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857 sats \ 8 replies \ @supertestnet 7 Jun freebie \ parent \ on: Ecash mints are just like the Fed's Repo Window bitcoin
That's not a good reason to pretend they are something else. You don't get to make up new definitions just because you don't like the legal consequences of the correct definition.
Then it's "enhanced" custody...but still custody. Imagine if every custodian who added some new feature declared that they weren't a custodian anymore because "traditional custodians don't have feature X!" It would be ridiculous. If you still have user funds, you're a custodian, and just because ecash mints have some cool features does not make them non-custodial.
While I'm here I'd like to comment on a few sentences from your opening post:
I think it's just the first part, before the word "and." Being custodial has nothing to do with how they represent their relationship to you in their database. For example, the website acceptln.com is a custodial website that does not have accounts. Instead, you "deposit" sats without logging in and it automatically emails a "voucher" for that deposit to whoever you want it to go to. They email that person a link where they can claim the sats. Here, the depositor never has an account, but it's still obviously custodial -- acceptln has the money. What makes you a custodian is whether you have the keys, not whether you give your depositors an account or not.
That does not matter. The mint holds user deposits and redeems them when bearer tokens are submitted to them. I like the analogy of a money order. If I go to my local walmart I can purchase a money order from them which is essentially a check drawn on walmart's account. I need no account of any kind to do this. I can then mail this money order to anyone and if they go to their own local walmart, or walmart's bank, they can redeem it, because it's walmart's check. Ecash tokens are a lot like that. But it's clearly custodial. I give my money to w̶a̶l̶m̶a̶r̶t̶ the mint, they keep it but give me an IOU for the same amount (minus a fee), I can give that to anyone I want, and they can redeem it without an account. But since w̶a̶l̶m̶a̶r̶t̶ the mint has my deposit the whole time, w̶a̶l̶m̶a̶r̶t̶ the mint is the custodian.
Not if the mint doesn't want you to. The problem is the melt/swap operation. If you send someone your IOU and the recipient doesn't swap or melt it at the mint, the IOU is double spendable -- you can give it to someone else or redeem it yourself. The recipient hasn't really "received" anything of value if it's still fully spendable by whoever they got it from. Therefore, ecash recipients have to swap or melt their tokens in order to safely consider them "received." And that means the whole system is permissioned, because the mint is under no obligation to issue IOUs for anyone and they are under no obligation to redeem them for anyone. They can refuse, or do shotgun KYC, or suddenly raise their fees, or do whatever they want, at any step of the process. They can suddenly start doing this at the time of issuance or at the time of redemption or anywhere in between. They hold the money so it is in fact a permissioned system. Which is just another indicator that it really is a custodial relationship, regardless of whether users have accounts or not.
I found another example of an accountless custodian besides acceptln.com. Check out https://tipcards.io/ -- they only use lightning and lnurl withdraw codes, with no accounts. Users visit the site and load up a set of 1 or more "tip cards" which are just business-card sized cutouts with an lnurl withdraw code on them. You "fund" your cards by paying a lightning invoice and then start handing them out. Recipients can scan the lnurl withdraw code to withdraw the money.
It's pretty analogous to ecash: you "mint" these "tokens" (business cards) by paying a lightning invoice, and then hand them around to people without anyone needing an account, and those people "redeem" them by scanning the qr code with a lightning wallet. But it's obviously custodial: tipcards.io has the money the whole time, and they can run off with it whenever they want. They don't get to say "we're not a custodian because traditional custodians have accounts and don't give you printouts!" They have the money, the printouts are just IOUs, and therefore tipcards.io is a custodian. The same applies to ecash mints.
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Thanks for the thoughtful response, Super. This is exactly the kind of thing that helps me think this through.
First,
You don't get to make up new definitions just because you don't like the legal consequences of the correct definition
We do get to define what is happening here. For instance, if I open a mint that sells ecash tokens but makes no attempt to peg them to sats, I'm not custodying anything. It seems to me that something happens when a mint says they will redeem tokens for btc. If they did not make this promise, it would not be custody. It would be the sale of a token.
While I agree that laws don't let us "identify" our way out of their enforcement, I do think we can be smart about what we do and how we describe it.
This question does exist: for a thing to peg its value to another, must it be custodial? Can there be a stablecoin of any sort that is not custodial? I think a mint can impart value to an ecash token without custodying some reserve on behalf of its users, I'm not yet sure if they can make it a stable value.
