I haven't read through the paper in detail (so I could be entirely wrong) but the proposed solution appears to be based on decades-old technology (David Chaum's ecash, which dates back to the mid-90s), which is completely centralized. Every single transaction must be signed and then checked by the central bank.
"..blinding is done by the customers, who blind their coins before transmitting them to the central bank for signature."
"..to be sure that the coin has not been copied and already redeemed by another payee (i.e., has not been “double-spent”), the merchant must deposit the coin so that the central bank can check the coin against a file of redeemed coins."
The paper claims that the CBDC is proposes is "a genuine digital bearer instrument" but to my mind, "a genuine digital bearer instrument" should not be entirely reliant on a centralized trusted third party.
Several years ago, we (the Zcash team) came up with a proposal for a wholesale CBDC for use by commercial banks, that has strong privacy protections (based on the zero-knowledge proofs-based protocol that underpins Zcash) that would prevent other CBDC users from being able to observe transaction details or balances, while allowing the central bank to monitor activity on the CBDC ledger. It's designed to sit alongside and provide a decentralized alternative/backup to existing RTGS systems (which would have been useful during the FedWire outage yesterday!). Several major central banks showed enough interest to sit through the presentation but nobody was interested in doing a proof-of-concept or a pilot. ¯\_(ツ)_/¯
Your first sentence draws a conclusion using the benefit of hindsight. Your second sentence doesn’t make sense in the context. TVs and radios were also not broken before the internet.
A central bank issued digital currency has a lot of appeal - it simply does away with layers of inefficiency without disrupting the "the government is in charge" approach we have now. (yes this is appealing to many)
I partially like that this approach (despite being written by an e-cash greybeard) does away with a distributed ledger (ie why bother when it's a central bank) but I cannot get away from the basic idea that distributed ledgers are going to be a fundamental and transformative tech in the years to come.
Throwing that baby out with the bath water seems an architectural optimisation too early.
In the EU we have had rapid digital transfers for years now, I can transfer cash to my wife or my brother and it will be in their account in seconds of me pressing the "authorize" button. It works fast, it's cheap and I think it has had maybe one or two failures in the past five years. I don't see why a distributed ledger would be a big improvement for such a system, though I'd be happy to hear more.
Like you say, when the central bank is managing it you have already done away with "trustless" since the central bank itself is the trusted party. At that point, why bother with blockchains and the like. Just have the central bank manage a big database and be done with it.
The way we think about money is as a global ledger. However, the reality is a lot more complicated if you look at what goes on under the hood of those "rapid digital transfers".
The money in your bank account exists only as a liability of the bank. It is just a number in the bank's database. And each bank has their own database. So transferring money from bank A to bank B means that bank B must agree to take on the liability, in exchange for something else.
Most of the time, the illusion of a global ledger is maintained, but it can break down when the system is under stress (e.g. financial crisis of 2008). Introducing a CBDC would fix this, and would make money work the way we already think it works.
Sure, but the "commercial bank money" layer is a feature rather than a bug of the system from the point of view of central bank and commercial banks alike (investment costs and risks are reduced by readily available credit at a predictable price, and the broad money supply is elastic in response to demand) and it makes no difference at all to those on either side of the transfer.
If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0
> If you worry about the stability of interbank lending and solvency of banks, you resolve that with legal requirements around lending and reserves, not introducing a new optional form of m0
Scenario 5 in this whitepaper hints that the ECB is considering a CBDC for this reason nonetheless. (Some other reasons are also given in the other scenarios.) They also talk about how a CBDC would be competition for commercial bank money, so the consequences indeed do need to be carefully considered.
Yes, this is how money works and is created today through fractional reserve lending. This has the tremendous advantage of being able to finance economic growth on credit, with a corresponding inflation risk that needs to be managed. That's a feature not a bug.
Imagine being able to audit the total supply of money printed by your central bank. Or to audit that your retail bank indeed has the reserves it claims.
