Stablecoins seem like they would achieve most of the goals of the original cryptocurrencies such as Bitcoin:
- Decentralized transactions
- 24/7 access
- Low fees
- Store of value
I suppose the only drawback here is that they're issued from a centralized authority. That said, for practical purposes the vast majority of Bitcoin holders didn't mine their own coins either.
Despite this, no one on Twitter[1] seemed excited. In fact they seemed upset that Coinbase didn't announce support for their cryptocoin du jour (mostly Ripple or Cardano). This is a recurring theme on all the subreddits I've visited: People rarely care about the usage of their cryptocurrency, they're only interested in its price.
A cryptocurrency that stays the same value is not very interesting to traders and therefore most of the cryptocurrency community.
Another key drawback of USDC is that your account can be frozen by the centralized authority:
USDC tokens are ERC-20 compatible and can be used with any ERC-20 compatible digital wallet. However, a global blacklist is maintained by CENTRE for USDC, which prevents tokens from being sent into or from blacklisted addresses. Reasons for blacklisting could include known fraudulent or illegal activity, or a legal order or process. Reserves associated with USDC balances held on blacklisted addresses may be wholly and permanently unrecoverable.
How bad this is is yet to be seen. Anyone who has experience with PayPal freezing their account knows that it can be very frustrating when a company freezes your accounts for some unknown reason and then does not communicate with you.
"Rebuilding the current regulated banking system" just with different people in charge can be quite lucrative if you are one of the new builders who is now in charge.
The cost of regulation is a decrease in both convenience and innovation. By eliminating regulation, you get a whole host of new startups that were previously held back, some of which solve genuine problems that have no existing solution. Consumers flock to these startups because right now, in this moment, they solve problems better and are more responsive to customers than the existing regulated incumbents.
Many regulations solve problems that only appear at scale, so as long as the new startups are small and voluntary, regulators take a hands-off approach and let these startups enjoy their competitive advantage. It takes time for regulators to catch up, so for several years, these new solutions can grow and get new adopters. Eventually all the bad behavior that caused the regulations in the first place appears, and there're calls for regulation, and the new boss starts to look an awful lot like the old boss. But people don't make their purchasing decisions based on what's going to happen in 20 years, they make their purchasing decisions based on what they need now.
You see this with a lot of dot-com era startups. People knew in 1997 that Amazon was going for monopoly and was just going to jack up prices when they achieved it; hell, Jeff Bezos even told investors as such. But consumers didn't care: we wanted convenience and low prices now, and even if we did without, other people would give Amazon their business, and all we'd succeed at is disadvantaging ourselves. Similar with Facebook; most people knew they were trading away their privacy (Zuckerburg's "dumb fucks" IM was made public in 2010, and he said it in 2004), but goddamnit, people wanted to see what their grandkids were up to.
Thank you for pointing out one of the big upsides to entrepreneurial bubbles. (Not necessarily all "speculative" bubbles.)
The simplified form is that a "gold-rush" mentality in an entrepreneurial bubble, even though it misprices risk generally, incentivizes builders to go build things more than they would, and since on balance building things is good, a hyper period of new venture formation still leads to net gains even if most are failures.
But nostrademons has a next-level mechanic here -- the idea that stage and scale are not fractal, and hence that rebuilding an ecosystem de novo (perhaps in a sort of sheltered petri dish) can yield big interesting beneficial outcomes because of the plasticity of things at the smaller scale and earlier stage.
(Still, I think it's a monumentally bad idea to acquiesce in the rebuilding of the financial system de novo by amateurs.)
I like your idea of time-arbitrage. I think Uber and AirBnB are good examples of startups that have created value by operating in loosely regulated areas. Still, I haven't anything emerge from the crypto space that appears to have a true value proposition and is not intimately connected to the exchange rate of virtual tokens
People knew in 1997 that Amazon was going for monopoly and was just going to jack up prices when they achieved it
Is that really the story of the past 21 years though? Instead it seems like Amazon has still not achieved monopoly in retail, and they still aren't getting amazing margins from it.
How do you fix our current monetary system??? You cant... its also generally much easier to make change by starting from scratch rather than trying to move an entire establishment. If the innovation catches on, the old establishement will crumble.
This all comes down to "MV=PQ", a description of the relation between money supply and real economic activity. Normally as the real economy expands (+Q) the amount of money is increased to keep it growing (+M). Without that either the quantity of transactions falls (-V) or the price level falls (deflation, -P).
Alternatively, think about what price stability really means. If a loaf of bread costs $1, an hour of work $10, a barrel of oil $50, and a house $500k today ... how do you really ensure that they cost exactly that in 50 years when you come to retire? You can't. In a real economy there are real reasons for shifts in the price level.
If you have a fixed money supply that is infinitely divisible, prices would be expected to fall due to deflation and increased purchasing power. Relative values of bread, hour of work, barrel of oil and a house should remain the same (with the caveat that their real values actually change - eg if we become an electric car economy then the relative price of oil in big macs will change). This makes no difference to anything of substance, it is just mathematics and psychology. The only real substantive issue is with debt repayments with deflationary currency, in which case I'd advise thinking hard about your loan terms.
I think your point about infinite divisibility is an interesting one. But the main downside is that there is no incentive to exchange the currency (a pizza or ownership in a business) when you know that the currency will be more in a year than it is worth today.
Inflation is a desirable feature in a currency. A currency should be a medium of exchange. Deflation encourages people to hold currency rather than exchange it.
I don't find it at all desirable that some people have the right to devalue my holdings. It is farcical to think that people would hold the medium of exchange forever if it kept increasing in value because at some point they would either have so much that they would prefer to convert (some of) it into material wealth or chase something with a higher rate of return. Alternatively they would have so little that they would have no choice but to convert it to survive. You cannot eat the medium of exchange.
There must some ironic meaning of "economy" that I'm not aware of. Societies have gone through many recessions and depressions. Is that what you're advocating?
Don't take this the wrong way, but you sound illiterate since you clearly don't understand the words I wrote in context "medium" and "exchange". The statement "You can't eat the medium of exchange" implies that it is to be spent.
There already many ways to exchange cash for assets that are likely to appreciate in value (gold, real estate, equities, bitcoin). Won’t a depreciating asset like cash always make for better incentives to participate in trade than an appreciating one?
Please explain the advantages you see in the simplest terms you can.
The features that make cash good as a medium of exchange are not appreciation or depreciation, but all of the other features of divisibility, fungibility, transferability, common acceptance etc. A good medium of exchange need to be valued such that it can be reliably exchanged. Ideally you don't want it going up too fast nor down two fast, but stable enough to make trade. It just happens that Bitcoin is/ was very small relative to the global economy. It also has the benefit that it can't be debased, which makes it a better money - even for trade as well as saving. I just wouldn't consider it "investing" despite the fact it still has room to grow as a currency. It still needs much more work on the fungibility side.
If the primary medium of exchange is an inflating currency then possessors are incentivized to exchange it. If debt is owed in a deflating currency than the burden of all debts will only grow. Could you address these points rather than simply dismiss them as irrelevant?
Please note that I haven't dismissed any point you have made despite your initial dismissal of me.
To your point, is a currency is inflating then you are incentivised to not hold it. But who has the right to benefit from the inflation of the supply? How do you fairly determine that? Often inflation is conflated with the rise in prices rather than strictly the inflation of supply, so strictly referring to the latter - inflation occurs, while at the same time economic growth is also occurring, so it isn't 100% clear that the incentive scheme for devaluing a currency will work as it must balance against this growth. Even if it is not balanced, and successfully devalues for your incentive, what is the appropriate rate? Is VEF too much, USD just enough? Wouldn't it make more sense to just have a fixed/known rate of currency supply - eg Bitcoin - decreases to 0, Monero decreases to small.
The problem isn't so much the inflation, it is the unpredictable nature of the debasement and the fairness of who benefits from it. A currency doesn't need to incentivise people to spend it so long as it can always be available as a medium. Infinite divisibility ensures this. Having the medium be a universal standard measure as a unit of account by virtue of being a stable and accessible medium is also essential. Bitcoin achieves this. As for debt burdens growing, this is not always true. If I take a low interest BTC loan for mining equipment and have measured my risk and profit correctly I should be able to pay it off since I am working in this currency. If I borrow USD to start a Venezuelan corner store, I might be in for a bad time.
Inflation benefits borrowers more than hoarders. Your example is strange because in the one you compare a base currency to economic activity in that currency and in the other you take a loan in one currency in order to transact in another. If you borrow bolivars to start a Venezuelan corner store, at least your debt would lose value as rapidly as the currency you receive from your customers. If the price of BTC continues to rise indefinitely, you would be in for an even worse time if you borrowed BTC to start your Venezuelan corner store.
I also don't see how infinite divisibility helps. It's still deflation. Let's say the world converts to BTC. Now if I take a loan of 1 BTC to start my corner store, the value of that 1 BTC will continue to increase, but if the goods selling do not increase in price, I will have to charge less and less for them over time. There's the same amount of space between 1 and 0 as there is between 1 and infinity.
You can rephrase that as inflation benefits borrowers more that savers. And borrowers benefit lenders. In the opposite paradigm, savers benefit savers and savers benefit investors. Think of a scenarios that is made up of an economy of a single currency, that is deflationary and everybody saves as much as they can, but they have to eat, so trade still occurs. Those that can save more accumulate more purchasing power until they think it wise to invest and get a greater return. Assuming all perfect investment execution, wealth would tend to aggregate as we see, but overall everybody benefits and see the rising tide lift all boats.
