HN Theater @HNTheaterMonth

> Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation

It's a "damned if you do, damned if you don't" situation. Mainly because of the outsized lobbying power of the wealthy folks backing VC's backing crypto.

Clamp down on crypto with regulations and many, many wealthy political contributors are going to be pissed off by stifling growth. Don't clamp down and you get the situation we're in now where everyone is losing their shirts.

What about the middle ground? I think we can only now talk about it because enough wealthy people also lost big chunks of their investment in these last few months.

BTW, despite whatever implied connections to FTX Gary Gensler has, his series of talks at MIT on blockchain[0] technologies leads me to believe that there are few people better equipped to navigate this from a political perspective.

[0] https://youtu.be/EH6vE97qIP4

Yes and before becoming Chair at the SEC, Professor Gary Gensler taught a course at MIT called "Blockchain And Money."[1][2]

Given that both SBF's parents are Professors at Stanford, this couple were very much ivory tower children.

It would really be something if Gary Gensler was part of the SEC probe looking into the FTX collapse.[3]

It's practically a Hollywood screenplay that almost writes itself.

1. https://ocw.mit.edu/courses/15-s12-blockchain-and-money-fall...

2. https://www.youtube.com/watch?v=EH6vE97qIP4

3. https://thenewscrypto.com/sec-chairman-gensler-discusses-cry...

⬐ apollyon95

Both of her parents are professors at MIT. If they had a kid regression to the mean in IQ would be like 140+.

Because there's no benefit over a central system. If you trust the central bank (which a vast majority of participants in the financial system do), you don't need distributed anything. Blockchains are for trustless systems. The US financial and capital systems are built on legal and regulatory trust. Your smart contract will never override a judge or a regulatory body.

The federal government need not deploy a crypto token in order to kill Tether. They will simply regulate it out of existence. It is clear this is the path we're on from Yellen's statements and the nomination of Gary Gensler to the SEC (who previously taught about cryptocurrency systems at MIT) [1]. Globally, China is cracking down hard, and Europe seems to be preparing to do so. None of this should be unexpected to an educated scholar of history and nation state mechanics.

> It is important to note that a CBDC might not be the only way to address some of these problems; for example, in the US we might improve financial inclusion by requiring commercial banks to provide free, no-minimum accounts to users [2] [3], or by limiting or eliminating fees, as these were some of the reasons listed when the US unbanked were asked why they don’t have bank accounts.

So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving?

[1] https://www.youtube.com/watch?v=EH6vE97qIP4 (MIT 15.S12 Blockchain and Money, Fall 2018, Instructor: Prof. Gary Gensler)

[2] https://www.congress.gov/bill/116th-congress/senate-bill/357... (Banking for All)

[3] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm (FedNow Instant Payment system, 2023 GA)

⬐ roenxi

I agree, but it isn't a question of anyone trusting the central banks. There is no upside to trusting them, and they aren't fundamentally trustworthy.

The core of the issue here is that the legislative system and particularly the tax code assumes that the government has final say on who gets what money. With that fundamental perspective there is 0 advantage to a decentralised database over a centralised database. A decentralised database just makes it more difficult for the government to give/take/move money.

⬐ minitoar

The upside is that I get to participate in the economy as it exists.

⬐ roenxi

It is fairly easy to participate in the economy without trusting the central banks. Get out of fiat as quickly as possible.

The Bitcoin people generally don't trust the fed and they have, strictly speaking, ended up in a much better position to participate in the economy.

⬐ cinquemb

> The Bitcoin people generally don't trust the fed and they have, strictly speaking, ended up in a much better position to participate in the economy.

Some people here seem think that "guns and laws" will be able to stop them (and other forms and cryptocurrencies in general) from participating in the economy, esp without describing how that will actually work in practice (or without acknowledgement how "guns and laws" have largely failed in practice for the past ~13 years wrt to proliferation of cryptocurrencies esp compared to some of its predecessors in the 90's that were quickly stomped out)…

⬐ minitoar

That’s interesting, how do you know other people think this?

⬐ dalbasal

At this point, crypto is just a rapidly maturing system for digital money. There may be no advantage of a centralized cryptocurrency in theory, but in practice there is. That's why Tether exists. USD wasn't up to the task. I'm sure all these exchanges would prefer to be using USD if they could.