And "audit" not as in "spend millions on an auditing firm to do it for you", but audit as in "independently verify it yourself on your own computer".
One problem with this (and a common misunderstanding of crypto as an "anonymous currency" by the general public) is that it would allow everyone to see exactly how much money everyone else has in their accounts, what they're spending their money on, etc. With Bitcoin there's at least a degree of pseudonymity if you're careful about publicly linking your wallet to your identity, but I could imagine that's not really possible for state-sponsored currencies.
Having a cryptographically verified history of everything my government is spending on would be cool, but due to the nature of the distributed ledger it would require private citizens be put under the same microscope. At least with the alternative of one central bank controlling one central database, there's some degree of restriction to personal information (I'd imagine the bank wouldn't let any average Joe request ledger data on their neighbor just for fun, but public interests would be fair game).
But you wouldn't be able to meaningfully audit a retail bank at all by looking at the ledger, because meaningfully auditing a retail bank involves understanding their loan portfolio (in particular whether the entities loaned to are likely to default more than predicted in future and whether assets loans are secured against retain their value). You're not going to get all that from a transaction ledger, and particularly not one designed with privacy in mind
Simply knowing how many reserves the bank holds gives you no indication whatsoever of its solvency.
Coming from EU, I absolutely agree on this one. There is also an API standard that banks are required to implement now.
There are no smart contracts in those systems though, and I guess it will take a long time to implement that - if ever. And without smart contracts you can have no tokens, DeFi and whatnot.
On HN one is in minority, but not alone, when seeing centrally planned economies as a moral evil and an invitation for inefficiency. Americans in ‘71 stopped pinning $35=1oz AU (https://wtfhappenedin1971.com/). For this reason, central bank money, with planned (not natural) supply, are not good.
Are there any easy way for a merchant to accept gold payment nowadays, and have it registered in their bookkeeping - like a debit account but for gold, not $? Alternatively, a debit card where I deposit gold to my bank, and it is sold when I withdraw cash with the card from the ATM?
> when seeing centrally planned economies as a moral evil...For this reason, central bank money, with planned (not natural) supply, are not good.
What would it take you to change your mind on this? To be frank and brutal, is this a religious kind of belief where no observation , no evidence, no argument can change your mind, or a scientific kind of belief where there are ways to change your mind - even if implausible?
Please interpret my message in good faith - it is honest rationality that brings us to this conclusion.
Epistemologically, logical arguments from 1st principle I think are of highest value, and evidence or observation after that, and both support the claim that centrally planned economies create worse outcomes, be it for cars like Trabant vs BMW or currency like $ and €.
I welcome you to convince me, and that curious quest for truth is what brings many of us onto the internet. It may sound high and mighty but is sincere. This is my 2nd language so apologies for the lack of finesse.
Since “nomen est omen”, let’s define.
“Price” is in a free market where demand and supply meet. For labour, for cars, for chewing gum, and so much more.
When there is a lot of demand, rising prices are a signal to produce and be rewarded. Those who successfully do so will be rich, and want to invest their money in the most efficient way possible. This leads them to finding others who want to satisfy demand, invest in them, and there is a virtuous cycle. This effect is simple, but very important. Don’t take it lightly - it has given even the poor what kings could only dream of a few hundred years ago. We don’t live in a perfect Eden, but we have risen far.
It is also good, if ethics are universal, because it contains no coercion, violent force, or other such evils.
Currency is one thing of many traded. It has a price relative to other currencies, but also to bananas, chewing gum, cars, labour, etc. What to use as currency, and the price of currency, would in a free market be set by supply and demand. The price and object of currency would therefore reflect the wisdom of the crowd, rather than committee.
Central bank currency requires a state to use its police and military to force people to trade in it, rather than the currency they themselves prefer. Central bank currency allows the state to print infinite amounts of money, like in Weimar, or since 2008 with QE infinity. When you create money, the value of every salary is effectively lowered. The state first and the banks second get to deal with the new money, while it’s still valued as before it’s printed. With this you can fund wars, and bribe the population for votes with welfare programs that create addiction to the state.