Savers can choose to loan their currency to a bank for some guaranteed returns, they can loan it to corporations and public institutions in the form of bonds, or they can purchase ownership of real estate and businesses through equities. They can buy bitcoin if they consider it a wise investment. Only lenders and the people who insist on hoarding cash suffer from inflation.
Historically deflation has resulted in economic stagnation and depression. The reason is that there is no incentive to borrow or spend money on a risky investment when increasing value of currency over time is guaranteed. What exactly is supposed to be different this time?
That's not really something that can be taken as anything other than an insult. On HN we like points to be made without personal swipes. Aside from making this place a more pleasant place to be, points are often more persuasive that way.
You can just deliver the counterpoint, explanaining how you think the parent was mistaken, without the personal insult. “The key point this comment fails to recognise is [useful new info]” might work well.
Thanks Tom, I felt bad making the retort as well as I like HN to be a happy place. For the record, I am majored in finance, mathematics and cryptography well before these things were linked. I discussed Bitcoin with Hal Varian in 2011 and staked our differing positions. It may be too early to call, but Bitcoin seems quite successful so far, and has served me well. I prefer not to rely on my credentials to make a point about economics since this is a logical fallacy.
If Ethereum successfully migrates to proof-of-stake then it won't be bottlenecked by proof-of-work any more ;-)
It may end up rebuilding the current regulated banking system. But if the regulated banking system and the unregulated banking system are sitting next to each other using tokens that are interchangeable with smart contracts, that seems like it could be useful.
If a regulated banking system mixes with an unregulated banking system everything becomes an unregulated banking system.
Also proof-of-stake has been promised for so long I would be embarrassed to talk about it if I worked at the Ethereum Foundation. Delivering things that work isn't their strong suit.
Division of tasks, and specialization naturally trend to hierarchical organization for the same reason divide and conquer algorithms are so efficient. Separation of concerns is powerful.
There is much different of 5-6 shoemakers picking the same person to handle their finances so they can focus on making shoes. But, how many shoe makers can offload their finances until you have a bank?
I always look at askance to USD-in-a-bank-account backed stablecoins. There's no innovation in them.
Their value also depends on how many USD's stored in that bank account (not transparent to ordinary people), and the inherent problem with USD - that the FED, a central authority prints it, remains still.
There are other - in my opinion more honest - crypto-only stablecoins, like Dai (of MakerDAO) or Augmint, which are not freezable by any authority, nor cheatable by bribed auditors. They are backed solely by crypto assets, all transparent.
Crypto assets are only valuable insofar as they can be exchanged for real world goods and services (mostly people seem to want US dollars). Purely crypto backed stable coins lack a stable relationship to the real world.
Those crime bosses eventually want to buy a new mansion, Porche, a yacht, jewellery/stuff for their wife/gf, you know, anything to actually enjoy their life in real world. They eventually need to exchange their ill-gotten gains for real money. They can't stay in BTC forever. Basically they want to turn the BTC they got from their criminal activities to a clean cash not linked to crime. There are various way they might go about it, basically similar techniques as money launderers use.
You could certainly accept bitcoin for black market transactions and spend bitcoin on black market transactions, but wouldn't most participants want to transport their gains to the real world eventually?
Same drawback applies to Bitcoin. Send BTC from Coinbase to a blacklisted entity and see how quickly CB, Gemini, etc. shut down your accounts.
Then you’re left with your local client but you can’t trade anywhere... and speculation is crypto’s only use case today.
At least according to this document, when your USDC account is blacklisted you may no longer send or receive tokens from it. With Bitcoin, even if Coinbase blacklists you, you can still send your Bitcoin to other accounts and exchange it for things. I'm sure it's a huge pain but your Bitcoin will not just be lost forever.
> With Bitcoin, even if Coinbase blacklists you, you can still send your Bitcoin to other accounts and exchange it for things
This is not so. Coinbase and Gemini (I haven't checked others but I'm sure they're the same) will freeze your assets entirely if required by law or if you violate the user agreements in some flagrant way [0] [1].
I think they mean if you are using your own wallet to store your bitcoin, then coinbase and gemini have no control over what you do with it, except not using their own services
Then back to my original point: If no exchanges allow you to deposit BTC, what are you doing with it?
Once you've shamir-secret-split your multi-sig cold-storage private keys, laminated them, placed them in fireproof envelopes and dug them deep in the ground in 5 different continents... what exactly do you DO with your BTC?
Your original point was that _Coinbase and Gemeni_ had prevented you from exchanging your BTC for fiat currency. There's nothing preventing you from taking your BTC to some other exchange, or just some guy that accepts BTC for goods or services. That's the beauty of this whole decentralized thing.
No, you misread. "et cetera" is latin for "and the rest"... I put that there because exchanges are all tied. A ban on one leads to a ban on another, depending on the severity of your crime.
> There's nothing preventing you from taking your BTC to some other exchange
I've already showed you that exchanges can freeze your assets, so yes they can prevent you from sending to other exchanges.
> some guy that accepts BTC for goods or services. That's the beauty of this whole decentralized thing.
If your marker for decentralization is currency adoption, then USD is the most decentralized.
I thought we were passed this whole "Bitcoin is not created by humans" meme...
That's not actually true. If you attempt to send a transaction from Coinbase to an address they have blacklisted they will immediately suspend your account. You will be allowed to withdraw your funds before the account is closed.
Why the hell would I buy Bitcoin to buy stuff on Amazon through a proxy site that sells my BTC for me instead of just... buying on Amazon like a normal person? BTC will be way slower and more expensive than just using my credit card... Plus Visa will refund me in the case of fraud.
Like I side, speculation is the only thing you buy BTC for (moon!!!111), and the exchanges will prevent you from doing this if you are related to blacklisted accounts.
15% sounds about right to offset the fraud risk, volatility risk, exchange fees, network fees, network congestion, transfer delays, fork risk, catastrophic bugs, and theft risk :)
We all have narratives, buddy. Mine just doesn't hinge on gambling and crypto-anarchic utopia.
edit: Perhaps the lesson here is the more useful something is, the less freedom you have in using it. After all, why would regulators care if you can "use bitcoin" when "use" means "play with my private keys".
Transfer the bitcoin from your wallet to any other non Gemini/Coinbase wallet. Most crypto people have private wallets. You can also use something like localbitcoins or Bitcoin ATM. Or you can literally meet with a person selling something for a coffee, transfer BTC to their wallet, they wait few minutes for on chain confirmation, give you stuff you bought, done.
That seems like a huge disadvantage. If people are doing what the crypto community likes to call "tethering", they're probably going to lean toward a decentralized smart contract token. Tether has not always been a favorite due to auditing concerns, so I see the need for something more reliable. But it doesn't seem like being able to freeze tokens is an attractive quality even if Coinbase is more "trusted" and releases frequent audits.
Does anyone have the token contract address? I am assuming the blacklist is part of the smart contract based on the above wording, though haven't had a chance to look at the code.
If it's not part of the code and only exists on exchange wallets then I see what Coinbase is doing as more reasonable.
>Improved send and receive. Two Ethereum wallets can quickly send and receive any amount of USDC at any time of day. Large transfers for business purposes become as easy as small e-commerce payments. Consumers can use the Coinbase app to send USDC to someone, while remaining confident the value is stable.
>Use in dApps and exchanges. There is a burgeoning ecosystem of crypto dApps, exchanges, and blockchain-based games. A USDC follows the ERC20 standard, which means it can be used with any app that accepts tokens based on that standard. The USDC can thus be used as a stable digital dollar to buy items in the crypto ecosystem, from Cryptokitties to tickets for blockchain-based games.
>A programmable dollar. For developers and fintech companies, a digital dollar like USDC is easier to program with. For example, given the private keys for USDC, a program can easily send and receive them back and forth using the public Ethereum blockchain.
The tokens only have value as long as your tokens are redeemable. Multiple things can make them non-redeemable:
* Your tokens can be tainted, for instance because they were once owned by a blacklisted address. The value of your tokens will be effectively 0.
* The issuer might run a fractional reserve (this is the accusation against Tether, the most popular stablecoin at the moment)
* The asset backing the stablecoin might not be backed by anything. It's not worth getting into FED policy here, but let's just say that a stablecoin denonminated in Venezuelan Boliviar is not attractive.
> Stablecoins seem like they would achieve most of the goals of the original cryptocurrencies such as Bitcoin
The original goals of cryptocurrencies (Bitcoin, to be precise) were exactly to avoid the problems that stablecoins have.
> The issuer might run a fractional reserve (this is the accusation against Tether, the most popular stablecoin at the moment)
Very important to note - a stablecoin running a "fractional reserve" in the way that people talk about would just be fraudulent/insolvent.
Modern banks have actually never operated under the "fractional reserve" model as described in economics textbooks, but it's true that they only a fraction of their assets are held as bank reserves. Very importantly though, solvent banks always have more assets than liabilities (customer deposits are a liability to the bank). Usually a lot of those assets are loans, but they also hold bonds and other investments.
If Tether has issued a single token without an asset to back it that is worth at least US$1, then that's not operating like a bank does, it's just fraud.
