The U.S. FDIC discourages member banks from using public blockchains such as Ethereum

PANews reported on January 4 that according to unabridged documents obtained by Coinbase, Bank of America attempted to provide customers with services based on public blockchain networks, but appeared to be dissuaded by the Federal Deposit Insurance Corporation. The disclosure stems from a large number of unabridged encryption-related communications between the FDIC and member banks. San Francisco-based cryptocurrency exchange Coinbase obtained the documents through a Freedom of Information Act (FOIA) request. Last month, Coinbase obtained heavily redacted versions of 23 such letters. Thanks to a court order, the contents of those letters (along with two new ones) were revealed (almost) in full today.

One of the letters, sent to a member bank by the FDIC's New York office in March 2022, detailed how the federal agency learned of the bank's plans to launch a "bank digital deposit" program that would run on a public blockchain. The name of this public blockchain remains undisclosed. In the letter, the FDIC appeared to express displeasure with the bank’s choice to use a public blockchain instead of a private permissioned network. Blockchains such as Ethereum and Solana are decentralized and permissionless, meaning activity on them is completely public and cannot be overridden by third-party human administrators. In contrast, private blockchain networks, such as those used by nation-states to issue central bank digital currencies, impose restrictions on who can use them and for what purposes.

The FDIC clearly does not approve of member banks launching products on a universal, fully transparent network. In a March 2022 letter, the regulator instructed New York banks to undergo a new detailed review process before launching any products on public blockchains. Other letters disclosed showed that the FDIC ordered member banks to stop performing services related to the purchase and sale of Bitcoin. Part of the same unabridged letter from last month revealed that the FDIC directed member banks to "suspend all crypto-asset-related activities."