
Banks are rolling out cryptocurrencies to move funds between them - jenny8lee
https://qz.com/1066601/ubss-utility-settlement-coin-could-put-cash-on-a-blockchain-in-2018/
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whack
> _" Each settlement coin would represent fiat currency like euros and dollars
> on a one-to-one basis, and would thus be 100% backed by collateral at the
> domestic central bank, according to UBS. The idea is that exchanging the
> digital currency as payment for assets will be a more efficient means of
> exchange. Because the digital coins will be backed by cash at a central
> bank, which cannot default (they can always print money if they have to),
> the crypto tokens are free from credit risk. UBS says transfers and
> ownership could be settled instantly—the promise of blockchain technology."_

Can someone explain how this could work? Suppose on day-1, UBS has US$100M,
and wants to transfer that over to HSBC. I'm guessing they are going to:

1\. Create a brand new set of crypto-tokens representing US$100M

2\. Send the crypto-token over to HSBC electronically

3\. HSBC can then pass the crypto-tokens onto whoever they have dealings with

4\. Eventually, someone is left holding the crypto-token and wants to redeem
it for actual USD

5\. That person/entity would then go to UBS, hand over the crypto-token in
exchange for USD, with the trust that UBS will honor that request?

How is this any different from a bank issuing a IOU? Without
voters/governments deciding to back UBS idea, how is the nation's central bank
going to figure into this scheme?

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PeterisP
The difference is an IOU that can be verified independently of that bank
(banks don't trust each other), and the role of the central bank is to run
that ledger (banks trust the central bank).

~~~
rtkwe
That still seems like it requires a level of trust that the original bank is
holding onto the funds and has the cash liquidity to cover the total number of
coins issued.

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gcb0
they are probably not.

banks always had their own trading platform + monetary system. fully decoupled
from the economy.
[https://en.m.wikipedia.org/wiki/Dark_pool](https://en.m.wikipedia.org/wiki/Dark_pool)

there's no way they are making the system they own be subjected to mining
proof and other shenanigans. it would be a very dumb move for no obvious
advantage.

~~~
eutropia
Right -- and isn't massively energy inefficient? I think I saw an article crop
up here recently that said a processing a single BTC transaction uses
something like 5.8 times as much energy as the median US household uses in a
day.

Why would banks do something so monumentally wasteful when they can trust each
other?

~~~
gmu3
New cryptocurrencies don't require as much energy to mine initially

~~~
WhiteOwlLion
You can set up the crypto to not raise difficulty. Even a CPU based mining
could do the job then.

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WhiteOwlLion
How does Ripple and Tether play into moving funds between banks. I get Tether
tries to keep its value the same as USD (USDT anyway). Ripple, I don't
understand... as the value per coin changes. So, how do you convert into
Ripple and convert out of Ripple without risk of each coin rising or dropping
in value? I'd like to see a mutual fund approach to transfers where the
exchange rate is fixed for the day, so you know exactly what the exchange in
and out will be.

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cmollis
verifying the control and transfer of funds is a huge expensive process with
investment banking. There are entire companies that specialize in this type of
thing.. for example, the one (and only) fintech application I've ever built
was a MBS trading system. This is over 20 years ago, but the one component of
that process that seemed to be immune from disruption was the trade-clearing
process.. this was handled by BONY (Bank of NY.. according to the traders, one
of only a few companies that could handle it). I don't know exactly what they
did, but they took a 'tick' 1/32 or two off the top of the trade to manage the
(up to) 3 day 'settlement' process which, presumably, involved authorizing,
possibly insuring, the trade among the counter-parties, and ultimately
transferred the funds to whoever involved. Now, I may be off-base on this (I'm
sure someone will let me know here), but it seems like that's a pretty good
use-case for a blockchain-like system. I think paxos.com is doing something
around this too.

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cm2187
Can someone explain me the benefit over a simple public private key system
between 3 or 4 players that know each others. Can't they send one of their
guys to cross the street to deliver their public key in person to the other
team and skip the public ledger part?

I have seen first hand how far stupid ideas can go in one of the organisations
named in the article when the management is keen on them.

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elmar
maybe the banks don't trust each other.

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gcb0
and how instead of trusting each other they will trust the bank with most
computers?

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candiodari
Nope, they will trust the central bank. It's in the article.

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paulgb
If they trust the central bank for settlement why not trust the central bank
to keep the ledger?

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stale2002
Because if they lie about the ledger then they more easily get away with it,
as they could have secretly changed the ledger.

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reifnir
Leveraging blockchain as a distributed ledger is hardly "rolling out
cryptocurrencies".

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gchokov
SO will they deploy their own blockchains? I’ve always assumed that if banks
rollout their own chain, this will render all other “official” chains useless.
Edit: not useless, but certainly now what people hope - so much valuable. Fiat
is here to stay.

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thisisit
For anyone who can't access the FT link which was referenced:
[https://archive.fo/U2BRi](https://archive.fo/U2BRi)

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corobo
Title is actually "Banks are _finally_ preparing to use cryptocurrency to move
money between them"

Can we assume this is an opinion piece and not based in truth? Unfortunately I
can't access their sources due to paywalls

~~~
thisisit
You can read it here: [https://archive.fo/U2BRi](https://archive.fo/U2BRi)