It's like using PC architecture to power a calculator. Sure, it's not technically necessary. In practice, if you want to build yourself a calculator, you might use it just because it's there.

⬐ ftio

Can you elaborate on what you mean by "USD wasn't up to the task"? Don't the vast majority USD transactions occur digitally?

⬐ dalbasal

Tether exists, originally at least, to transfer funds (USD) between cryptocurrency exchanges. Moving "real" USD requires the financial system: banks and the Fed and everything between banks and the FED. The system was too slow/expensive for crypto-exchanges, so they adopted Tether which promises to be the equivalent of a dollar. It turns out, that there's quite a lot of demand for digital dollars though. So, Tether blew up, essentially creating a shadow banking system that doesn't resolve to an account at the Fed.

^not an expert. could be wrong. my attempt at a synopsis.

⬐ toomuchtodo

That doesn't mean USD wasn't up to the task, that means Tether is used to evade regulation and oversight. Exchanges could've held US treasuries in institutional accounts if the fiat was actually there, but you can't easily fake holding UST or similar instruments.

From Matt Levine's Money Stuff article yesterday (Tether heading):

> Here is the website [1] for the JPMorgan Prime Money Market Fund. If you click on the tab labeled “portfolio,” you can see what the fund owns. The first item alphabetically is $50 million face amount of asset-backed commercial paper issued by Alpine Securitization Corp. and maturing on Oct. 12. Its CUSIP — its official security identifier — is 02089XMG9. There are certificates of deposit at big banks, repurchase agreements, even a little bit of non-financial commercial paper. The fund lends some money to LVMH Moet Hennessy Louis Vuitton and Toyota Motor Finance (Netherlands) BV. You can see exactly how much (both face amount and market value), and when it matures, and the CUSIP for each holding.

> JPMorgan is not on the bleeding edge of transparency here or anything; this is just how money market funds work. You disclose your holdings.

> Here is an incredible interview [2] that the chief technology officer and general counsel of Tether did yesterday with CNBC’s Deirdre Bosa. Tether is a stablecoin that we have talked about around here because it was sued by the New York attorney general for lying about its reserves, and because it subsequently disclosed its reserves in a format that satisfied basically no one. Tether now says that its reserves consist mostly of commercial paper, which apparently makes it one of the largest commercial paper holders in the world. There is a fun game among financial journalists and other interested observers who try to find anyone who has actually traded commercial paper with Tether, or any of its actual holdings. The game is hard! As far as I know, no one has ever won it, or even scored a point; I have never seen anyone publicly identify a security that Tether holds or a counterparty that has traded commercial paper with it.

> Bosa, who had two Tether executives on her show, sensibly asked them about it several times, but you can’t win the game that easily! “We don’t disclose our commercial partners, so that is quite important,” says CTO Paolo Ardoino at around the 5-minute mark. “Given our portfolio composition in commercial paper, we believe that it is quite important to respect the privacy of the banking partners that we work with.” That’s not a thing! That’s not a thing at all! Every money-market fund just lists all of its holdings, by size and issuer and CUSIP! Tether has broken new ground in the concept of commercial-paper privacy rights! But, why?

> Everything in this interview melted my brain. Another favorite came at around the 13-minute mark, when GC Stuart Hoegner says “we maintain cash, for example, that is many multiples above our single biggest redemption thus far, as well as above our biggest 24-hour period of redemptions,” which is … not … that … much? (Banks, for instance, are generally required to have “high-quality liquid assets” sufficient for “a 30 calendar day liquidity stress scenario.”) There is more here, including a promise that audited financials are “only months away.” I do not watch a lot of 32-minute business-television interviews but I found this one riveting.

[1] https://am.jpmorgan.com/us/en/asset-management/adv/products/...

[2] https://www.youtube.com/watch?v=ZBEqyiO35cQ

⬐ dalbasal

I don't doubt that Tether is used to evade regulation and oversight. Tether, the company, certainly seems to be pretty shady. But, it isn't only used for that.

The reason tether, the coin, initially took off, was that exchanges (including 2 bit upstarts with no financial or technical chops using off the shelf software) needed a way to transfer funds between them. They could, in theory, have driven trucks of cash between each others offices without regulation, but that's not feasible. They could have transferred regular cryptocurrencies like bitcoin, but that creates an exchange risk that they can't handle. Hence Tether.