The “fractional reserve” model implies incorrect ideas of how banks work - either as intermediaries between depositors and borrowers, or implying the “money multiplier” model of credit creation. Those are not the case in the real world. The actual model is often called “endogenous money”.
As I said, the confusion many people have is that it is correct that bank reserves are a fraction of the bank’s assets, so the name “fractional reserve” would intuitively seem correct.
Doesn't every bank run a fractional reserve? So when Coinbase deposits those reserves in a bank, the bank will lend them and there actually isn't a guaranteed reserve.
Coinbase has a guaranteed sum available from the bank, that part is regulated. If coinbase operated as a fractional reserve with regard to cryptocurrency deposits it would be unregulated and could lead to losses for users if it goes tits up. If the bank fucks up coinbase funds are secure, if coinbase fucks up customer we funds are not.
Banks only hold some of their assets as central bank reserves, but solvent banks always have more assets than liabilities.
For a stablecoin to operate like a bank they would have to issue loans (loans are an asset to the bank to match the deposit created when they lend. A regulated bank also needs a certain percentage of owner's capital (paid up shares/retained profits) compared to how much they lend in case of delinquent loans).
A stablecoin just creating tokens with no backing would be fraud, same as if a bank just credited an account from nothing.
Parent was probably implying that the Secret Service would sieze the tainted assets and the auction them off to new bidders, thus removing the taint for the new owner. the reason for the auction instead of just funding the treasury is that the USG deals in dollars, not in securities or other obligations or paper instrumnets. Compare the actions of the US Marshalls after siezing the Silk Road Bitcoins.
> Which factors? Who'd buy them at a premium? Wouldn't any auction of >1 bidders stabilize at face value?
Think of the stablecoin as an ETF. If people need to launder money or take advantage of a programmatic bug, that would raise the stablecoin price over $1.
By default, I'd imagine the reduced liquidity and counterparty risk (relative to dollars) would cause the stablecoin to trade at a discount to cash, particularly when auctioned by the government. (You have to spend resources monitoring the auction, closing the transaction, and cashing out to complete the arbitrage.)
> Stablecoins seem like they would achieve most of the goals of the original cryptocurrencies such as Bitcoin
Correct me if I'm wrong but Stablecoins sound like the opposite type of thing that Crypto-anarchist(s) behind Bitcoin tried to achieve.
> I suppose the only drawback here is that they're issued from a centralized authority
This reads in a hilarious way. Kind've like saying "I've found a perfect way to buy a car - I suppose the only drawback is that I'll actually be buying a lawn mower"
>> I suppose the only drawback here is that they're issued from a centralized authority
> This reads in a hilarious way. Kind've like saying "I've found a perfect way to buy a car - I suppose the only drawback is that I'll actually be buying a lawn mower"
Assume bitcoins are an attempt to bring back the older technology of coins, but on the internet.
Coins are issued by a central authority, though that isn't necessarily a large part of their value. (Even when coins are made of precious metals, their standardization does increase their value somewhat over their pure value by weight.)
The problem with USDC isn't that it's issued by a central authority. That is an asset, in that it allows for a more stable value. The problem is that you can't transfer the coins without recognition from USDC. If you've got a golden dinar, you can give it to someone else no matter what the Caliph would like to say about it.
And, because until and unless there is a prevailing adoption of the surrogate coin in place of its pegged reserve (that is, everyone just assumes and "knows" a USDC is worth a USD), the sponsor has to stand ready to maintain the peg, that is, buy it for $1.00 no matter what.
Even the golden dinar would have the problem if it were nominally worth, say, one silver shekel, and the Caliph switched to demanding jizyah in shekels. All of a sudden, absent a massive bank keeping the 1:1 dinar:shekel peg, the dinar would drop in value and the shekels would rise relatively.
The problem is, of course, compounded when the coin becomes a slip of paper, and again when the paper becomes a mere number...
Look at MKR token, which is the governance token of Dai. It more than doubled in price during the last months. Because it's sparse and used up when making new Dai's (by collaterizing crypto assets).
Buying MKR and supporting Dai might be a good strategy.
Day trade between BTC and USDC rather than between BTC and USD. This can happen at many more exchanges because trading USDC is a lot easier than trading USD.
Advocates of cryptocurrency tend to promote applications of it, not just promote decentralization as a platonic ideal.
Supposedly this should make it more desirable to regular users. But for users attracted to applications who don't actually care about decentralization, a stable coin will seem better and will be hard to compete with.
So, it seems like the true believers should be worried about having fewer persuasive arguments for adoption?
This is wrong on several levels. Decentralization was not for transactions, it is for censorship resistance. These exchange stable coins fail this requirement. As anyone who has been licked out of an exchange account knows, your funds are never yours when they're on an exchange, much less if the only place to redeem those coins is a place that has locked you out.
Your observations about the community is flawed. Many are just speculators but there are many, like myself, who care about the technology and the core principles. For the latter, you need to be reading a place like bitcointalk.
>For the latter, you need to be reading a place like bitcointalk.
BitcoinTalk is the launchpad of virtually every ICO that has violated these core principles.
I am very skeptical of your claim that it's a haven for those who care about the technology and its principles when they have boards solely dedicated to announcement of new ICOs: https://bitcointalk.org/index.php?board=159.0
bitcointalk is the canonical location for most of the discussion regarding cryptocurrency and has been for years. They have a lot of ancillary boards, but the foundation of the board is the tech.
Coinbase's observation is that the cryptocurrency ecosystem is filled with many different players, with many different goals, and by facilitating commerce between them they can profit off all of them.
Your goal may be to accumulate Bitcoin and develop the technology until it takes over as the world currency. An (honest) ICO's goal is to take Bitcoin or Ethereum, convert it into fiat, and use that money to fund development of an interesting new technology. A day-trader's goal is to get rich off short-term price movements. An arbitrager's goal is to get rich off of price differentials on different exchanges.
So your goal might manifest itself in the strategy of "Always buy when I have fiat available, never hold money on an exchange, and invest in promising ICOs that look like they actually have a product and interesting technology." You buy Bitcoin monthly on Coinbase, immediately move it off Coinbase into your own wallet, and buy promising ICO tokens on IDEX as you become aware of them. This makes the price of Bitcoin on IDEX lower than on Coinbase (since you only buy on Coinbase and sell on IDEX), so an arbitrager buys on IDEX and sells on Coinbase. Your purchase was a net buy of Bitcoin relative to fiat, which makes the price rise, so a day trader takes note of that and decides he's going to sell and park his money in USDC until the arbitrager comes along and sells on Coinbase. Eventually everything evens out, and Coinbase makes a profit off every transaction.
You didn't have to deal with USDC at all, and only with Coinbase as a regulated U.S. exchange where you can exchange $USD for Bitcoin. But the other participants in this market have no moral issue with censorship or centralization, and they're all too happy to take their profit and park it in USDC while they're looking for buying opportunities.
The article says USDC is an ERC20 coin, which means you can keep it in your own wallet (i.e., not the exchange). You are still trusting the centre consortium to maintain the coins value.
According to USDC's documentation, accounts can also be frozen by a centralized authority.
USDC tokens are ERC-20 compatible and can be used with any ERC-20 compatible digital wallet. However, a global blacklist is maintained by CENTRE for USDC, which prevents tokens from being sent into or from blacklisted addresses. Reasons for blacklisting could include known fraudulent or illegal activity, or a legal order or process. Reserves associated with USDC balances held on blacklisted addresses may be wholly and permanently unrecoverable.
Ah interesting. While that's a bit disconcerting, it does offer some advantages. You get the flexibility of an ERC20 token, but the (potential) benefit of the consortium being able to give you back tokens that get stolen (blacklist theif's account, issue you new coins). Might be a good middle ground between the wild west/code is law state of crypto currency and the protections of traditional banking.
> Despite this, no one on Twitter[1] seemed excited
Because most people think that in order to solve the problem of a cryptocurrency, they have to also solve the problem of who gets money when you print it.
Far too many people conflate the need for electronic cash versus the need to improve upon how systems like the Federal Reserve and their International equivalents work.
Honestly, as a software engineer who understands some basic economics, I think cryptocurrency becomes far more interesting when it's not trying to solve the problem of who gets money when it's printed.
I also think that the Federal Reserve, and its international equivalents, work very well for me! I think that trying to come up with a currency that improves upon the Federal Reserve System, or equivalent, needs to be a separate technical problem than just trying to have an electronic form of cash.
In my opinion, most of the people who were excited about cryptocurrency were scam artists, the kind of people who just don't understand how money really works, or engineers who don't really understand scaling.
If there is a need for electronic cash backed by USD and controlled by a central party, why use crypto/blockchain at all? To solve that problem a central database on a controlled network could do just fine?
Decentralized transactions are distinct from decentralized issuance. Decentralized issuance doesn't matter to most people in the cryptocurrency ecosystem. They have been happy to participate in ICOs where coins are issued from a central authority.
That said, I haven't yet heard anything on how transactions are actually verified (ie. Proof of work vs Proof of Stake)
If a centralized authority can blacklist addresses, it is not actually decentralized.
Or rather, it's "decentralized transactions" in the same sense that Paypal users are decentralized when they initiate transactions. You ask, and Paypal decides whether to send the money.
In this case, you ask, and CENTRE decides whether to include the transaction in the blocks they mine. Same thing, But With Blockchain™.
