1715 sats \ 14 replies \ @Scoresby 10 Jan \ on: What is fedimint to you? ecash
Bitcoin for non-bitcoiners.
I think it's going to be useful for onboarding huge amounts of people -- especially if things like fedimint can inhabit a legal gray zone of doing custody without being custodians.
especially if things like fedimint can inhabit a legal gray zone of doing custody without being custodians
I think this is the part that there's some been miscommunication around. There isn't any grey zone, the regs around custody are usually pretty clear. Fedimints are custodial setups where the custodians hold funds via a multisig and then extend services to folks whose funds they are custodying.
If you're going to make the custodians known for trust-building purposes, then those persons/entities become targets for the usual custody requirements, things like complying sanctions, demonstrating you're not banking US citizens etc. which require some form of KYC.
To get around this you can maybe have anonymous custodians, but then how do you build trust and convince users that the custodians won't rug-pull?
reply
Fair point, and you are probably right. I don't know much about custody law.
Ignorant thought experiment: what is the difference between selling users "points" (for sats or dollars) and then later letting them buy sats or dollars with these points and just plain custody?
The former sounds a little like gift cards where users give merchants money in return for a balance of what are essentially meaningless points secured only by the merchant's good name and then spend those points in return for a good or a service.
Couldn't the product im buying with points be sats or the service of using points for a while in a very low fee way or in some other manner that benefits from ecash's properties (bearer instrument perhaps?) and then converting to some real money like dollars or sats?
reply
That's not a bad idea tbh. There's lots of schemes that rely on changing the definition of what's being exchanged and how, to get around different regs. It's kind of like how Bull Bitcoin sticks vouchers between their trades for e.g.
Would be interesting to see if anyone tries that approach instead, and how they'd smooth over the UX of that.
reply
regs around custody are usually pretty clear
Define it then. What is custody, legally?
reply
Finer points obviously differ by jurisdiction, but definition generally converges on that when someone is able to unilaterally moves someone else's funds but they haven't taken legal ownership of the funds, then that first person (entity etc.) can be considered a custodian of those funds.
Coincenter has some decent work on the definitions here: https://www.coincenter.org/education/policy-and-regulation/custody/
reply
someone is able to unilaterally moves someone else's funds
Thanks for that. Sounds like a fedimint isn't a custody solution then.
reply
Individual federation members cannot, but the federation (entity) as a whole can. Challenge would be to convince whichever regulator that there isn't such a thing as "a single federation" and the key holders are just a bunch of unco-ordinated randos? If you can pull that off, then sure you're probably all clear
Also even if it isn't "custody", there's probably some other classification they can try to slap you with: e-money issuers, Virtual Asset Service Provider etc.
I think the point here is the user loses control of the original funds, the federation takes control of funds, and it's unclear whether a federation made up of known members will be able to withstand a regulatory attack.
reply
I think the point here is the user loses control of the original funds
I don't think this is true at all. The user swapped bitcoin for ecash.
reply
Have you heard of Liquid, bitcoin miners, or other blockchains? Can't move your money in those networks unless a majority of consensus passes. Last I checked, all miners aren't considered the same entity.
How is fedimint different?
Oh interesting, this is the first point on fedimint's own "Trade Offs" page
Custody: The user must trust the Federation Guardians with custody of their funds which introduces custodial risk.