In practice, real USD were not up to this task. It's possible that "the task" itself is the problem.

If exchanges were established, bigger, more trustworthy and capable companies... they'd probably trust each other and clear transactions weekly or something.

⬐ toomuchtodo

Can you explain why USD was not up to the task? Why could they not move real dollars between themselves or their accounts held at regulated banks?

⬐ dalbasal

Transaction costs, speed, the willingness of banks to do that kind of business, the assurity that banks will not panic and reverse transactions or shut the account down. Tether, until it inevitably explodes, just works.

The reality of modern business banking is that it works, effectively, on a whitelist basis. They don't just let a totally new business category open an account transacting millions per day just because they don't know of anything illegal.

I take your point that these are, under the hood, regulatory... but that doesn't really change that much.

We could reverse the questions. Why would an exchange prefer to hold tether than USD?

I fully agree with you on Tether, the company. I also agree that it has gone way past exchanges. That said, it is true that working within the normal financial system is extremely difficult for anything new, with big needs for financial services.

⬐ arebop

There is not and will not be a central system. The CCP isn't going to abandon their currency for the US CBDC and vice versa. So building on top of an incumbent blockchain such as Ethereum would be more interoperable than the proprietary centralized USG CBDC. Though, having seen what has happened with chat, it isn't obvious that interoperability wins in the end versus a handful of walled gardens each hoping to prevail over all others.

⬐ craigc

I agree that running it on top of another ledger like ETH or BTC makes no sense.

That said, the idea of trusting a central bank that is completely unaccountable to the public or even to the Government is crazy to me.

⬐ icf80

This is how the Fed is run, they need the power to issue money whenever there is need without oversight.

⬐ mastax

"Without oversight" is stronger than reality as Trump's threatening of Powell illustrates. It is true that there is a strong culture of a politically independent, technocratic Fed. However this is a relatively recent invention by Volcker in the 80s. Volcker was pretty convincing about it's merits, hence it's survival, but even he was threatened by Reagan to not raise rates during the re-election campaign.

⬐ pbak

I'd ask "whose oversight is avoided ?", and "whose isn't ?". You are supposing the Fed's deciding committees are acting fully independently (wittingly or not) within their mandate. AFAIK the process isn't exactly transparent, even ex post facto.

Similarly, we've seen last 12 years there's more than one way to skin a cat - issue "money" at the fed level - than just printing. They invented at least 3 mechanisms since.

That being said, it's not entire clear to me how current tokens/coins solve that conundrum without losing some major desirable/necessary "macro" features and flexibility.

⬐ jjoonathan

Sure, go ahead, make the federal reserve more politically accountable -- and watch as inflation spirals out of control because the tool to combat inflation (raising interest rates) is political poison.

Just how poisonous? Well, what have you heard about presidents Carter and Reagan?

⬐ unabridged

>So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving?

Blockchain will still solve the problem of currency losing value by unlimited printing.

You should be thinking about what problems will retail banking and payment processors be solving. An easy to use CBDC will render many of them unnecessary.

⬐ sergefaguet

Unfortunately what you refer to as a “problem of currency losing value” is a feature for a government, not a bug. They want this because it allows them an additional path to taxation by diluting all existing holders of fiat.

The only way to prevent being diluted is to not hold fiat and end up in a situation where it is held only by government beneficiaries, i.e. that the government is inflating to pay people affected by inflation. Then their ability to inflate is de facto obliterated.

⬐ toomuchtodo

You are trying to solve a policy and government concern with technology, attempting to avoid a currency controller from debasing the currency. If the government, through regulation or legislation, prohibits distributing your own currency, you can't prevent monetary policy by way of operating your own currency (in this case, crypto). Guns and laws > your crypto node.

Tangentially, its strange to me that people believe that imaginary money (fiat) should always maintain the same amount of value, when it's an economic tool and not a store of value. The entire point of devaluing a currency is to encourage investment in productive assets while stoking consumption.

⬐ unabridged

The US government currently doesn't care if I sell billions of USD and buy JPY instead, as long as I pay the proper taxes and they can see the transaction. I imagine crypto will be treated the same way, they just want to monitor the on/off ramps. Stablecoins are just a giant decentralized on/off ramp which they wish to bring into compliance.

