Square’s federal comment letter regarding FinCEN’s proposed rulemaking(squareup.com)
squareup.com
Square’s federal comment letter regarding FinCEN’s proposed rulemaking
https://squareup.com/us/en/press/fincen-letter
1 comments
[deleted]
> What a major US Federal Regulator just announced is that all banks can use blockchains (like Ethereum) to move value, just like they use Swift or ACH https://www.coindesk.com/occ-banks-stablecoin-payments
I see this as a way for Brian Brooks at the OCC to appear to be a “thought leader” as a crypto proponent. I have had to interface with his type more than once (most unfortunately), but luckily it doesn’t appear the Biden administration will confirm him for the role the current administration has been pushing him for.
Many other countries have instant payment networks without the need for crypto or blockchain networks. Zelle already supports instant payments in the US, and the Federal Reserve is rolling out their own instant payment service in 2023. FedWire and similar institutional services are arguably superior when compared to distributed ledgers and their abysmal transaction rates. Are banks not going to keep reserve accounts at the Fed (which is where they’d net and settle)? And with central banks all moving toward digital accounts for citizens, and most of those central banks not considering crypto, this doesn’t seem like that big of a deal.
Ethereum is built for a financial world where trust doesn’t exist, and you must build your logic into smart contracts instead of your application. Very few jurisdictions where the rule of law and trust in the financial system doesn’t exist. I think there’s benefit in open sourcing the components that drive financial services and infrastructure, but believe it’s disingenuous to conflate that with the need for tokenized finance, distributed ledgers, and similar Rube Goldberg mechanizations.
I see this as a way for Brian Brooks at the OCC to appear to be a “thought leader” as a crypto proponent. I have had to interface with his type more than once (most unfortunately), but luckily it doesn’t appear the Biden administration will confirm him for the role the current administration has been pushing him for.
Many other countries have instant payment networks without the need for crypto or blockchain networks. Zelle already supports instant payments in the US, and the Federal Reserve is rolling out their own instant payment service in 2023. FedWire and similar institutional services are arguably superior when compared to distributed ledgers and their abysmal transaction rates. Are banks not going to keep reserve accounts at the Fed (which is where they’d net and settle)? And with central banks all moving toward digital accounts for citizens, and most of those central banks not considering crypto, this doesn’t seem like that big of a deal.
Ethereum is built for a financial world where trust doesn’t exist, and you must build your logic into smart contracts instead of your application. Very few jurisdictions where the rule of law and trust in the financial system doesn’t exist. I think there’s benefit in open sourcing the components that drive financial services and infrastructure, but believe it’s disingenuous to conflate that with the need for tokenized finance, distributed ledgers, and similar Rube Goldberg mechanizations.
> Very few jurisdictions where the rule of law and trust in the financial system doesn’t exist. I think there’s benefit in open sourcing the components that drive financial services and infrastructure, but believe it’s disingenuous to conflate that with the need for tokenized finance, distributed ledgers, and similar Rube Goldberg mechanizations.
To compare this to open source, why did we need Linux in 1991? If you wanted Unix with paid support from a company, it was available. If you wanted free Unix, the BSDs were available. If you were worried about the BSD lawsuits, then it'd seem more appropriate to encourage this Torvalds fellow to contribute to GNU Hurd, a right proper operating system in development, instead of embarking on a scrappy one person effort.
If you trust the rule of law and the financial system, then you are free to continue to use it and ignore cryptocurrency in your life. But what's the problem with having an alternative for those that don't share your view and wish to develop a system free from the encumberances of trust in third parties?
To compare this to open source, why did we need Linux in 1991? If you wanted Unix with paid support from a company, it was available. If you wanted free Unix, the BSDs were available. If you were worried about the BSD lawsuits, then it'd seem more appropriate to encourage this Torvalds fellow to contribute to GNU Hurd, a right proper operating system in development, instead of embarking on a scrappy one person effort.