Central banking was Marx’s 5th point in his communist manifesto - “Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.”. Another notable point in the communist manifesto was state run public schools rather than freedom in education.
So just like central planning of the car economy in east Germany led to worse driving and long lines for East Germans, central planning of currency leads to worse economic outcome for most people. See for example how income from capital vs income from labour diverged in America after 1971, as in the link above. Labourers got majorly screwed, while growth in efficiency continued (I.e value of capital) to climb.
I invite you to either from first principles or evidence show that supply and demand is better determined by the state or a semi-state organisation, preferably with a good argument for why a central planning committee will be more efficient and virtuous than free decentralised people trying to satisfy the demand of others best they can, and I promise to accept reason. It’s worthwhile to recall that philo means love and sophy means wisdom/reason.
Many of these ideas I’ve learned from the books of Austrian philosopher/economist von Mises. His books are on Amazon but also available as pdf, html, and ePub here https://mises.org/library/human-action-0
Thanks for the thoughtful reply even if my original comment may have been a bit snarky.
Let me start by saying that I kind of admire the logical coherence and beauty of the framework built from the basic building blocks of utility maximizing (rational) agents, free trade and market equilibrium. It is actually very hard to argue against the framework within the framework itself, the logical purity of the model is quite beautiful indeed. And absolutely yes, free trade has been one of the huge welfare drivers of the last centuries. Another one, in my opinion, is democracy and worker's unions, but that is a side note to this particular discussion.
But (of course there is a but...), what comes to monetary policy, I'd like to ask you to consider one of the basic premises I mentioned above, namely market equilibrium. I would argue that even if in the long term the macroeconomy may be somewhat equilibrium seeking, in the short term it is quite obvious that the unconstrained macroeconomy is a complex system with different feedback loops and time constants causing a pretty much chaotic behaviour[1]. And without any exogenous controls in place, even these short term fluctuations can become large enough to cause havoc in the society. These fluctuations can be observed in macro level in the business cycles (even if the central banks and governments do their best to smooth them!), and even in micro level in repeatable experiments[2]
So, if you allow economy in your model to be complex and not just perfectly equilibrium seeking, you pretty much must have some exogenous control to keep the economy even remotely stable. Unfortunately that exogenous control by definition means that somehow actions of some agents in the economy must be artificially either restricted or fostered, even if that flies on the face of the moral principle of individual freedom. And central banks are important tools in this exogenous control via money supply.
About 50% of market economies is centrally planned, via the existence of large companies that plan and organize production not through market signals but simply by issuing commands to their workers.
Let’s get out definitions straight - nomen est after all omen!
Central planning in this context means that the state by using its police and army will hinder free people from trying to satisfy market demand as expressed by price.
Instead a committee appointed by politicians would decide what should be produced and at what price it should be sold.
That a company plans the best they can to satisfy demand is not what we mean when we say _central_ planning
I think it's referring to stablecoins like USDC more than traditional crypto.
Also, why would they wait until it becomes a thing? It's clearly just getting bigger so might as well do something before it actually becomes a "real" competitor.
The paper does also say stablecoins are more likely to widely used as money than crytocurrency (if properly regulated). But it also acknowledges that they carry significant counterparty risk, especially as holding asset backing is unprofitable and so issuers are incentivised not to hold the assets they claims to hold. And the reality is that stablecoins aren't really used for anything other than buying crypto on offshore exchanges.
(tbf to the paper, apart from the sentence highlighted by the OP it's pretty level-headed about actually existent crypto)
As someone whose extremely pro crypto currency, you are right in pointing out this is nonsense. The authors seem to be putting a lot of effort into building a narrative here, for what purpose isn't clear.
Does that matter? There are many American products that are initially set in USD that I can buy with EUR, doesn't that mean that EUR is competing with USD when I have a choice to use both?
