The emergence of Bitcoin banks is inevitable. We have already seen a handful in operation, and many more are on the horizon. Traditional banks will begin to incorporate Bitcoin services, and new financial institutions will launch specifically to cater to Bitcoin. The transition to a Bitcoin-centric banking system is unavoidable at this stage. One reason for this shift is that Bitcoin, in its current form, does not scale efficiently. Moreover, people inherently value additional services that necessitate the involvement of third parties, with debt being the most significant example.
This is a reality we cannot ignore.
Even if we could instantaneously implement every well-defined opcode and covenant proposal, it would still require considerable time to establish self-custodial platforms that could genuinely compete with credit unions and banks offering Bitcoin accounts on a large scale. This challenge is not something that can be effortlessly resolved overnight.
So, what steps should we take? We must adopt a localist approach that simplifies Bitcoin interactions for users. This strategy involves two key components: one focused on technical advancements and the other, though it may be uncomfortable to admit, on advocacy efforts.
Software solutions like LNDHub and LNBits already exist, providing custodial Lightning accounts. However, we need a far greater variety of such software, and it must be significantly improved. The tools we create should eliminate the need for users to fiddle with command lines or assemble various independent software components. Gone are the days when users should have to navigate GitHub for manual installation guides or struggle with dependency conflicts.
It has to be seamless.
Users should be able to click, connect to the network, and finish the process. The software must be user-friendly enough for advanced users, even those with limited technical skills, to operate securely without risking other people’s funds. It should go beyond basic Lightning accounts; for instance, ecash can introduce privacy features that are crucial when dealing with small groups of acquaintances. No one wants their friends to monitor every single purchase. Additionally, the software must facilitate on-chain self-custody options, like those offered by Unchained or Nunchuck. While users may not be inclined to manage the entire life savings of their friends and family, holding a recovery key to protect them from common mistakes is entirely reasonable.
We require software that will facilitate broader user engagement beyond a niche community of passionate activists online.
We also need a regulatory exemption. It’s essential to have a clear understanding that operating such software for friends and family involving modest sums, like a few thousand dollars, without any fees involved, should be recognized as an unregulated activity. Assisting friends and family in safely and easily engaging with Bitcoin, and doing so for free, should not label someone a bank. The notion that small amounts of money must adhere to the same regulations as those governing banks dealing in billions is simply far-fetched.
This proposed pathway aligns with the current limitations of Bitcoin and acknowledges the need for growth and accelerated acceptance, steering us away from a model that could ultimately be dominated and subdued by legacy financial institutions.
Rather than relying on these institutions to overcome Bitcoin’s existing scalability challenges, we rely on one another.
This article is a Take. The views expressed are solely those of the author and do not necessarily represent the views of BTC Inc or Bitcoin Magazine.