If you trust the rule of law and the financial system, then you are free to continue to use it and ignore cryptocurrency in your life. But what's the problem with having an alternative for those that don't share your view and wish to develop a system free from the encumberances of trust in third parties?
> If you trust the rule of law and the financial system, then you are free to continue to use it and ignore cryptocurrency in your life. But what's the problem with having an alternative for those that don't share your view and wish to develop a system free from the encumberances of trust in third parties?
Nothing, as long as you adhere to financial regulations and related laws where the systems and its users operate. Novel technologies don’t absolve you of adhering to the law.
If that means unnecessary abstractions and overhead, or a handicapping of capabilities, then them the breaks of selecting a technology not fit for purpose. Consider regulations and laws as requirements when building systems that store or transmit value.
Nothing, as long as you adhere to financial regulations and related laws where the systems and its users operate. Novel technologies don’t absolve you of adhering to the law.
If that means unnecessary abstractions and overhead, or a handicapping of capabilities, then them the breaks of selecting a technology not fit for purpose. Consider regulations and laws as requirements when building systems that store or transmit value.
> Nothing, as long as you adhere to financial regulations and related laws where the systems and its users operate. Novel technologies don’t absolve you of adhering to the law. [...] Consider regulations and laws as requirements when building systems that store or transmit value.
This assumes that one lives in a jurisdiction where the law is just and financial institutions are trustworthy. As another example, if the United States were to make end to end encryption illegal [1], are you willing to say, well that's the law of the land, why do we need to keep developing Wireguard or OpenVPN? There would be other jurisdictions that don't disallow it, so the existence of jurisdictions that do disallow it isn't a reason not to continue to develop the technology.
Technologists can be picky about when it's okay to flaunt regulation. I won't speak for you, but many who denounce cryptocurrency for its dubious legal status will in the same breath praise companies like Uber for improving the transportation status quo by "disrupting" the outdated regulations that existed. I see cryptocurrency the same way. I hope that its disruptive nature will cause jurisdictions to reevaluate their financial laws. In the United States, the aforementioned announcement from the OCC today [2] giving guidance to banks on how to use cryptocurrency is a step in the right direction, whether or not you think it's a genuine opinion or opportunism. Certainly there is a place for centralized systems, but centralization should be optional, not a requirement. If one doesn't trust the person/company/government running the centralized service, there should be alternatives.
[1] https://protonmail.com/blog/usa-laed-act-anti-encryption/
[2] https://www.forbes.com/sites/haileylennon/2021/01/04/occ-reg...
This assumes that one lives in a jurisdiction where the law is just and financial institutions are trustworthy. As another example, if the United States were to make end to end encryption illegal [1], are you willing to say, well that's the law of the land, why do we need to keep developing Wireguard or OpenVPN? There would be other jurisdictions that don't disallow it, so the existence of jurisdictions that do disallow it isn't a reason not to continue to develop the technology.
Technologists can be picky about when it's okay to flaunt regulation. I won't speak for you, but many who denounce cryptocurrency for its dubious legal status will in the same breath praise companies like Uber for improving the transportation status quo by "disrupting" the outdated regulations that existed. I see cryptocurrency the same way. I hope that its disruptive nature will cause jurisdictions to reevaluate their financial laws. In the United States, the aforementioned announcement from the OCC today [2] giving guidance to banks on how to use cryptocurrency is a step in the right direction, whether or not you think it's a genuine opinion or opportunism. Certainly there is a place for centralized systems, but centralization should be optional, not a requirement. If one doesn't trust the person/company/government running the centralized service, there should be alternatives.
[1] https://protonmail.com/blog/usa-laed-act-anti-encryption/
[2] https://www.forbes.com/sites/haileylennon/2021/01/04/occ-reg...
You are 100% right that the regulators have (and will continue) to come down hard on entities that violate these laws.
But crime is endemic, even in the developed world, and has been long before crypto existed. On the internet itself, TOR allows all manner of illegal IP packets to be transferred, but we have not banned the internet itself.