Of course, it's illegal to operate as an unlicensed money transmitter, and trading bearer bonds does not change that, so if it was truly decentralized they would be going to jail once the SEC got around to paying them a visit. People have been trying to get around such laws for ages and the law takes a very dim view of it.
Yes, but once I have acquired dollars and wish to send them to you I must involve a third party. Not involving that third party would be the sell here.
I have no position in any cryptocurrency and am not trying to argue that USDC is better than USD. I'm just saying that stablecoins achieve most of the goals of a decentralized currency yet despite this they are not appealing to today's cryptocurrency community.
> once I have acquired dollars and wish to send them to you I must involve a third party
Cash.
(There is no way to send electronic dollars without involving a third party, though more money is laundered using dollars and euros than cryptocurrencies. I'd argue leaving a permanent, public record of transactions is a poor price to pay for decentralized electronic transmission, particularly given the centralized issuer and guarantor problem.)
And if you're going to split hairs by saying DHL, USPS, and FedEx are considered third parties, then so are Comcast, Verizon, and other ISPs who provide you the means to transact.
> There is no way to send electronic dollars without involving a third party
Yeah but that third party is everywhere, available to all (US isn't the only country in the world you know?) and isn't aware you are using his service for sharing cryptocurrencies or simply reading Hacker News.
The current third parties for transferring money, well they all fail one or multiple of theses while cryptocurrencies dosen't.
Cryptocurrencies have an advantage over electronic U.S. dollars in decentralized electronic transmission. I don't think that's a big deal, but the advantage exists.
Stablecoins, on the other hand, have zero advantages over U.S. dollars. Backer goes bust, someone steals the dollars, someone freezes their accounts, et cetera and your currency is worthless. A trusted third party rests at the centre who is less regulated and guaranteed than a bank.
(I'm sceptical that these schemes will pass AML muster. Using a stablecoin over U.S. dollars makes sense if you're (a) incompetent or (b) laundering money.)
With access to an oracle for the USD value, you could make a pretty decent stable coin in Ethereum. You could also create options that trigger on USD-ETH values. This would allow for some hedging against price-moves of ETH without being full-on pegged to the dollar.
>once I have acquired dollars and wish to send them to you I must involve a third party.
Isn’t that the same as bitcoin and every other cryptocurrency? You need a cryptowallet (third party); a device (third party); and internet access (third party).
stablecoins achieve many of the original goals of bitcoin, but not any of the most important goals. the important goals are censorship resistance, and fixed monetary policy. Nothing in the crypto space addresses these goals better than Bitcoin.
But they can't be used over the internet without permission.
It could be argued that this requires permission as well since there will be 'know your customer' laws that surround buying and selling them, but to what extent they will require permission might remain to be seen.
Ok, I see. Still it seems like the dream of cryptocurrency was total decentralization. If the supply is centralized does it matter if the transactions aren’t? It’s still a single point of failure.
> I suppose the only drawback here is that they're issued from a centralized authority. That said, for practical purposes the vast majority of Bitcoin holders didn't mine their own coins either.
I think the key difference is that Bitcoins are mined into existence according to a fixed mathematical law, whereas stablecoins are backed by something which can be printed into existence whenever the central authority pleases.
> I suppose the only drawback here is that they're issued from a centralized authority.
That's only true for this type of "vouchers" stablecoins, where coins are redeemable for some physical asset.
There are whole other classes of stablecoins that seek to achieve price stability through decentralized means, either using other cryptocurrencies as collateral[1], or using algorithmic bond-issuance mechanisms[2]. Multicoin did an in-depth article about this back in January[3].
>Despite this, no one on Twitter seemed excited. [...] A cryptocurrency that stays the same value is not very interesting to traders and therefore most of the cryptocurrency community.
That's the thing, the "cryptocurrency community" is currently overwhelmingly comprised of loud investors and ICO marketers. The way smaller and discreet nucleus of researchers, developers and idealists, you don't see replying to Coinbase tweets and hanging out in Reddit.
There's no mainstream usecase for cryptocurrencies as they are now, so the "enthusiastic users" community you see in more established fields doesn't really exist yet.
There is a decentralized stablecoin, DAI that's backed by Ethereum holdings and smart contracts. I think if ETH is doing ok you can swap a DAI for $1 worth of ETH. If it ETH crashes I presume you get given the ETH which you can sell. It relies on 'oracles' to give the ETH/USD exchange rate to the smart contracts. https://medium.com/@james_3093/the-dai-stablecoin-is-a-game-...
Stablecoins do absolutely nothing that bitcoin does. In fact it is just the opposite. Not to be rude, but you have a fundamental misunderstanding of the technology.
The difference in between the two is a matter of trust. Maintaining a 1:1 peg with the USD requires that users trust that the dollar reserves actually exist. Presumably, Coinbase will be seen by many as a more trusted 3rd party than Tether.
Stable coins exist to solve the problem of moving money in and out of cryptocurrency introduced by KYC/AML. Bitcoin represents an attempt to create a system of censorship resistant transactions with an absolute minimum amount of counter-party risk. Outside of the open cryptocurrency context, its unclear if something like stable coins would be allowed to exist. Certainly when you go back in history and look at things like ecash or the liberty dollar the answer seems to be no.
>I suppose the only drawback here is that they're issued from a centralized authority.
you know what they say: "those who do not remember the past are doomed to repeat it".
>A cryptocurrency that stays the same value is not very interesting to traders and therefore most of the cryptocurrency community.
the reason most of the cryptocurrency community is traders, is because of the price volatility.
now that that is fixed, people can actually use crypto-currency as a currency and hopefully we can have an actual useful tool for an economy rather than a FOMO-fueled get-rich-quick hype-machine.
There are two main requirements for using Venmo:
You must be physically located in the United States
You must have a U.S. cell phone that can send/receive text messages from short codes (please note that this phone number can not be on file with another Venmo account)
Your definition of the term exactly doesn't seems exact at all.
I can use USDC as much as I want yet I'm Canadian and that's true for any country in the world, whoever you are, whenever you are, however you do it.
Why are you sending US Dollars between yourselves as Canadians? You can’t spend them in Canada, why not use a free and instant Interac e-Transfer? If you want to hold USD (as a hedge against CAD) open a US Dollar denominated account at any major Canadian bank but that’s an investment not a store of value. Or open an interactive brokers account if you want to trade currencies. And if you want to move money to another country where they also can’t spend USDC Funbux without cashing them out just use TransferWise or whatever compareremit.com recommends, it’s really cheap and easy these days. No need to find an exchange that’ll sell you funbux and let your recipient cash them out. This is just useless.
This is not solving a problem that isn’t otherwise solved except money laundering and skirting AML/KYC rules. Look I may well be wrong, but can you suggest a use case I haven’t considered?
>Why are you sending US Dollars between yourselves as Canadians? You can’t spend them in Canada, why not use a free and instant Interac e-Transfer?
Sorry I didn't see your message until 10 days later. Did you know that the internet is worldwide? I do use an e-Transfer to transfer cash in Canada but more than likely, a transfer on the web will need to be done internationally. A stablecoin is a way to make sure the value is secured, at least as much as what it's backed on and the company holding it, for the duration of the transaction.
Any Canadian Exchange (and not a specific provider) could hold that stablecoin and many people will do arbitrage over it which will make sure I will be able to buy it easily for a minimum of fee.
That's specifically for me as a Canadian in a first world country too. A stablecoin allow that in ANY country, no need to do a case by case.
I don't have an informed opinion on this whole stablecoin thing, but...
There isn't a single country in the world today where you can't spend a US dollar. Canadians will happily take them, especially at a 1:1 exchange rate.
At a discount maybe, and only along the border, try showing up in the north and waving around some USD. That’s a pretty naïve attitude, to think you can show up anywhere and demand they accept your USD at face value. I think this all further proves my point.
Having spent some time in YT, I've found Canadians to be extremely agreeable. If you opened your wallet in a shop in Dawson City and said "Drat, I only have USD. Can you work with me?" I can pretty much guarantee they'll take your money - perhaps at a small discount to compensate them for the trouble.
I've traveled pretty far and wide. You really have to look hard (or piss someone off) before they'll reject USD. It spends easily.
> There isn't a single country in the world today where you can't spend a US dollar.
The strongest argument I think I can construe from your statement is that every country has at least one place where you can spend a US dollar but I don't think that's very useful.
If you bring a 20 USD bill to Europe, head to the center of a major city and try to spend it, I think you'll have a pretty hard time handing it to a shopkeeper. You'll have trouble spending it at all save for exchanging it for the local currency and handing that to a shopkeeper.
> This is not solving a problem that isn’t otherwise solved except money laundering and skirting AML/KYC rules. Look I may well be wrong, but can you suggest a use case I haven’t considered?
I could see a decent amount of usage for dApp developers or anyone who wants micro transactions on their platform. That being said, “stablecoin” is probably quite useless outside of that very narrow use case.
People don’t really want micropayments as it turns out because people get decision fatigue. It’s why Netflix feels good and the iTunes Store video rentals don’t. The latter may have saved you money but you don’t want to keep deciding on whether something’s worth it.
Only if both wallets implement it, isn’t it silly not all wallets support all stable coins? Nope, it isn’t.
