Unredacted papers acquired by Coinbase on Friday reveal that the FDIC, a banking regulator, stopped a member bank from using a public blockchain.
According to papers made public on Friday, the Federal Deposit Insurance Corporation seems to have deterred American banks from providing their clients with services based on public blockchain networks.
A wealth of recently unredacted crypto-related correspondences between the FDIC and member institutions provided the revelation. The data were acquired under the Freedom of Information Act, or FOIA, by Coinbase, a bitcoin exchange located in San Francisco. Coinbase obtained extensively edited copies of 23 of these letters last month.
Today, the (near) full contents of those letters—as well as two additional ones—were made public by a court order.
One of the letters, which was issued to a member bank in March 2022 by the FDIC’s New York office, explained how the federal agency had discovered that the bank intended to launch a “Bank Digital Deposit” scheme that was designed to operate on a public blockchain. That public blockchain’s name is still redacted.
The FDIC seems to object to the bank’s decision to utilize a public blockchain rather than a private, permissioned network in the letter. Because blockchains like Ethereum and Solana are decentralized and permissionless, all activity on them is completely visible to the public and cannot be overruled by human administrators acting on behalf of other parties. Private blockchain networks, such as those used by nation governments to create digital currencies issued by their central banks, impose restrictions on who may use them and for what reasons.
It seems that the FDIC does not like member banks introducing goods on completely public, anything-goes networks. In the letter dated March 2022, the regulator directed the New York bank to adhere to a new, comprehensive assessment procedure before to releasing any goods on public blockchains.
The FDIC has ordered member banks to stop offering services linked to Bitcoin buying and trading, according to other letters made public on Friday. The FDIC instructed member banks to “pause all crypto asset-related activity,” according to portions of the same letters that were left unredacted last month.
Paul Grewal, the chief legal officer at Coinbase, hailed today’s disclosures as more evidence of an alleged Biden administration campaign against the cryptocurrency sector through banking regulations, which has come to be known as “Operation Chokepoint 2.0” (a reference to the Obama-era scheme that targeted payday lenders and gun dealers).
Regarding Friday’s FDIC letters, Grewal said on X (previously Twitter) that “them show a coordinated effort to stop a wide variety of crypto activity.”
Also Read: Coinbase discloses unredacted FDIC letters cautioning banks to avoid basic Bitcoin services
