US banks seeking to offer services built on public blockchain networks to customers appear to have been discouraged by the Federal Deposit Insurance Corporation, according to documents released Friday.
The disclosure comes amid newly unregulated crypto-related correspondence between the FDIC and its member banks. San Francisco-based cryptocurrency exchange Coinbase obtained the documents through the Freedom of Information Act, or FOIA. Last month, Coinbase confirmed the most modified versions 23 such letters.
Thanks to a court order, the contents of those letters – and two new ones – were revealed Today completely (soon).
One of those letters, sent in March 2022 from the FDIC's New York office to a member bank, detailed how the federal agency learned the bank planned to launch a “bank digital deposit” program built to run on a public blockchain. The name of that public blockchain has been changed.
In the letter, the FDIC appears to take issue with the bank's choice to use a public blockchain instead of a private, permissioned network. Blockchains like Ethereum and Solana are decentralized and permissionless, meaning that activity on them is completely public and cannot be overridden by third-party human administrators. In contrast, private blockchain networks, like the ones nation states use to issue central bank digital currencies, place restrictions on who can use them and for what purpose.
The FDIC is clearly not in favor of member banks launching products on anything, fully transparent networks. The regulator ordered Bank of New York in a March 2022 letter to submit to a new detailed review process before launching any product on public blockchains.
Other letters released Friday show the FDIC ordered member banks to stop implementing services related to buying and selling Bitcoin. Parts of the same letters have not changed in the last month. He showed. The FDIC instructs member banks to “stop all crypto-asset-related activity.”
Coinbase Chief Legal Officer Paul Grewal described today's revelations as further confirmation of what the Biden administration's initiative known as the Banking Act has done to the crypto industry.Operational Chokepoint 2.0” (borrowing its name from an Obama-era plan targeting arms dealers and payday lenders).
“They show a concerted effort to stop the various crypto activities,” Grewal said he said. On Friday FDIC Letters X (formerly Twitter).
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