Moreover there seems to be a misunderstanding, square cash allows you to instantly move money between bank accounts, via your bank, have at it, totally interoperable because dollars.
If I want to send money to someone via square cash, they have to have the square cash app.
Same with Venmo, and PayPal, and everything else...
Venmo and PayPal are even owned by the same company. Have you ever asked why they're not interoperable?
The ACH system underneath links all US bank accounts, but it's so slow and burdensome that private companies need to build apps on top of it that abstract away all of its problems.
None of them work together because regulation makes the operation of money so difficult that you need an entire company to run such an app, and they're all walled gardens applying their own versions of KYC/AML.
When you have a unified protocol, all of that melts away and the opportunity for money to have a higher velocity and greater ease of use is upon us.
This is what blockchain, and in this case USD Coin based on it, provide.
It seems silly to me that such a system would not become popular. Interoperability and protocols are good. They are something HN is typically in love with.
When google tried to remove basic support for one protocol for contacts from Gmail, people were up in arms because it broke interoperability.
Imagine being in that world with money. I don't know why you wouldn't want it. It's superior by all measures.
And it would be silly for anyone in that world to create a wallet that didn't support such currencies. It would be like creating an email client that only lets you read email from other users of the same service. That's not email, that's just a private messaging platform.
I think you have to look towards the future and see how, if adopted, things like this would make money easier to use. Rallying against that is silly indeed.
Zelle works quite nicely between (bank) apps and has been as fast as Venmo etc in my experience (in the US). https://www.zellepay.com/
I think the interoperability is nearly solved for the quick transfer world as well. Cross-border is solved through remittance schemes as mentioned up/down thread.
> ACH system underneath links all US bank accounts, but it's so slow and burdensome that private companies need to build apps on top of it that abstract away all of its problems
ACH is for cheap, remote batch transfers. Fedwire is for real-time, remote transfers. Cash is for cheap, real-time, in-person transfers. (FX exchanges, as centralized databases, are faster and safer than stablecoins.)
> A system which makes no distinction between any of these use cases and treats them all the same sounds very appealing to me
It's a bad compromise. If you want the cheapest transfers, you batch them. (This is the logic of Lightning.) If you want the most reliable transfer, you wire it. If you want to be sneaky, you use cash. (There are other reasons to use these modes.)
Batching being cheaper and slower than RTGS is fundamental to payment economics, irrespective of whether in an electronic database, armored car or blockchain. I go into this in a comment from about a year ago [1].
> That modern economics has programmed in accountability for slow, large payments doesn't mean the system wouldn't be better off if it changed
It's more fundamental than accounting. If a transaction costs X, aggregating N transactions into a single transaction reduces the per-transaction cost to X/N. The latter, batched process will always be slower and cheaper than the former.
(If a transaction costs Y%, aggregating bilateral transactions allows for "netting out," thereby reducing costs while increasing latency. For example, suppose Bank A sends Bank B $10, Bank B sends Bank A $5 and the Bank B sends Bank A $2. Real-time systems would see 3 transactions of $17. Net-settlement systems would see as few as 1 transaction for $3.)
Payments are generally batched because individual payments are slow and/or have restrictions applied, like time of day they can be sent or received, which are easier to reason about when aggregated.
If you remove these burdens by having a technology that is cheap and nearly instant for all payments, then there's no real need to batch.
We're not quite at cheap + instant with crypto, but there's nothing preventing it in principle. And when we get there, there's no reason batching needs to continue to be part of the equation, at least not with the same tradeoffs.
> Payments are generally batched because individual payments are slow
They're slow to enable batching. Fedwire is time-limited, but many other real-time payment networks are not.
> If you remove these burdens by having a technology that is cheap and nearly instant for all payments, then there's no real need to batch
Yes, there is. To make payments even cheaper. For any given transaction price and speed pair, there's a market that cares more about price than speed. You'll always be able to layer a net settlement layer on top of an RTGS network to serve that market at lower cost.
In any case, if we're arguing for RTGS, it will always be faster and cheaper to transfer money via database operations than on a blockchain. Fast and cheap are not–and should never have been–cryptocurrencies' selling points.
Venmo and Cash use push-to-debit, which is instant, and fall back on ACH only if the bank you use doesn’t support it. There’s your common unified protocol.
Think it through, that’s true only if you already have the USDC, you still have to buy them somewhere and sell them somewhere, with the same limits. Also I just picked US services, Canada has Interac e-Transfer and other countries have similar products too. The whole EU has SEPA. There are competitors in the African market even like mpesa. And if you want to move money to another country international remittances are already cheap and fast. Most people just don’t have the problem of needing to send tons of money to each other across borders all the time.
Apple isn’t rolling up to the Wells Fargo and accepting a 5% spread. If you personally want to exchange a ton of money open an interactive brokers account and you’ll pay 0.08 basis points (0.0008%) minimum $1. If you don’t want to trade that much, check out compareremit.com and see what people are paying retail, it’s actually very competitive. In the popular USD-INR corridor you could pay close to mid market rates plus zero commission. This is a solved problem.
Isn’t it funny CoinBase wallets don’t support ERC20 out of the box. They pick and choose what ERC20 tokens the support.
Hey wouldn’t you know it they support their own stablecoin, but not others...pretty sure that’s the type of centralization cryptocurrency/Blockchain was trying to avoid.
Sorry for the confusion, I’m using your bank account as your wallet analog, and saying both services can interact via your bank account if necessary. Whereas not all wallets will support USDC.
Unfortunately, its value is inalienably attached to the dollars that it can be redeemed for. And so long as Coinbase has to take legitimate AML and KYC measures, many people who need access to the redemption market will not have it (e.g. poor families using it for international remittances, and cartels).
Did you know international remittances are already really, really cheap? Check out compareremit.com if you don’t believe me, they rank different services. Some corridors like USD-INR are almost mid-market, zero fees. I thought this was a huge opportunity too until I researched it.
I don't know the exact numbers, Eternal September has probably happened two or three times in the cryptocurrency community by now, but there was a time where the majority of people involved didn't give a rats ass about their "investment", but the ideology behind cryptocurrency itself.
If the coins weren't issued from a central authority, I would welcome the USDC stablecoin as an addition to the crypto market.
It's worth mentioning the KUSD project by Kowala Tech https://www.kowala.tech/ which is a stablecoin that tries to achieve the 1:1 price relation by controlling the coin supply depending on the exchange price (by using oracles).
Store of value? Not necessarily. stable coins pegged to an inflationary asset like the dollar will not preserve your value. You need a stable coin pegged to something like gold or bitcoin.
Edit: curious, why downvotes? Was just pointing out a technical mistake...
The downvotes are because you're being pedantic. Most of the world uses USD or currencies easily exchangeable with USD. Therefore USD is stable.
I cannot buy a car with a gold bar. They would laugh me out of the dealership and I'd have to sell the bar for USD. People want cryptocurrencies they can hold for more than two days that won't lose 50% of their value.
The value here is ability to conduct transactions, not necessarily a stable store of value.
Yeah, but the point of "storing value" is storing the purchasing power of a dollar today for future purchasing. You don't do that by saving the dollar, you do it by investing it or by buying something whose value will hold with time.
>I suppose the only drawback here is that they're issued from a centralized authority.
Doesn't that defeat the whole purpose of cryptocurrencies though? After all this authority could selectively blacklist some coins from ever being converted back to their peg currency, effectively rendering them worthless, couldn't they? You couldn't easily launder it away because this authority could decide that if these coins are used in any transaction then the "bad" coins would contaminate the outputs proportionally to their amount in the inputs, so it would mean that people would double check their inputs not to get "bad" money. So it would be effectively like trying to spend fake dollar bills (except that the authenticity verification would be quick, automatic and completely impossible to fake).
That means that on top of trusting the authority to fairly issue the coin you also give it the power to effectively censor transactions.
It does, but "centralized cryptocurrencies" are still useful in that their similar technology makes interoperability with "proper" cryptocurrencies easier.
It's money with a standard API. Whether the actual "value" part of it is centrally controlled or not, many tools made for one will work with the other.
>Doesn't that defeat the whole purpose of cryptocurrencies though?
Depends who you ask. The cryptocurrency community thus far have been happy to participate in ICOs in which cryptocurrencies are issued from a central authority.
"Stablecoin" in general generates a ton of legal risk for the operators.
If you can make peer-to-peer transactions with it, then the coin operators are definitely not complying with Know Your Customer and Anti-Money Laundering laws. This will pretty reliably get the US Feds to raid your offices, seize your website and servers, arrest the principles responsible, and prosecute them. See also: Liberty Reserve.
On the other hand, if you can't make peer-to-peer transactions with it, it's basically a "blockchain" in name only. There's little advantage over traditional bank account systems. Maybe the programmability and verifiability helps? I just don't see that sort of thing doing a lot compared to the whole money-laundering use case, though.
If you can make peer-to-peer transactions with it, then the coin operators are definitely not complying with Know Your Customer and Anti-Money Laundering laws.
You can certainly make peer-to-peer transactions with it.
But I think you are misinterpreting the KYC laws. Circle (who operates USDC) isn't trying to be secretive about this. They are regulated as a "money transmitter" and a "money services business" - https://www.circle.com/en/usdc . IANAL but Circle certainly seems prepared to take on any legal risks involved here.