I know this is a tired argument that is oft repeated, but this is because it's true! We can't ban cryptocurrency simply because it can be used for crime. Society accepts that technology can be used for good or evil.
But crime is endemic, even in the developed world, and has been long before crypto existed. On the internet itself, TOR allows all manner of illegal IP packets to be transferred, but we have not banned the internet itself.
I know this is a tired argument that is oft repeated, but this is because it's true! We can't ban cryptocurrency simply because it can be used for crime. Society accepts that technology can be used for good or evil.
A conceptual difficulty is that cryptocurrencies often intend to make financial technology truly private and permissionless. That goal itself is at odds with lots of existing regulatory systems, and many cryptocurrency developers have emphasized that they want to help people transact outside of those systems.
If you don't want to help people have more privacy, autonomy, jurisdiction-independence, etc., than existing financial systems, but just want to be faster and more programmable, then you don't need cryptocurrency. Instead, you could create a centralized intermediary that implements a system with the properties you want, and simply prepares to help governments {track,seize,freeze,blacklist,reverse} {users,assets,transactions} to the extent that regulators would like. This centralized intermediary will probably be faster, more resource-efficient, less prone to exotic attacks on consensus mechanisms, and more scalable than a decentralized cryptocurrency. It could also be moderately innovative compared to some previous financial intermediaries.
What are the properties that, say, Bitcoin has tried to purchase at the (expensive!) cost of completely decentralized proof-of-work consensus? They include the inability for a centralized authority to shut down the system, or exclude particular participants, or block or reverse particular transactions, or override or violate the predetermined rules for what constitutes a valid transaction, or condition participation on compliance with any particular bureaucratic formality. They include letting miners be anonymous. If you don't want those things, you could more efficiently replace all of Bitcoin or Ethereum with any of several of multi-writer append-only distributed data structures with, for example, a publicly enumerated set of identified, trusted consensus verifiers.
If you don't want to help people have more privacy, autonomy, jurisdiction-independence, etc., than existing financial systems, but just want to be faster and more programmable, then you don't need cryptocurrency. Instead, you could create a centralized intermediary that implements a system with the properties you want, and simply prepares to help governments {track,seize,freeze,blacklist,reverse} {users,assets,transactions} to the extent that regulators would like. This centralized intermediary will probably be faster, more resource-efficient, less prone to exotic attacks on consensus mechanisms, and more scalable than a decentralized cryptocurrency. It could also be moderately innovative compared to some previous financial intermediaries.
What are the properties that, say, Bitcoin has tried to purchase at the (expensive!) cost of completely decentralized proof-of-work consensus? They include the inability for a centralized authority to shut down the system, or exclude particular participants, or block or reverse particular transactions, or override or violate the predetermined rules for what constitutes a valid transaction, or condition participation on compliance with any particular bureaucratic formality. They include letting miners be anonymous. If you don't want those things, you could more efficiently replace all of Bitcoin or Ethereum with any of several of multi-writer append-only distributed data structures with, for example, a publicly enumerated set of identified, trusted consensus verifiers.
[deleted]
You could be right that Ethereum will (at best) be a niche in the banking space. However my experience shows that open protocols tend to become entrenched and eventually overwhelm the proprietary solutions.
If you look at all the payment networks you mentioned, all of them are regional and not peer-to-peer. Ethereum is wide open and can be used peer to peer. Every country, institution, business, and individual doesn't need to trust each other - they just trust the network. And adding new applications to this open network, which is wide open and permissionless, can be done by ramen-powered startups on shoe string budgets. This is why I am so bullish on Ethereum.
It's open source finance vs. closed source. As you observe regulatory entities, even the USA, bend in various ways to crypto, you can see the foothold it has. And I believe it will continue to grow because novel solutions will sprout up from brand new companies accomplishing things no one thought possible.
