The US government body that regulates banks, the Office of the Comptroller of the Currency (OCC), announced in a letter on Monday that US banks are allowed to participate in ‘independent node verification networks’ (INVNs)’. This seems to state that banks are allowed to use Bitcoin for transactions and run a Bitcoin node. Banks are also allowed to use stablecoins .

The Comptroller of the Currency (OCC) announced on Monday via an ‘interpretative letter’ that US banks are allowed to use ‘independent node verification networks’ (INVNs). It seems to be referring to decentralized networks such as Bitcoin.

According to the OCC, banks are allowed to use such networks in the same way as the global SWIFT payment network, for example to carry out transactions. According to the OCC, it is fully in line with banks’ primary role as financial services providers to embrace new payment technologies. Decentralized INVNs are not inherently different from other payment methods used by banks, according to the OCC, except that they are faster, more efficient and potentially more unruly.

?ǣAmong the potential benefits is the fact that INVNs can improve the efficiency, effectiveness and stability of payment services. For example, it could be more intractable due to the decentralized nature of INVNs. Instead of relying on one central entity (or a small number of parties) to verify payments, INVNs allow a relatively large number of nodes to reliably verify transactions Simply put, these types of networks can be more unruly because they do not have a single point of failure’ and therefore remain operational even if part of the nodes stop functioning.” -Office of the Comptroller of the Currency, Interpretive Letter 1174

According to the OCC, banks are also allowed to run their own node to participate in a network. This allows them to independently verify the blockchain, receive transactions and offer transactions to the network. Managing a Bitcoin node is essential for joining the network, otherwise you would have to rely on someone else’s node.

?ǣBanks are allowed to use new technologies that provide new ways to perform permitted banking functions, such as providing payment services or facilitating payments. Using INVNs and related stablecoins for payments is simply a new way to perform that function .” -Office of the Comptroller of the Currency, Interpretive Letter 1174

Stablecoins

In the letter, the OCC also pays a lot of attention to so-called ‘stablecoins’ . These are digital currencies whose value is more or less equal to the dollar or euro, for example because a company guarantees the value and convertibility. Stablecoins often use blockchain technology for transactions, but are nevertheless usually highly centralized around the issuing organization.

Examples of stablecoins are USD Coin (USDC), Gemini dollar (GUSD), Paxful (PAX) and the widely used yet controversial Tether (USDT). They are typically used on international bitcoin exchanges for bitcoin trading, as they make the respective exchanges less subject to regulation than when using real dollars. Moreover, due to the underlying technology, they are easy to move from one exchange to another.

Some time ago, Facebook announced that it also has plans for its own stablecoin, called Libra. This led to a lot of international resistance because of concerns about privacy and possible consequences for macro-political relations and the global economy. Facebook has since toned down the plans and renamed the stablecoin Diem.

In turn, central banks worldwide are also working on stablecoins. This is often referred to as Central Bank Digital Currencies (CBDCs) , or digital central bank money. De Nederlandsche Bank (DNB) is also conducting research into a digital euro in the Netherlands.

According to the letter from the OCC, US banks are allowed to use such stablecoins, just like the INVNs on which they are issued.

“INVNs can transfer multiple cryptocurrencies, including but not limited to stablecoins. Stablecoins serve as a means of representing fiat currency on an INVN. In this way, a stablecoin provides a way for fiat currency to access an INVN’s payment channels.” -Office of the Comptroller of the Currency, Interpretive Letter 1174

Acting Comptroller of the Currency Brian Brooks

It is good news for the adoption of bitcoin by the banking sector, because the OCC addresses a lot of concerns with the letter. The door seems to be wide open for the integration of bitcoin and related technologies in the American banking system.

Last year, the OCC also showed a positive attitude towards Bitcoin. In June 2020, it announced via a similar letter that US banks are allowed to offer bitcoin management services.

That positive attitude probably has something to do with Acting Comptroller of the Currency, Brian Brooks, who was appointed in May 2020. In the past, Brooks worked as Chief Legal Officer at the bitcoin exchange Coinbase. He seems supportive of bitcoin and well versed in the technology and benefits. In December, he stated that he believes the US has no plans to ban bitcoin.

However, Brooks has not yet been officially sworn in as Comptroller of the Currency. However, he has been nominated twice by President Trump for the position, making him Acting Comptroller of the Currency. It will probably be a while before we know for sure whether he will actually be the new Comptroller. That will probably depend on the new president.

Mixed news

The good news follows shortly after other, less rosy news about US regulations. Recently, the American Financial Crimes Enforcement Network (FinCen) announced that it plans to introduce strict regulations that require American Bitcoin companies to carry out extensive identity checks. The proposed American rules are very similar to the regulations recently introduced in the Netherlands.

Both the Dutch regulations and the American proposal are subject to much criticism from the sector. According to opponents, the far-reaching Know-Your-Customer measures are neither proportional nor efficient. Especially for ordinary consumers, they pose privacy risks and create unnecessary barriers to using bitcoin.

On the other side of the line, the OCC seems to be lowering barriers for the banking sector. For any mutual payment transactions between banks, regulations regarding extensive verification are probably no objection and may even be desirable.

?ǣA bank may validate, store and record transactions by acting as a node on an INVN and to use INVNs and related stablecoins to perform other payment activities permitted to banks, consistent with existing laws and safe and prudent banking practices.?ǥ -Office of the Comptroller of the Currency, Interpretive Letter 1174

Read the letter from the OCC yourself? You can do that here.