FDIC Took Issue With Banks Using Public Blockchains Like Ethereum, FOIA Docs Reveal

U.S. banks that want to offer customers services built on public blockchain networks appear to have been discouraged from doing so by the Federal Deposit Insurance Corporation, according to documents released Friday.

The revelation came courtesy of a trove of new, unredacted crypto-related correspondence between the FDIC and member banks. San Francisco-based cryptocurrency exchange Coinbase obtained the documents through the Freedom of Information Act, or FOIA. Last month, Coinbase released heavily redacted versions of 23 such letters.

Thanks to a court order, the contents of those letters – and two new ones – were preserved revealed today in their (almost) entirety.

One such letter, sent from the FDIC’s New York office to a member bank in March 2022, detailed how the federal agency had learned that the bank was planning to implement a “Bank Digital Deposit” program that was built to run on a public blockchain. The name of that public blockchain remains redacted.

In the letter, the FDIC appears to object to the bank choosing to use a public blockchain instead of a private, authorized network. Blockchains like Ethereum and Solana are decentralized and permissionless, meaning that activity on them is completely public and cannot be overwritten by third-party human administrators. In contrast, private blockchain networks, such as those used by nation states to issue central bank digital currencies, place limits on who can use them and for what purpose.

The FDIC is apparently not a fan of member banks launching products on fully transparent networks. The regulator instructed the New York bank in the March 2022 letter to submit to a new, detailed review process before launching products on public blockchains.

Other letters released Friday show the FDIC directing member banks to stop implementing services related to buying and selling Bitcoin. Parts of the same letters were not edited last month showed the FDIC instructs member banks to “pause all crypto asset-related activities.”

Coinbase Chief Legal Officer Paul Grewal touted today’s revelations as further evidence of an alleged Biden administration initiative against the crypto industry through banking rules that have become known as “Operation Chokepoint 2.0” (the name taken from the Obama-era scheme that targeted firearms dealers and lenders).

“They are showing a coordinated effort to stop a wide range of crypto activities,” Grewal said said on X (formerly Twitter) of Friday’s FDIC letters.