
Former top official says Fed should ‘Maybe’ create ‘FedCoin’ to rival Bitcoin - djacobs
https://www.nytimes.com/2018/05/04/upshot/should-the-fed-create-fedcoin-to-rival-bitcoin-a-former-top-official-says-maybe.html
======
geofft
What is a "blockchain"?

To me, a blockchain is a way of solving double-spend problems in a Merkle tree
maintained by open distributed consensus, by using some scheme to resist Sybil
attacks. The scheme is not necessarily proof-of-work, but the fact that
there's a double-spend problem and you're solving it is key to the idea.

If you don't have a double-spend problem because all your transactions commute
(e.g., Certificate Transparency), you don't have a blockchain, just a Merkle
tree. Which is great, you don't have to incur the costs of mining at all, nor
do you need to think about mining incentives and structures.

If you're not using distributed consensus because you have a central
coordinator, you don't have a blockchain either, and again, you get to not
think about mining. Whichever transaction reaches the coordinator first wins,
so double-apend becomes irrelevant.

If the Fed wants to build FedCoin, I don't see any reason why they should
refuse to be the central coordinaor and instead outsource consensus to the
internet. I don't see any reason why they _would_ , if they want to influence
monetary policy at all—70% of Bitcoin mining last year was in China, which
meant that it would have been straightforward for China to (globally!) freeze
a Bitcoin address, and a little more complicated but still possible to
prioritize or throttle certain transactions.

Maybe being protocol-compatible with Bitcoin or ERC20 or something would help,
but fundamentally this would be an API to transfer USD, not a decentralized
system.

See also patio11's Tweet
[https://twitter.com/patio11/status/583698553614143488](https://twitter.com/patio11/status/583698553614143488)
"Most advantages of Bitcoin which matter are captured by, and improved upon
by, a LAMP app which simply holds account balances." If the Fed wants to build
that app, great!

~~~
marknadal
There is already a word for what you are talking about, and you used it:

Consensus.

So I counter your argument. It is useless to call "Blockchain" something that
must necessarily have consensus. Or else we should just call it a consensus
mechanism, not a blockchain. So instead, I propose the following:

A blockchain, is a cryptographically signed linked list.

Note, things like "a distributed ledger" aren't included in that definition.
Why? Because a distributed ledger is only possible if writes are
cryptographically signed. Else, it is too easy to fake, sybil, forge, exploit,
manipulate, lie, or mutate the ledger in a public setting.

I've done a lot of work on commutative transformations (CRDTs, at
[https://github.com/amark/gun](https://github.com/amark/gun) ), and while they
are a very different (and more scalable) approach to arriving at consensus
(through deterministic means), I still think it is appropriate to call such
CRDT/DAG/Merkle/other cryptographically based systems a blockchain. Why?
Simply because they can be used as a distributed ledger, and that is the point
that most people actually talk about/intend.

At the end of the day, what people intend when they talk about "blockchain"
isn't even cryptography or technology, it is simply an economic model. An
economic model that doesn't require institutional trust.

So in that sense, would a FedCoin pass as being a "blockchain"? From a
technology standpoint, sure, but not from an economic perspective.

Would love to hear your counter-thoughts!

~~~
FreakLegion
> A blockchain, is a cryptographically signed linked list.

I've always assumed this definition by analogy with _Cipher Block Chaining_
([https://en.wikipedia.org/wiki/Block_cipher_mode_of_operation...](https://en.wikipedia.org/wiki/Block_cipher_mode_of_operation#Cipher_Block_Chaining_\(CBC\))),
but of course where a word starts out and where it ends up can be two very
different things.

~~~
therein
> Ehrsam, Meyer, Smith and Tuchman invented the Cipher Block Chaining (CBC)
> mode of operation in 1976

Seriously, even the term was coined back then and the concept is actually
pretty identical if you think about it.

------
SI_Rob
The basic premise of this headline represents a complete failure to grasp the
point of a cryptocurrency, which is to take the power of money issuance _away_
from incumbent authorities who can back it with physical force (that is,
states), and devolve it into a first order power available to any social
group. The paradoxical claim that a centralized bank could ever issue currency
based on the presumption of decentralized support is epitome of
misapprehension, or at least misappropriation of jargon.

The Fed already has "FedCoin" for all intents and purposes, and does not need
the cooperative casino incentive system known as a blockchain in order to
compel rules-compliant participation from its users.

