gain, any new technology will likely result in a certain number of successful breaches before the system is hardened, or it is found to be unworkable. Which of those two endpoints will be reached in this case, is at the present indeterminate.

  7. earl grey
    Black Helicopters

    there are other hands at work

    In the united snakes the IRS wants the banks in on all the "coin" so that they can get their hands on that "asset" info and tax the hell out of it. people aren't reporting "coin" deals now and they want in on the action.

  8. StrangerHereMyself Bronze badge

    Backing

    If a private company produces stablecoins how does one know if each coin is actually backed by assets? In the past there have been stablecoins which claimed ot have been backed by let's say $10 million and it eventually came out they only had $100.000 in backing.

    Only a Central bank can produced stablecoins which are fully backed with fiat-money.

    1. DoctorNine

      Re: Backing

      Theoretically, any organization which has large real holdings, could back an electronic currency with those real holdings. Think the 'Spice' in Dune. Although the world doesn't use gold formally anymore, any valuable enough commodity could be used to back it. Maybe potable water will be the next real good backing currency. Considering climate change, it may become shortage-driven sooner than most people realize.

      1. doublelayer Silver badge

        Re: Backing

        The person you are replying to is expressing skepticism, not that it's possible, but that it would be done. Whatever resource is used, how do you know the backing organization has the resource in the necessary quantity? Even if you can prove that they had it at one point, how can you prove that they still have it? If a backing organization had a bunch of cash in an account to back their coins, how would you detect it if someone decided to take a bit out to spend on something else on the theory that not enough people will use the backing that they'll need it all? Or used it as a resource for something else putting the coin investors lower in the debt cycle should the backing organization go bankrupt?

        Essentially, the question is why should a backing system be trusted, because otherwise it's similar to any unstable investment which has the possibility to crash without warning with little recompense. The usual argument is that these coins will replace cash, but even under hyperinflation, cash can't become worthless in five minutes.

        1. katrinab Silver badge
          Meh

          Re: Backing

          What you are describing is basically PayPal's business model, except they store their electronic cash on a traditional database rather than a blockchain. There are rules to ensure that their electronic customer balances are backed by real cash, except that in the case of Wirecard, a German company that specialise in prepaid cards, and no relation to PayPal, they seem to have failed.

          1. doublelayer Silver badge

            Re: Backing

            There may be people who don't believe PayPal is a good method of storing value. Since a PayPal account doesn't have any external guarantee that it will retain its value, people who store money in PayPal because they think it will continue to hold its value are doing so only because they trust PayPal. One of the primary benefits of cryptocurrency is that you don't have to trust various participants in the system. If a structure for a cryptocurrency expects the users to accept that it's useful because they trust a backing organization, it's no better than any other company who will hold value in a database and promise to give it back some time; that's not necessarily a problem, but we already have those. Cryptocurrencies which don't have such a backing system may be more volatile, but none of them expect me to blindly trust that someone somewhere will keep a bunch of valuable stuff around so my money will hold its value.

        2. DrewWyatt

          Re: Backing

          This here is a good physical asset example:

          https://www.bbc.co.uk/news/business-55546940

          It was a motorhome rental business. When people invested in the business, they were given ownership of a motorhome as security. When the business went bankrupt, fully a 1/4 of the motorhomes were missing.

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