⬐ toomuchtodo

Yes, very true. Crypto is a symptom of 1. the desire to move value for illicit transactions, 2. the desire to move value faster, and 3. the desire to speculate on an asset. Domestic instant payments and faster international payments solve for #2, but if crypto's benefit is only illicit payments, I don't see much of a future for it except to gamble on the possibility of appreciation (digital gold). AML/KYC isn't going away.

Stablecoins aren't an improvement over rows in a database held by a trusted and regulated entity and messages moving between queues for value transfer, but it'll take time for the hype train to run out of steam. I assume boredom will take hold once the ramps are heavily regulated, private wallets are outlawed, there's no more money to be made speculating and pumping/dumping shit coins, etc.

⬐ capnorange

> Blockchains are for trustless systems

Not necessarily. Permissionless access, composability and public data are still useful which is not possible in regulated environments.

⬐ toomuchtodo

That's a distributed database with more ceremony. I'm sure there are use cases I'm not aware of yet with novel technologies, but governments are not going to allow their monetary policy to be usurped by distributed writer Merkle trees run by randos.

⬐ f38zf5vdt

Yes. If they use cryptography to ensure that the database is obfuscated, they could even make the database public with no consequence and anyone could verify the current money supply. That seems like an advantage over the current system where we trust them to report the correct amount?

⬐ toomuchtodo

If Congress trusts the data provided by the Fed, the burden has been met, no cryptographic primitives required. The Fed isn't accountable to Joe Sixpack who wants to verify records in a public database or its transaction log.

⬐ geofft

But you have to trust the central bank in order for the money to mean anything at all (unless you're proposing that the central bank would become unable to change the money supply, which is a much more drastic change to the status quo than is being proposed).

If I am the Central Bank of Hyrule and I point out to you three million rupees and you see them, you're confident in today's money supply, have no idea whether I'm about to mint another hundred million tomorrow. Your trust (or lack of trust) that I won't do so directly influences the value of rupees, that is, the exchange rate between rupees and other currencies (USD, ETH, whatever) or the purchasing power of rupees. If I do mint piles of rupees, the value of the rupee will crash, and it doesn't matter that you saw three million yesterday - they're not worth as much as they were.

If you know that I am unable to mint more rupees, then I'm not acting as a traditional central bank, I've just created an actual cryptocurrency like Bitcoin or something with a fixed supply.

⬐ f38zf5vdt

If everyone has collectively lost trust in their government to the extent that they no longer believe their government will not hyper-inflate their currency on a whim, the average individual under that government will have much bigger problems like "how do I survive all these bullets while my nation-state enters anarchy". We haven't switched to exchanging gold for groceries even before cryptocurrencies entered the picture, so I don't see why we would now.

⬐ geofft

Sure. I'm just not totally sure there's a meaningful point at which you trust that your government won't hyper-inflate your currency but you don't trust that the existing monetary supply is real, i.e., I don't think that it helps anything to have cryptographic proof of the government's existing monetary supply.

⬐ dalbasal

So?

Trustlessness is, no doubt, a "hard" problem solved by crypto. But, just because something is theoretically trivial doesn't mean that it is in practice. Could you architect a "distributed database with more ceremony?" Sure. Will they? Maybe not.

I realize this is offensive to fans of bitcoin/crypto's technical achievement and monetary ideals, but that doesn't mean it's not operative.

You don't need a PC to run a word processor. That said, if you wanted to build a dedicated word processor, you would probably use or modify a pre existing PC architecture.

Well at least take a look around and see if it's interesting to you. I've been enjoying a playlist of blockchain lectures by Gary Gensler, current chair of the SEC. Lecture 6 is smart contracts with Lawrence Lessig guest speaking. [0]/[1]

I've been avoiding smart contracts since hearing about hacks like these (similar to the Multisig Parity Bug years ago, neglected to initialize, let someone else become the owner and kill the contract) - but I've been educating myself the past week and find that there are really cool things that can be done, maybe cooler a year or 15 in the future when ETH finally gets its fees under control.

As a programmer, you'd probably be interested to see the ethereum virtual machine's "assembly" language [2], I'm pretty impressed with how little code underlies all these ERC20 tokens.

[0] https://ocw.mit.edu/courses/sloan-school-of-management/15-s1...

[1] https://www.youtube.com/watch?v=EH6vE97qIP4&list=PLUl4u3cNGP...

[2] https://docs.soliditylang.org/en/v0.8.4/yul.html