~~~
kchoudhu
We tried the "anyone can issue money" model in the 1800s, all it led to was
bank runs and scams. The current system exists for a reason.

If the blockchain crowd wants to relearn those lessons, they are welcome to,
as long as they keep their shenanigans out of the real economy and away from
people who don't want anything to do with the experiment.

~~~
bitreality
Well, ultimately a decentralized blockchain tackles the issue in a much
different way. In the 1800s, if you were a money issuer, you could print any
amount you wanted. In a truly decentralized blockchain, there are defined
rules for how new currency enters the system. You cannot just print new money.
The amount that exists is fully visible by anyone.

Transparency is everything. This also explains why a currency like XRP is not
a real blockchain. Beware these pseudo-blockchain projects, because they are
much more similar to your example from the 1800s.

~~~
gmueckl
As the proliferation of newly created digital currencies should tell you,
printing new bills at will has been replaced by creating new currencies at
will. So a series of new bills in the old system is now equivalent to a new
blockchain. While we have thus the well perpetuated illusion of an ever fixed
amount of currency, the system moves towards massive inflation due to an
incentive to create new currencies.

~~~
DennisP
It remains to be seen how that will work out. If your equivalency were
correct, we'd expect the issuance of new currencies to reduce the value of old
ones, and so far we're not seeing much evidence of that.

Hayek wrote a book arguing that a system of competing privately-issued
currencies would ultimately result in currencies with stable value. Of course
we haven't yet seen evidence for that either.

~~~
paulgb
> If your equivalency were correct, we'd expect the issuance of new currencies
> to reduce the value of old ones, and so far we're not seeing much evidence
> of that.

I'm not sure what evidence we should even be looking for here, but certainly
the share of Bitcoin in the cryptocurrency markets has dropped alongside its
value[1]. Anecdotally, most people I've talked to holding, say, ETH, would be
holding more BTC otherwise, so it's hard to argue that the competition doesn't
depress the price.

As for the Hayek reference, I have some thoughts on that:
[https://paulbutler.org/archives/stop-dragging-hayek-into-
bit...](https://paulbutler.org/archives/stop-dragging-hayek-into-bitcoin/)

1: [https://coinmarketcap.com/charts/#dominance-
percentage](https://coinmarketcap.com/charts/#dominance-percentage)

------
thisisit
Another clickbait piece. Reading through the byline:

 _If cryptocurrency and blockchain technology really are the future of money,
the world’s central banks need to get involved, a former Fed governor argues._

Isn't that a big "if"? And in that case, the real headline should be - "If
Cyrptocurrency is the future Feds should build a Fedcoin says a former Fed
Governor".

And I think people who talk about how banks/Visa might be affected by
cyrpotcurrency should take some time to read this:

[https://www.forbes.com/sites/francescoppola/2018/04/21/bitco...](https://www.forbes.com/sites/francescoppola/2018/04/21/bitcoin-
banks-and-a-whole-lot-of-fud/#1548eecb21f1)

HN link:

[https://news.ycombinator.com/item?id=17000721](https://news.ycombinator.com/item?id=17000721)

------
Bluestrike2
There's an interesting paper[0] from the Bank of England that considers the
challenges and opportunities central bank issued cryptocurrencies might
entail.

0\. [https://www.bankofengland.co.uk/working-paper/2016/the-
macro...](https://www.bankofengland.co.uk/working-paper/2016/the-
macroeconomics-of-central-bank-issued-digital-currencies)

------
mikro2nd
Not sure why NYT is taking some "former governor's" opinion on this. Let's
take a look at what the Fed itself (themselves?) think. Quite recently
(2018-04-16): "The Case for Central Bank Electronic Money and the Non-case for
Central Bank Cryptocurrencies" at
[https://research.stlouisfed.org/publications/review/2018/02/...](https://research.stlouisfed.org/publications/review/2018/02/13/the-
case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-
cryptocurrencies)