I go to the company and give them a dollar. They cryptographically sign over to me a digital Chuck E. Cheese token of sorts that I can cryptographically sign over to someone else. Just like I can do whatever I want with Chuck E. Cheese tokens, I can circulate my USDC around and do whatever with it. Then at some point in the future someone goes to the company and says hey I want a dollar. He signs the token over to them and they validate that it traces back to the dollar I gave them. They give the dollar to the other guy, presumably after fulfilling KYC requirements. So really they only need to KYC the buyer and the seller. Everything that happens in between is not really their business. It's not really anything really. Just a bunch of people doing cryptographic signatures and publishing them online.
> Maybe the programmability and verifiability helps?
USDC seems to be more about smart contracts than crypto currency as envisioned by the early adopters.
Programmability and verifiability alone of the "old money" could open new applications, new experimentations, new use cases. It's definitely a nice initiative IMHO. It looks like an intermediate step, or another variation, to get more people interested into digitalization.
Also tax evasion. A semi-anonymous store of cash. You could earn some money doing a gig, then go abroad and spend it on holiday (withdraw from ATM or whatever).
You can do that with non-stable coins too, but this would be more attractive due to the predictability of it's value.
All the while Coinbase make money off the never-ending interest. And one day they may go fractional too.
Stablecoins appear to be the new ICO. USDC follows on the heels of the Gemini Dollar, and a raft of other stablecoins offered by fully-regulated bank-like entities.
Oddly, there's nothing about regulatory compliance (AML/KYC) or fungibility in the announcement.
Based purely on the article, one might get the idea that USDC can be traded between individuals without any third party oversight and in a censorship-resistant way.
It's highly unlikely this will be the case, given the potential for money laundering.
So... USDC users get a form of digital dollar that's more difficult to use than PayPal and the numerous alternatives because unlike those systems, the user must secure cryptographic material. Alternatively, the user will simply deposit USDC onto an exchange and gain absolutely nothing over PayPal and friends.
Even worse, should the user decide to make an on-chain USDC transaction, a permanent public record will be logged on the Ethereum block chain, which can be used in various ways with any information lost by Circle/Coinbase due to the inevitable data breaches (legal and illegal) to come.
I'm all for innovation in this space, but caveat emptor couldn't be more relevant.
I understand its an ERC20 token. Do you understand how Coinbase and Circle will remain within regulatory compliance (AML/KYC) regarding USDC and the obvious potential for money laundering?
Money laundering is a problem they must have faced earlier when allowing BTC trades, so presumably they'll operate under the same AML/KYC regulatory compliance umbrella required to offer their current (and growing) set of digital currencies[1][2].
This is purely speculation but: since it's on the Ethereum chain anyone can see the history of tokens on any account, and as long as the tokens only move between accounts that are known then that should be good enough. They could very well make it so that if you transfer tokens outside of accounts controlled by or known to the exchanges then those tokens will become tainted and no longer redeemable.
I believe USDC has a blacklist of "forbidden addresses" - this is in contrast with some other compliant ERC20s that have whitelists instead. To redeem USD from USDC (meaning withdrawing said USDC from circulation), the withdrawer goes through the same AML/KYC process with Coinbase or Circle before receiving USD in a bank account.
Coinbase has USDC, Gemini has GUSD. Will be interesting to see how this plays out. I'm curious if adoption becomes a function of which fly-by-night exchanges start launching pairs.
But then again, if the fees are low enough (if my $1 truly gets me one token, and one token gets me $0.9999 back) these tokens are going to be useful in themselves without needing to be traded on seedy exchanges.
It would be great for taking micropayments on online services.
The thing I worry about is how these tokens are set up. If there is central control, can the governing bodies at any time decide to deactivate my tokens? I'd like to see the actual "contracts" behind these tokens. And even then, the contracts can change and be updated. Obviously there are some regulatory protections, but that won't fix people hacking these contracts.
I guess what I'm saying is, "hmm, interesting, I'll check it out in a few years." Until then I'll likely just use it for hedging against other cryptos while speculating if/when I decide to get back in the market.
The idea of a micropayment isn't monolithic. People certainly will not like to be nickle-and-dimed to read the news, but that's fairly obvious.
The real model here is Patreon. Patreon is (well, was) about bundling payments to make recurring micropayments practical. Their execution has issues (it's also highly successful) but the fundamental idea of recurring micropayments is totally sound. Audiences are receptive to it, and creators can legitimately support their work with this kind of aggregate payment.
Hi all — head of engineering for the consumer product at Coinbase here (iOS, Android, coinbase.com).
Happy to answer any questions that people have — also, just wanted to make a plug that we're hiring. If you're interested in building an open financial system for the world, shoot me a note at jpollak@coinbase.com. Especially interested in iOS & Android engineers!
What will Coinbase do if there is a contentious hard-fork of the Ethereum chain and different USDC supporting exchanges decide to follow different forks?
In this case, the issuer of USDC, Circle, would be the one to decide which fork of Ethereum to support. It's not like USDC the ERC20 token is worth anything without Circle's backing.
This is a hard question. I don't have an answer for you, but if a situation like this arises, we'll be sure to clearly communicate our thought and decision process to our customers. Thanks for asking!
If you actually cared about an Open Financial System you would list Dai on Coinbase. Centralized stablecoins allowing issuers to freeze and blacklist is a step backwards not forwards.
What are your thoughts on MakerDao which uses the MKR and Dai tokens for decentralized collateral backed stablecoins called Dai?
Their implementation is happening a bit slower due to the novelties but it offers the MKR which is a profit incentive for proliferation, and may be more resilient than centralized stablecoins
Personal opinion, not the company: I think it's very cool. I've been watching them since they launched and have been impressed with their consistent progress. I love using it as an example of financial experimentation and success: they launched at the top of the bubble and have been able to keep stability even as crypto has gone through a massive crash! Pretty amazing.
Something that's missing from this article: Since USDC is an ERC20 token based on Ethereum, you'll still need to hold ETH so that you can pay for gas to move the USDC stablecoin token around.
A fiat-world analogy to this would be to imagine if spending Euros required you to hold US Dollars to pay the transaction fees.
Blockchain-based stablecoins seem like a really convoluted and environmentally wasteful way to implement centralized, cryptographically secure USD based account transfers.
Why not just use Chaumian ecash [0] - which is perfectly suitable for this purpose and doesn't require mining?
David Chaum probably asked exactly the same question, and starting working on his own own blockchain and cryptocurrency[1] in 2015[2]. I'm a bit sad he didn't call it eCash 2.0.
There's very little about who actually has custody of the paid-in money and what guarantees it gets paid out if "stablecoin" outflow exceeds inflow. The "smart contract" machinery doesn't really do much about that part.
Tether has been vague about that, too. Tether has been trading at a discount to the dollar, lately about 3-5%.[1]
The usual failure mode is that whoever has custody of the money starts investing it. They don't have to pay the profits to the coin holders. Then they start making risky investments. Then they lose money. Then they start faking it. In the real brokerage world, they go to jail for speculating with customer funds.
This represents an odd level of trust. The user trusts Circle and Coinbase enough to purchase USDC at facevalue. The user doesn't trust Circle or Coinbase enough to keep private transaction histories.
I understand the position of fully trusting the third party (Visa, Paypal, Stripe) when combined with legal protections. I understand the position of fully distrusting third parties (bitcoin, etc). I do not understand why someone would prefer this mixed level of trust.
The main problem with fiat backed stablecoins is that in addition to smart contract/theoretical security, you now have to also trust the procedural security of the entity issuing the asset. A collateralized stablecoin like Maker/Dai doesn't have that additional attack vector.
For example, if the keys issuing the USDC has ever been compromised, new assets can be issued instantly by an attacker, compromising fungibility and causing other problems. Whereas if Maker/Dai smart contract proves secure over time, there's no centralized issuing entity/keys to compromise. Afaik the only centralized privilege controlled by MakerDAO is the global settlement, which merely refunds everyone their ether.
Both fiat backed assets as well as collateralized assets pegged to fiat money are called stablecoins, because they are meant to represent units of fiat money, and therefore "stable" relative to fiat. Fiat backed stablecoins fit the definition of an IOU better, since they are cryptographic promises to pay the bearer by centralized issuing entities. Whereas collateralized stablecoins are not IOUs, they are effectively loans on other cryptoassets you deposit in a smart contract (ether, in Maker/Dai's case).
Does Circle keep enough dollars on hand to buy back every USDC? Or do you run a fractional reserve? How much money is that total? What do you do if you have as many USDCs in circulation as you have dollars? Stop issuing them?
Circle holds one dollar for every dollar minted, we do not run a fractional reserve. The CENTRE Consortium holds minters (of which Circle is one) to strict auditing requirements. While this information is regularly published, you can see all minting and burning operations (as well as all transfers and other token operations) in realtime on the Ethereum blockchain. See etherscan: https://etherscan.io/address/0xa0b86991c6218b36c1d19d4a2e9eb... There are always as many USDCs in circulation as there are fiat dollars backing them up in traditional bank accounts. The only way minters produce more in a 1 to 1 manner is if someone wires traditional dollars in. Likewise, Circle will burn USDCs in a 1 to 1 manner as requests for traditional fiat dollar withdrawals are processed.
Thanks for the quick answer, this all makes sense. Does this get limiting at all, in terms of wanting to mint new coins and not having the capital to do so?