Second,
Therefore, ecash recipients have to swap or melt their tokens in order to safely consider them "received." And that means the whole system is permissioned
I agree, but an important point here that you do not acknowledge is that for the mint to successfully single out any ecash token to refuse or "freeze" they would have to refuse ALL tokens, effectively shutting down. I agree that they can do this, but it's not the same as a custodial relationship like acceptln or tip cards, where it seems to me that they can trivially specify a single account to "freeze."
Thoughts?
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We do get to define what is happening here. For instance, if I open a mint that sells ecash tokens but makes no attempt to peg them to sats, I'm not custodying anything.
That depends. Just because you're not custodying sats doesn't mean you're not custodying anything. A mint could pop up tomorrow that gives you an iou for USDT instead of for satoshis. It still has custody of your money in that case. If it gives you any type of monetary IOU then it is acting as a depository institution, regardless of the monetary instrument involved. It becomes a custodian the moment it decides "instead of selling a regular *product* to our customers, we'll let them deposit and withdraw some form of *money*." That's the line. If you cross that line, from merchant to depository institution, you've become a custodian -- a bank -- a money service business.
If they did not make this promise, it would not be custody. It would be the sale of a token.
Yes. If you say or do something that gives your customers a reasonable expectation of getting back the money they put in, or an equivalent amount of some other money, then you're a custodian. If not, you're not. Merchants do get an exception for 30 day returnable items, but if the government thinks a merchant is abusing this exception to get around MSB laws and act as a shadow bank, they come down hard on them.
This question does exist: for a thing to peg its value to another, must it be custodial?
No, I think there are rollups on ethereum that demonstrate the possibility of creating two different tokens on two different blockchains with a two way peg between them, without relying on a custodian. But on bitcoin, no one has achieved this yet, at least not to my knowledge.
I think a mint can impart value to an ecash token without custodying some reserve on behalf of its users, I'm not yet sure if they can make it a stable value.
If they can run off with user deposits then any value associated with their IOUs depends on their integrity and ability to evade US law enforcement officers. On an unrelated note, this is a good time to remind readers that I applaud folks who violate these unjust laws and I will continue doing my best to create tools that help you do so more effectively. But also, I value self custody enough to work on that even more.
you do not acknowledge...that for the mint to successfully single out any ecash token to refuse or "freeze" they would have to refuse ALL tokens, effectively shutting down.
I think they have more options than that. Some people say "with ecash mints it's all or nothing" but I think they neglect to acknowledge all of these possibilities:
- mints can require users to interact with them via http requests
- mints can then engage in selective traffic blocking
- e.g. they can block ip addresses known to belong to tor, vpns, anything in the USA range, or any other country
- they can even block specific businesses and residences with known ip addresses, specific cities, or individual provinces
- mints can do shotgun KYC and suddenly refuse to issue or redeem any more tokens without each user individually identifying themselves with full official documentation
All of these examples let a mint continue operating and selectively restrict either a class of users or an individual user -- and most of these are exactly the same tools "regular" custodians use to e.g. deny service to people in the USA, or in North Korea, or in Russia, etc.
I acknowledge that someone like Tether can do this on a "token by token" basis and a mint cannot, but since a mint can do it on a "user by user" basis instead, that's a sufficiently powerful set of tools to implement any government compliance requirements as soon as any government comes down hard enough on these service providers. And no amount of claiming to be special will save them from that.
Rather than try to "define" a way out of it, I prefer to make the tech hard to stop, its users and operators hard to track, and -- especially -- make self-custodial alternatives so that users don't have to deal with the extra trust assumptions that come with using mints.
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This is a pretty well-reasoned response. I'm not sure I have any tenable stance to take in my argument short of saying that ecash mints should just sell their tokens and abandon entirely this business of redemption and 1-1 value with sats. Sell 'em as an altcoin and see how the market values them. Or, I can concede that they are indeed custodial bitcoin.
Rather than try to "define" a way out of it, I prefer to make the tech hard to stop, its users and operators hard to track, and -- especially -- make self-custodial alternatives so that users don't have to deal with the extra trust assumptions that come with using mints.
I have decided that I need to sign up for your classes.
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I have decided that I need to sign up for your classes
Wow, that's an unexpected result! Thank you. You can buy your ticket here: https://supertestnet.org/workshops.html
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Done!
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Thanks! I DM'd you here on stacker news with the link
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Excellent! I'm looking forward to becoming better at sticking it to the Man!