In a nutshell, the St. Louis Fed thinks there's no good case for central banks
to get involved in creating cryptocurrencies (though there is a case for fiat
electronic money). ISTR that the Swiss National Bank expressed pretty-much the
same opinion, too, not more than a few weeks ago.

~~~
stephen_g
It's worth noting that most central banks _already do_ have electronic money
(called 'central bank reserves'), which commercial banks use for settling
inter-bank payments between each other, as well as transfers to and from the
Government (Government spending into private bank accounts, tax transfers to
the Government from private bank accounts, and the purchasing of Government
bonds and securities).

What the linked paper is talking about (it's also part of the Swiss proposal)
is to provide accounts for private individuals (not just banks and large
financial institutions) to access this kind of money. The advantage is zero
risk of losing your money (unlike commercial banks it wouldn't require the
Government having to bail anyone out or insure anything), but the downside is
reserves don't attract any interest.

------
alex_young
How about fedDigitalCash? It's crazy that I pay a few percent of every
transaction to visa for no reason every time I buy anything in 2018

~~~
aserafini
Yes, paying a few % on every transaction to move kilobytes of information over
a network is absurd. The true cost is less than pennies but the EMV cartel led
by VISA has successfully kept the price many orders of magnitude higher,
employing anti-competitive tricks like: hiding the cost to consumers by
contracually preventing retailers from increasing prices for VISA payments.

~~~
PeterisP
Free/cheap digital payments exist (eg. EU SEPA credit transfers); for credit
cars, however, the majority part of the cost (and thus price) is not just
making the payment but ensuring that payments are reversible in case of fraud
and other disputes, and that customers can get their money back _even if_ the
money can't be recovered from a fraudster.

If you'd add a reputable escrow service, dispute resolution system and fraud
insurance on top of any cryptocurrency, these features will drive the cost up
just as high or more.

------
DoctorOetker
"It would be quite a twist if a technology whose most ardent fans are
motivated by distrust of central banks became a key tool for those banks."

It's the other way around: the fact that _publicly provable and verifiable_
financial systems are possible, yet the central banks didn't work this out
(what they should have been striving for from the start), nor improve on it
for another decade now is what fuels distrust of the old _blindly trusted_
financial systems.

~~~
ghthor
Pretty much nails this on the head. The FED failed at its mission and is due
for disruption. Considering how poorly our democratic system is working, it's
too going to come from private or open source industry.

------
nabla9
The money part of the technology is not important for central banks.
Underlying technology allows more useful solutions than cryptocurrency.

What Fed and others in banking want is new forms of distributed accounting and
settlement processes. You can apply the cryptographic technology for verifying
and connecting database rows across institutions in a way that is both
transparent, private and secure. If there is a public ledger online, it can be
audited by anyone.

------
jrq
Isn't that what a line of credit is? Or a debit card? It's got a history of
spending, it's very hard to double spend, and its completely traceable?

Sometimes I think fed has learned from Bitcoin that they don't trust us with
Bitcoin, and they shouldn't trust us with cash either. I don't feel like they
really give a shit about what a distributed ledger actually accomplishes and
how it protects users.

Additionally, mining. Mining is a huge problem in my eyes because it wastes a
ridiculous amount of energy to not produce anything. I'd love to just buy-in
with my credit card or with cash, and have those coins generated (until supply
is depleted) to meet the value at that time. If fedcoin worked like that,
that'd be neat. Otherwise, it's just an energy sink, and I think we should
start being more conscious at where all this energy is going.

Side question, HNers who use Bitcoin, why are you using bitcoin? Why aren't
you using monero? If it's just convention, then switch! That's how conventions
change!

------
zitterbewegung
It could create FedCoin. But, instead it will allow the investment banks to
make it for them and then sign off on whatever they makeup because they can
not only make it legal but make it easy to use.

Then the government would just let those coins that pass through this with
open arms. Regulation now is the biggest part of an ICO and if you are an
investment bank and want a big piece of the distributed ledger pie you
probably are already figuring out how to do this.

I was at a meeting with laywers who wanted to understand what an ICO is. KYC
and AML laws are now the big problems on implementing an ICO. 2017 was the
start of the ICO boom and 2018 will be the start of the enforcement. Expect a
bunch of coins to disappear.

~~~
garmaine
> 2018 will be the start of the enforcement

For what it's worth, I've been hearing "X will be the year of regulatory
enforcement" since 2014. So far all we've seen is a very level-headed and
even-handed approach targeting just the outright scams. "year of regulatory
enforcement" in the crypto currency space is becoming a bit like the "year of
linux on the desktop" meme.