As you can imagine, Circle maintains fairly sophisticated minting operations able to execute around the clock. All that is necessary for coins to be minted is for Circle to broadcast a properly signed transaction.
Now, of course, Circle can't just mint a limitless supply because we have a minting allowance set by CENTRE. While CENTRE itself can't mint coins, they do operate a minting allowance system with around the clock availability which can grant Circle a additional allowance per a ruleset to effectively manage risk.
This might seem to be getting into the weeds a bit but support for multiple minters (Circle and Coinbase here for example) is a significant differentiator between USDC and other reserve backed stablecoins.
That's like saying isn't it a bummer I cant just print money out of thin air to buy stuff. The whole point is to give people faith and trust in the stablecoin exactly because thie issuance process relies on locking up 1 USD.
Circle works with a wide variety of regulatory agencies around the world. I'm not aware of anything the SEC has said publicly about USDC.
We work with a number of banking partners around the world but generally don't publicize this information.
Circle will begin publishing its USDC-related reports on centre.io after public launch. We have engaged Grant Thornton LLP to apply on a monthly basis certain agreed-upon procedures to assist management regarding the accuracy of USD reserve balances for the USD stablecoin tokens issued as set forth by the Company.
We will hold exactly one USD for one token. In the future, we may also invest these fiat funds in highly-liquid, AAA-rated fixed income securities.
The coins minted by both Circle and Coinbase are mutually fungible. You could acquire USDC from one and redeem it at the other. Support for multiple issuers is an important differentiator for USDC.
Why did you pick Ethereum instead of Ripple or Stellar? They have lower transaction fees and almost instant transfers in the seconds while their token contracts are way easier to setup and maintain if you are thinking on adding EUR, GBP, YEN, etc in the future. The only real advantage of Ethereum is their user base which is important but not the only decisive factor.
We considered a wide range of platforms before making a decision. At this point, however, Ethereum is really the only viable option particularly from a security and wallet support perspective. That said, we have been developing the technology in such a way that it can be adapted to other blockchains in the future should CENTRE choose to do that. However, while incredibly important, the contract implementation isn't nearly as much work as the legal, operational, risk and audit components necessary to connect the traditional financial system to cryptocurrencies in an open and compliant way. Should CENTRE choose to provide an implementation on another blockchain, much of those other components would simply apply with little modification.
Note I have no affiliation with Circle or Coinbase.
Ethereum tokens have far wider support among industry players and consumers, and a far larger set of compatible applications (e.g. state channel networks that allow near-free and instant ERC20 transactions, like Celer).
>>while their token contracts are way easier to setup
Setting up an ERC20 contract is literally a copy, paste, brand and broadcast job. In any case the technical cost of setup is not a factor that's relevant to large companies.
I understand why stablecoin's are useful to the end user. I also understand how Bitfinex is cashing in on Tether. However how is Coinbase making money with USDC? They clearly will have considerable expenses (keeping reserve, legal team, development etc. etc.). But if I give them 1USD and get back 1USDC, which later can be exchanged back to 1 USD, where are they making money?
>But if I give them 1USD and get back 1USDC, which later can be exchanged back to 1 USD, where are they making money?
Historically that's basically how banks have made money. Issuing bank notes while earning interest on the capital they hold. Typically they juice the rate via fractional reserve lending, ie they lend out more money than they have. However if they aren't able to do that, they still get to keep the interest from the deposits (say by buying Treasuries).
My guess is that the stable coins will continue to be more and more common, but then cryptocurrencies will rediscover fractional reserve lending, and new ideas like pegging a coin to the S & P. The pegger will charge a small service fee, the holders will be able to rapidly move money they spend, almost instantly between S&P (or other basket) pegged coins and stable coins.
There will be enough competition over being the holder of stable coins and enough competition in that system they I would expect them to offer rebates on transactions, and not have to charge merchant fees. And since they will be centrally cleared and not have to deal with mining and so on, the transactions ought to clear instantaneously.
Presumably they'll charge you a fee to buy, sell and trade it just like any other asset. If coinbase is involved in keeping the reserve, they can invest it various assets and keep the earnings - think money market fund, but you don't earn any interest - coinbase/circle keep the interest.
> If coinbase is involved in keeping the reserve, they can invest it various assets and keep the earnings
If that's the case I wish they were up front about that fact. I think its completely reasonable that they would keep any earned interest as compensation for managing the coin, so just be honest about it.
Basically interests: they are certainly targeting billions of dollars (or at least several hundred millions) of assets in custody. Assuming the US Federal Funds Effective Rate (currently at 2.19%) it can add up quickly.
It is obscenely disingenuous, almost fraud, to put "USD" in the name of the coin. That's not what it is. The ability to convert to/from the coin is entirely based on the good graces of the issuer, and any regulators in the relevant jurisdiction(s). People see "USD" and think it's a dollar. Stablecoin authors know this.
Unlike more seedy exchanges, Coinbase is based in a state with useful regulators (in this case, the US). Like others have said here, expect them to stomp the shit out of this.
The "dollars" in my bank account are not dollars either; they are something like a WellsFargoCoin.
(Granted, there's a huge difference, since WellsFargoCoin is backed by the FDIC... (Edit: maybe there is not so much of a difference; see the reply by omarchowdhury. I really don't know.))
I would assume Circle (backed by Goldman Sachs) is keeping the reserve dollars in segregated, FDIC insured bank accounts. Would be out of character and expected policy for a U.S. operation to not to.
Probably the first piece of the crypto ecosystem where being a trusted, regulated entity in a country with a real court system is an asset rather than a liability.
The problem is not what the transfers are denominated in, you could have LamboCoin if you wanted. It's acting as an unlicensed money transmitter at all that will get you.
Denominating in gold or lambos or USD doesn't get you around KYC/AML laws. Decentralized ERC20 tokens designed to transmit money are inherently illegal, and setting one up will get you a visit from the SEC if you can be traced back to it in any way. There is no end-run around this, this behavior is literally the exact thing KYC/AML laws are designed to prevent.
(This coin gets around it because it is not decentralized - only the company can mine blocks on this chain, and they can block transactions at will and validate IDs/etc when transacting back to USD. This allows them to enforce KYC/AML. They are aiming to be a licensed money transmitter.)
Seriously, what is the point? Even if this is a perfectly honest and functioning system, if you're using a currency that is pretty much like the dollar, regulated as the dollar, inflated as the dollar, why not just use the dollar?
I think stablecoins is where the cryptocurrency experiment is headed for the near & forseeable future. It's interesting to watch the experiment slowly give way to the reality of operating in the world at large. At least we still get some form of digital money. On another note, I think it's really concerning how much of a monopoly Coinbase is becoming in this space. They're probably the only corporate entity making any real (no-scam) money (in the US) and everyday they seem to be morphing into some kind of Goldman Sachs/Google/Microsoft hybrid of crypto-money.
I have to wonder what these coins actually offer the consumer. If they’re to be used as a real world currency for transactions, they would need to have some utility over credit/debit cards. I don’t see what that utility is. I can already make instantaneous purchases via contactless, and while there is a fee for international purchases, it’s not large enough, nor do I encounter it frequently enough, for me to look for an alternative. Why as an ordinary consumer would I bother with these?
An ordinary consumer wouldn't. For me, likely use cases are:
- Transmitting money overseas. This should be way cheaper.
- Vendors who are tired of paying 2.5% to credit card companies giving a discount to using crypto.
But they are no where near as easy to use as cryptocurrency. Back in 2010/2011 I used bitcoin to buy stuff from China, I was paying something ridiculous to do the same thing via traditional banks in fees and poor exchange rates. Even now these foreign exchange services make it better but only for larger transactions. Small/medium transactions still pay a ridiculous rate/fee compared to cryptocurrency. Further exacerbated if the recipient has difficulty obtaining banking facilities.
Curious to know if this will follow AML laws. Imagine you send a USDC coin to a person overseas. It then is sent to a few other people and then someone tries to cash it out in the US again.
Couldn't Coinbase decide that the chain of send/receives is illegal with chain analysis?
Hmm. So you can’t see any differences between a flash drive and cash?
If you withdrew your life savings in cash, that cash couldn’t become corrupted, unless by physical damage. Your life savings in cash would also be large enough that you wouldn’t be likely to lose it, or have the container it sits in easily stolen or accidentally smashed. You also are not very likely to forget or misplace the password to your cash.
Or, you could just use a credit card and have fraud protection.
If I had my life savings on a flash drive I think I could keep track of it pretty well. The nice thing about crypto wallets is you can replicate the secret key indefinitely. So, even if the drive is stolen you still have a password protected backup. If the cash is stolen, well, possession is 9/10s the law ;).
Why does there need to be a digital US dollar? Almost 20% of the US is underbanked, and 6.5% is unbanked. A digital dollar seemingly would be even worse and work to concentrate wealth among the educated/wealthy.
The FDIC's definition of 'underbanked', is pretty broad: "...the household had an account at an insured institution but also obtained financial products or services outside of the banking system.
"Specifically, a household is categorized as underbanked if it had a checking or savings account and used one of the following products or services from an alternative financial services provider in the past 12 months: money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, or auto title loans."
I used a money order a few years ago, so that year I was officially underbanked, despite being educated/wealthy (I have a PhD and I'm an accredited investor.)