The ability to "buy" art here is vaguely interesting, but it doesn't surprise me that the only thing denominated in cryptocurrency is an entry on another blockchain.
I haven't checked, but I reckon the asking price for ransomware is figured out in USD and then converted to crypto. Presumably the pricing model is pretty sophisticated for maximising revenue.
EDIT: 20s Googling: "(2013) Bitcoin instability over the past few months has prompted CryptoLocker's masterminds to reduce the ransom to 1 BTC, 0.5 BTC, and then to where it is currently: 0.3 BTC."
Yes, the price is not hard fixed in Bitcoin, largely because it is not really a habitual currency, so any fluctuation will directly impact the actual asking price for everyone.
But still, the asking price for the "service" is in Bitcoin as peteretep was asking. They could've asked an amount in US$ payable in Bitcoin, but the price is given in BTC.
I would argue, the change of price is "just" reflecting the deflation of bitcoin, which from my point-of-view is not terribly different to other price-adjustments across currencies.
E.g. Apple increasing the prices in their App Store in UK£ due to its depreciation (https://www.theguardian.com/technology/2017/jan/17/apple-ios...)
Some would say the fact Tether has a market cap of $34 billion demonstrates there's demand for digital currencies denominated in conventional currencies.
Assuming you overlook any suspicious behaviour, that is.
You hit the nail on the head here. This is what a crypotographer might want these systems to be.
If you look at the actual motivations of the Central Banks in making Cbdcs, it's doubtful they will need anything more technoligically complex than what credit card companies already have.
I doubt it will be a block chain. I doubt it will deal with private/public keys as a main means of authentication.
Sounds really cool. I hope this project continues after bitcoin crashes. My fear is that the bitcoin crash will make people irrationally skeptical of any new electronic money/payment system that isn't coming from the establishment.
All this digital cash nonsense seems to be crypto people shouting "blockchain!" in the general direction of people who don't get it at all, but look around and feel like they need to do something. And yet neither party really grasps the other side.
Cash is a specific form of money. There is no such thing as digital cash (or maybe, all digital money is "digital cash"). Digital money on the other hand is all around us. I can't remember the last time I paid for something with cash. But I spend digital money every day. I get paid with digital money each month, I sit on the couch and spend digital money on Amazon, and I routinely tap my iPhone to use Apple Pay to spend digital money in shops. It's just moving bits around a database.
Reading between the lines of what Central Bankers mean is that they want national accounts (i.e. wallets) and using crypto/blockchain/whatever as justification. The reason being that Central Banks have unleashed interventions that 20 years ago were unfathomable. And yet, deflation is everywhere and money velocity barely has a pulse. The transmission mechanisms for monetary policy are broken...well, CB'ers broke them. So now they are looking elsewhere. Direct payments are the final frontier, and it's a lot easier to do by giving everyone an account with the CB (i.e. "wallet") and just print money there.
TL;DR - money is already digital, what central banks really want is centralized accounts that they can helicopter money into
> they want national accounts (i.e. wallets) and using crypto/blockchain/whatever as justification
Bingo. Central bankers have wanted direct access to consumers for decades. Policy makers resisted. Cryptocurrencies are a political tool for disabling that opposition.
You are maybe the only person I've seen write about Cbdcs who sees in it what I do.
It's a policy tool, not a technology. They could set up a cbdc with minim effort technologically. The problem would be getting the congressional approval to use it the way they want to use it.
I don't know yet how the crypto world could change my life, but people are so convinced to invest 1.5B dollars. Either they are very smart or I'm very stupid.
Theranos was valued at $10B, with somewhere in the region of $1.5B invested. It was also entirely fraudulent, with explanations of their science that made no sense.
The amount being invested does not translate into any bearing on reality.
Being able to hire experts in one field doesn’t make you omni-competent. There’s a long history of famously successful people embarrassing themselves once they get out of their area of expertise, and in this case you’re also talking about someone who is rich enough to run with a whim because he won’t suffer any real consequences if his gamble doesn’t pay off.
