American banks looking to provide services to customers on public blockchain networks may be facing obstacles from the Federal Deposit Insurance Corporation, according to recently released documents. The disclosure was made through a collection of unredacted correspondences between the FDIC and member banks, obtained by cryptocurrency exchange Coinbase through the Freedom of Information Act. Last month, Coinbase received heavily redacted versions of 23 such letters.
Thanks to a court order, the contents of these letters, along with two new ones, have now been revealed in almost their entirety.
One of the newly disclosed letters, dated March 2022, was sent from the FDIC’s New York office to a member bank. The letter outlined the FDIC’s knowledge of the bank’s plans to introduce a “Bank Digital Deposit” program on a public blockchain network, the specific name of which was redacted.
The FDIC’s concern in the letter seemed to stem from the bank’s choice of a public blockchain over a private, permissioned network. Public blockchains like Ethereum and Solana are decentralized and permissionless, meaning that all activities are public and cannot be altered by third-party administrators. In contrast, private blockchain networks, commonly used by governments for central bank digital currencies, have restrictions on access and usage.
It appears that the FDIC disapproves of member banks launching products on fully transparent networks. The regulator instructed the New York bank to undergo a thorough review process before proceeding with any products on public blockchains.
Other letters revealed on Friday show the FDIC directing member banks to cease services related to the buying and selling of Bitcoin. Previously redacted sections of these letters indicated the FDIC’s instruction for member banks to “pause all crypto asset-related activity.”
Paul Grewal, Chief Legal Officer at Coinbase, highlighted these revelations as evidence of a purported Biden administration campaign against the crypto industry through banking regulations, dubbed “Operation Chokepoint 2.0” in reference to a similar initiative during the Obama administration targeting firearms dealers and payday lenders.
“They demonstrate a coordinated effort to impede a wide range of crypto activities,” Grewal stated on X (formerly Twitter) regarding Friday’s FDIC letters.