~~~
dnomad
Yes, the SEC will continue to take a very light touch. There's no upside to
them cracking down on ICOs. The only people losing money are the people who
mostly understand the risks of cryptocurrencies and "invest" anyways. The SEC
may get serious when grandmothers lose money or there's blood in the streets.
Until then there's a kind of regulatory sovereignty that must be defended on a
pro forma basis eg the slam-dunk enforcement actions and various announcements
that "some ICOs are securities but we won't say which, never the less it's our
decision to make and nobody else's." The _only_ real risk to the SEC is that
some other regulator like the NFA or the CFTC will step in and say "these
coins are currencies and we're gonna regulate them" or "these coins are
commodities and we're gonna regulate them."

~~~
JumpCrisscross
> _There 's no upside to them cracking down on ICOs_

To add: enforcement resources are limited. Every cryptocurrency fraud
investigated is a bread and butter fraud ignored. While _caveat emptor_ isn't
the law of the land, justice is a slow-turning mechanism. What will be
enforced in the long term need not be addressed in the short.

------
travmatt
HN previously discussed a Bank of International Settlement Report on Central
Bank Cryptocutrencies -
[https://news.ycombinator.com/item?id=15278063](https://news.ycombinator.com/item?id=15278063)

------
garmaine
> But what if central banks themselves entered the game? What would happen if
> the Federal Reserve, or the European Central Bank or the Bank of Japan used
> blockchain technology to create their own virtual currencies? Besides, that
> is, having some cryptocurrency fans’ heads explode?

Maybe some of the wacko nut-jobs out there in cryptocurrency fandom. But most
would welcome this with open arms. It would mean that you could create smart
contracts denominated in fiat, or trustless exchanges, or trustless covered
shorts on the price of bitcoin, etc. What's the downside?

~~~
BaronVonSteuben
I'm probably one of those "wacko nut-jobs out there" that you refer to, so you
may just want to dismiss my point outright with ad hominem. However, I don't
think any of us wacko nut-jobs would care about fed coin, _as long as_ they
don't go after competing coins. In fact, I welcome the competition. As long as
it's free competition, may the better, less manipulable, coin(s) win.

~~~
garmaine
Why competition? This isn’t a zero sum game.

~~~
21
It is. You either store value in dollars, euros, gold, real estate, art or
bitcoin.

You can't "dobule spend" the same value.

~~~
garmaine
The market cap of bitcoin going up does not make the market cap of gold, usd,
or real estate go down. Total aggregate wealth is not zero/fixed sum.

------
lettergram
Pretty sure the USD is enough.

~~~
wmf
You can't transfer USD electronically without using banks or third-party
services that are trying to skim basis points off the entire economy. In
theory a well-implemented FedCoin could be more neutral and efficient.

~~~
geofft
That's not a limitation of USD. If the Fed wanted to create an API that let
you do that and sidestep banks, they could. (And if they couldn't because a
government agency can't casually destroy an industry like that, that
restriction applies to FedCoin, too.)

~~~
wmf
Indeed, and I think an implementation of "FedCoin" would probably be better
off without a blockchain, given that you're trusting the government anyway.

------
smittywerben
"we don't see any immediate systemic risk issues" \- Warsh, 11 July 2007

[https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-11...](https://www.gpo.gov/fdsys/pkg/CHRG-110hhrg38388/html/CHRG-110hhrg38388.htm)

~~~
wmf
Please be specific; the link between the financial crisis and a hypothetical
FedCoin is not at all obvious.

~~~
azernik
The connection is that this is the same person making both predictions.

------
azernik
Looks quite close to the way the Basis people
([http://www.basis.io/](http://www.basis.io/)) talk about a central-bank-run
version of their currency, where the bank can target a level of inflation and
let the system do the rest.

------
contingencies
China already has WeChat money. It's literally everywhere. To the point where,
you often spend days without touching money. People now sigh and groan and ask
for the manager to get the key to open the till if you insist on paying with
cash.

------
retox
They want to do away with unaccountable physical cash. Another method of
tracking and control. They will keep their gold of course.

------
toufique
Answer: No thanks.

------
0x445442
If I can't buy, let's say... heroine completely anonymously with FedCoin then
I think the whole spirit of the initial vision has been violated. Call me
crazy but I don't think this is what's envisioned by those that would advocate
for something like FedCoin.

------
gesman
It’s not “should”.

More like “when”

------
anonymous5133
They should create it just to show that it will be a failure.