Again, history is full of counterexamples. Not everyone who is a rich business owner is especially intelligent but, far more typically, there is a huge difference between being unable to critically consider an idea and unwilling to do so. This can actually be worse for highly-accomplished people if they start believing their own PR and don't have people around who are comfortable challenging them.
> TL;DR - money is already digital, what central banks really want is centralized accounts that they can helicopter money into
That is not a matter of centralised accounts, but policy. Central banks could just as well have mailed a check, but they are simply not allowed to.
> The reason being that Central Banks have unleashed interventions that 20 years ago were unfathomable. And yet, deflation is everywhere and money velocity barely has a pulse
Because they are tasked with monetary stability, and they used the only interventions they were allowed to. And that was challenged at court.
It would have been the governments job to drive the economy up, because quite evidently, it was not a lack of credit-lines which staled it.
But up until recently there was no political will to do so.
I think it's a mix of the two. I think the reason that they want the cbdc as opposed to mailing checks is that it creates a permant channel that is likely to require less congressional approval on a per use basis.
If every person has an "digital currency wallet" held at their normal bank as a pass through to the fed already, and let's say congress passes a bill pre-approving them to do a certain amount of stimulative distributions, they basically have a blank check. There would be no further approval needed for those distributions. It's even possible they would ask for this to be uncapped, essentially opening a new facility.
I think this structurally has less resistance than writing physical checks. What's the point of designing and implementing that system if they aren't going to be allowed to use it.
> If every person has an "digital currency wallet"...
Nothing that follows in this paragraph depends on the pre-condition of having a digital currency wallet.
> I think this structurally has less resistance than writing physical checks.
That may be, but I find it hard to judge. I am skeptical if the decision to shell out a couple of billions depends on physical checks or not. You could also argue the reverse, a check works better for advertisement for the governing party. People get something physical that is worth something.
> What's the point of designing and implementing that system if they aren't going to be allowed to use it.
There are other use-cases. Direct depositing stimulative is one possibility, but from my point-of-view hardly a game-changer. Direct withdrawal/devaluation on the other hand...
The main motivation I see though is more to compete with PayPal/Visa/MasterCard/Apple Pay/Google Pay..., and all the classic banks. The motivation is not to lose relevance, and if designed correctly, I can opt out of monetising my buyers history & private information.
> TL;DR - money is already digital, what central banks really want is centralized accounts that they can helicopter money into
I don't think it's the main motive, the central bank could send money directly on my bank account if they felt like it.
As I said previously :
> Digital currencies allow for full tracking of every transactions and are a privacy nightmare.
> They allow applying negative interest rate on everybody and they would facilitate neverending hyperinflation (no need to print new bills at great expense).
> Hence they can't coexist with cash so say goodbye to cash.
"..blinding is done by the customers, who blind their coins before transmitting them to the central bank for signature."
"..to be sure that the coin has not been copied and already redeemed by another payee (i.e., has not been “double-spent”), the merchant must deposit the coin so that the central bank can check the coin against a file of redeemed coins."
The paper claims that the CBDC is proposes is "a genuine digital bearer instrument" but to my mind, "a genuine digital bearer instrument" should not be entirely reliant on a centralized trusted third party.
Several years ago, we (the Zcash team) came up with a proposal for a wholesale CBDC for use by commercial banks, that has strong privacy protections (based on the zero-knowledge proofs-based protocol that underpins Zcash) that would prevent other CBDC users from being able to observe transaction details or balances, while allowing the central bank to monitor activity on the CBDC ledger. It's designed to sit alongside and provide a decentralized alternative/backup to existing RTGS systems (which would have been useful during the FedWire outage yesterday!). Several major central banks showed enough interest to sit through the presentation but nobody was interested in doing a proof-of-concept or a pilot. ¯\_(ツ)_/¯
You can see a diagram outlining how it would work here: https://twitter.com/JackGavigan/status/1364669769639690246