If you look at all the payment networks you mentioned, all of them are regional and not peer-to-peer. Ethereum is wide open and can be used peer to peer. Every country, institution, business, and individual doesn't need to trust each other - they just trust the network. And adding new applications to this open network, which is wide open and permissionless, can be done by ramen-powered startups on shoe string budgets. This is why I am so bullish on Ethereum.
It's open source finance vs. closed source. As you observe regulatory entities, even the USA, bend in various ways to crypto, you can see the foothold it has. And I believe it will continue to grow because novel solutions will sprout up from brand new companies accomplishing things no one thought possible.
At my day gig, I am required to interface with and report to financial regulators in the US. I don’t share your optimize based on my experience doing so. Financial regulatory frameworks and “they just trust the network” are incongruent. My personal opinion is a desire for more open financial systems to drive towards utility costs (central bank digital currencies held at central banks, for example), but I don’t see crypto as the mechanism by which to arrive at that (as long as the law and legal frameworks supersede technologies).
Just sharing my ground truth. I could be wrong long term. The longer your timeline, the more difficult predictions are.
Just sharing my ground truth. I could be wrong long term. The longer your timeline, the more difficult predictions are.
You are more likely right than not, and this is coming from someone who has devoted the majority of his professional career to crypto / blockchain and whose license plate is 'BCOINS'. So I have fully drank the kool aid!
However you must admit despite your (justified) cynicism that this is very intriguing technology, and no one expected it to grow as much as it did as quickly as it did, and get official regulatory approval in so many ways. I am very optimistic in its future its potential for brand new businesses and ideas to be created and flourish in ways that no one expected.
However you must admit despite your (justified) cynicism that this is very intriguing technology, and no one expected it to grow as much as it did as quickly as it did, and get official regulatory approval in so many ways. I am very optimistic in its future its potential for brand new businesses and ideas to be created and flourish in ways that no one expected.
I agree wholeheartedly that Ethereum is novel, but it’s still looking for a fit for its capabilities. I’m pragmatic, but not entirely without wonder and curiosity.
Words and thoughts are my own in the entire thread.
Words and thoughts are my own in the entire thread.
This was undoubtedly the nicest conversation regarding crypto / blockchain I have had on HN in years! Thanks for restoring my faith in civility.
I appreciate the kind words, and very much enjoyed the conversation. Thanks for taking the time to help me see another perspective with your comments throughout the thread.
This is exactly right, and it's something that i've been trying to explain to anti-crypto people since forever. Crypto democratizes trust. It's true that anything you can do on Ethereum you can do inside of JPMorgan. JPMorgan can execute financial contracts for you easily. However, in order for you to trust JPMorgan do execute them faithfully, it has to be huge in size, and heavily regulated. Ethereum allows anyone to be as trustworthy (more, actually) as JPMorgan, without any massive upfront capital investment, or centuries of continuous operation. If you can't see the value in that, I don't know what to tell you.
What a major US Federal Regulator just announced is that all banks can use blockchains (like Ethereum) to move value, just like they use Swift or ACH https://www.coindesk.com/occ-banks-stablecoin-payments
As smaller companies now have basically no barrier to entry in the bare metal rails of payments, finally serious innovation in this space can happen outside of heavily financed / licensed / oligopolistic / connected entities. Banks can then voluntarily choose to integrate with one or more open source value transfer networks (blockchains).
Look at USDC https://www.circle.com/en/usdc This is a regulated token fully backed by audited reserves (unlike Tether (USDT)). There will be some banks, such as for international settlement, that will find this technology better than the existing. There will be some people in foreign countries who prefer a cryptocurrency wallet on their phone to paper cash USD or their (corrupt) banking system (Venezuela, Lebanon, etc.).
Even if you are skeptical of blockchain, is it clear to you why this is useful? It's the Linux vs. Windows debate, open source vs. closed source, except in finance and payments.
Finally, just as every API added to the internet increases the value of the platform itself exponentially (network effect), every new tool and smart contract on the Ethereum network increases the value of the whole network to its users. It is an operating system for finance! This is the value proposition of the Ethereum experiment.