Many low income people have smartphones actually, and use them in lieu of desktops. Not being connected isn’t the reason they’re unbanked or underbanked, you could argue moving more to digital would include more of them. Plus the US dollar is already digital.
In part they don’t have bank accounts because they’re poor, so they don’t have money to put in them. If they weren’t broke they’d have bank accounts. IMO this is more a function of wealth inequality in the US than of banking.
Think about it, you’ve got $0. Now I give you a fee free bank account. You’ve still got $0. You’re no more included in the financial system.
If they're already connected, why would moving digital include more of them in banking? They're not using physical banking now, I don't see how digital banking would convert them.
I meant having more ways to spend their money directly from their phones would allow them to avoid having to withdraw from physical ATMs, and more digital acceptance options means not having to deposit at ATMs. Those are kind of the last vestiges of the physical banking system. These problems are being solved though. Basically any time you’ve seen a “cash only” sign, it’s a blocker to totally digital banking.
Low income folks get wrecked disproportionately by the high fees associated with physical retail banking (including ATMs). They charge flat fees (like Cryptos incidentally) which function as a regressive tax on the poor. Digital banking, by virtue of not having to deal with real estate and physical assets is more efficient and cheaper.
I can’t overstate this enough, DONT HOLD DOLLARS. Currency is intentionally lossy so you invest it in productive assets. You’re pointing to a feature and yelling bug because you don’t seem to understand how it’s meant to work. Wages kept pace so earn rate remained constant or better and if you invested instead of throwing dollar bills under your mattress you’d have done incredibly well as the S&P has had a historical 7% geometric return.
Finally, all the popular stable coins are literally indexed to the US dollar, so you can’t say USDC/USDT is great then whine about the USD right?
C'mon. We all know why the Fed targets a relatively consistent rate of inflation. It's because deflation suppresses consumer spending. Not what you want in a consumer economy.
This right here, literally how it’s supposed to work. “Money becomes worth less over time, what should I do?” “Invest in productive assets” “OHHHHHHHHH”
There, we just saved you from having to go to an Econ class :P
The thing is, this assumes a shortage of capital for productive enterprises. Historically, that's been normal, but not so much since 2008. Banks have been hoarding cash well in excess of reserve requirements [1], despite ~zero interest for most of that time [2].
So if I have a $2000 how much of that do lose in fees when I buy shares? Sure it makes sense if I am saving $1000 or more a month but it doesn't work when I'm saving $50 to $100 a month for my kids college education, fees eat that up the same way that inflation does, but both make hardly any difference to the person saving $1000 or more a month.
Robinhood charges $0 in fees, so nothing. The trend in ETFs is reducing fees, there’s now zero fee ETFs too. Even if you use a discount brokerage that charges 3-4$ per trade the break even point is quite low, so store it as cash until you’re happy with the fee ratio.
How much do you lose in fees when you buy crypto? 1-2%? Plus insane volatility. If you’re low income that volatility is crippling.
Are you holding cash? The S&P500 is up something like 200% since 2008 so it's hard to understand how anyone's savings could have lost value in the past decade.
What you're talking about is investing+speculating, not saving. By the same logic investing in the S&P500 over the 1999-2009 decade would have been worse than cash. You save money, you invest/speculate to earn a return -- which requires taking on downside risk.
This is hardly worth dignifying with an answer, but I will anyway. Your original premise was that the dollar has lost enormous value since 1913. Strongly implicating the inflation is a measure by which you can measure whether or not a currency is "failed". This is false. A dollar or any unit of currency is an arbitrary symbol of a certain amount of worth.
Inflation does mean that the spending power of a currency decreases. No argument there. But guess what! Wages increase(d) relatively in line with inflation. If a snickers bar used to be $1 when the average salary was $10000; and now it's $2 when the average salary is $20000, then the actual cost of a Snickers bar has not changed, in simplified terms. I see no problem here. It also intuitively makes sense, that as the population of capital producing workers grows, so too does the GDP. These people need currency issued, too, otherwise, the currency would be deflationary. So new currency is issued to prevent deflation (just 1 example of why it's issued) and keep the currency in circulation in line with production.
> 150 caused by hyperinflation.
Like, for example, the Bolivar? or the Mark? That's actual hyperinflation. ~2% inflation YoY doesn't mean hyperinflation. This is Econ 101.
"Digital dollars?" We already have that -- it's called the US Dollar. Only 10% of the USD money supply is in physical paper or coin form. I receive my wages electronically and pay my mortgage, car payment, insurance, student loan, and buy groceries and entertainment without ever touching printed/minted money. And I suspect I'm in the majority on this point.
Digital dollar != a programmable digital dollar. It's like bitcoin, but will all the downsides of the dollar (endlessly inflating) + all the fragility and throughput constraints and centralization risks of ethereum.
I’m trying to think of use-cases for trusted stable-coins. The obvious one is just another way to sell products — this has failed for Bitcoin due to volatility risk.
One scenario I can think of is a decentralized e-reader and e-book marketplace:
- you have an e-reader app that is capable of decrypting books stored somewhere, as long as the content was encrypted with your public key
- authors publish their books to contracts that accept payments via an ERC20 stable-coin
- the contract responds by encrypting a copy of the book with your public key and placing it at a location your e-reader can retrieve it
Are there inherent advantages to a decentralized book store vs. Amazon though? Not sure…
It's funny that the USDC website doesn't list the main use of stablecoins (especially Tether) these days: arbitrage.
When moving fiat between two exchanges can take days and flag your accounts for suspicious activity, moving the same value using Tether is much much faster (~30 mins to 1 hour).
If one observes how does USDT flows, you'll find that it flows between the 3 or 4 major exchanges that use it, with almost no use elsewhere: no major wallets, no merchant acceptance, etc..
Long list of problems with stablecoins, but a very big one is the backing itself.
To name a few of the problems this will mechanically bring about:
1) counter-party risk: that money will need to be stored at some institution. However small, custody carries a risk, which means the peg will drift.
2)Even assuming the audit mechanism is bulletproof (unlikely) and the custodians risk is spread on a 1000 different institutions ... what are you going to do with that huge stash of backing USD sitting idle in your coinbase/circle bank accounts? How long do you think it's going to take for someone to realize that the money can be "put to work"? Or that actually holding the full amount is a very unnecesary thing to do. Or that banks hate carrying huge idle USD deposits and will likely try to charge you for it?
There goes the peg.
Unless of course, like Tether did get away with for quite a long time, you're smart enough to let the world behave you actually have the USD backing the coin.
I've taken a look at the many threads happening here and a large number of people discussing the "worthlessness" of the having a stable coin because of the lack of volatility vs the USD.
I'm actually quite interested in the outcome of this, especially because of transaction fees for credit card payments are so high. For some places in Asia, Japan in particular has credit card transaction fees of in the 3.6% range and going up to 4.5% for international cards.
For businesses selling services in the $2500 range, just at 3.6% of this transaction becomes $90 in fees just for a single transaction. Which, I think, is quite high just for moving a digital asset around.
While the prospects of "trading" this asset might not be as interesting, the potential for far lower transaction fees for people running a business seems very attractive to me.
In this instance I disagree. This is a smart contract which will create USDC for each USD that Coinbase reserves. In other words, each USDC has a single USD backing it. To back the guarantee they are slowing audits of their reserves.
This one is pretty straightforward.
IMO, this is just yet another crypto exchange trying to solve their day to day liquidity headaches, with some sugar sprinkled on (programmable USD).
In doing so, I think they gravely underestimate the kind of meat-grinder they're putting their hand in (as in: the kind of liability they're taking on).
Have they published the contract to the blockchain yet? I'm curious how much control over it they will have. I would suspect that only they can issue it, and that they can destroy any USDC they want at any time.
You could ask the same question about any security. Yes, traders in general are incentivized to bid/ask near the actual value of the underlying security.
The difference between securities in the abstract and a trustworthy, 100% reserve stablecoin is that the value of the latter is both known ($1) and stable (at least in USD terms).
Yeah, stablecoins really are as simple as naming it a stable coin and pledging 100% real currency backing, so long as you can convince traders you are trustworthy. E.g., I have some confidence Coinbase is trustworthy; I have zero confidence Bitfinex is trustworthy.
Visa processes transactions much faster, is accepted universally, has AML/fraud/chargeback insurance, and costs about 2.4% of transaction volume. This has none of those and transaction costs are TBD. I’m not trying to be a sceptic but I’m not yet convinced. “It’s decentralized” is not an argument unto itself and certainly not an argument of functional superiority. If anything it’s slower, harder to use, and more risky. I don’t care if my payment system is on Visa or AWS or a blockchain. I care that it’s fast and secure. I care that when a merchant defrauds me I get my money back.
- Decentralized transactions
- 24/7 access
- Low fees
- Store of value
I suppose the only drawback here is that they're issued from a centralized authority. That said, for practical purposes the vast majority of Bitcoin holders didn't mine their own coins either.
Despite this, no one on Twitter[1] seemed excited. In fact they seemed upset that Coinbase didn't announce support for their cryptocoin du jour (mostly Ripple or Cardano). This is a recurring theme on all the subreddits I've visited: People rarely care about the usage of their cryptocurrency, they're only interested in its price.
A cryptocurrency that stays the same value is not very interesting to traders and therefore most of the cryptocurrency community.
[1] https://twitter.com/coinbase/status/1054764504259543041