4309 sats \ 15 comments \ @0xbitcoiner 8 Feb ecash

Bitcoin Bank

Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

George Selgin has worked out the theory of competitive free banking in detail, and he argues that such a system would be stable, inflation resistant and self-regulating.

I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

https://bitcointalk.org/index.php?topic=2500.msg34211#msg34211

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1043 sats \ 2 replies \ @ek 8 Feb

I mentioned in @TonyGiorgio's Fedimint is Self-Custodial how I think that fedimints might be pretty much what Hal Finney described as Bitcoin Banks:

Cash from some banks may trade at a discount to that from others.

This is also exactly what you mentioned here:

One distinction I will stress here is that it will rarely be precisely 1:1. There should NOT be an expectation that an Ecash will ever redeem the exact amount of Bitcoin because of the fees involved. You can never go directly to the source to get the same amount of Bitcoin as you entered. The same concept can be applied to other layers, such as Lightning. A sat on LN is valued differently than a sat on-chain. This is important to understand the actual cost of Bitcoin ownership, the cost to control and manage capital in a blockchain, and how market rates will be determined.

-- me, #395818

Reading this again, it might not be "exactly" what was mentioned since it's more about difference between layers (fees involved), but I believe we can apply the same concept to different fedimints. Some fedimints might be more trusted and thus have a better peg than others.

42 sats \ 0 replies \ @joda 8 Feb

You can have fees and still have a 1 to 1 peg.

0 sats \ 0 replies \ @OriginalSize 8 Feb

There should NOT be an expectation that an Ecash will ever redeem the exact amount of Bitcoin because of the fees involved.

At the risk of getting into symantics, even Bitcoin doesn't allow spending of the exact amount of Bitcoin due to fees. In some cases, a utxo is worth nothing at all.

31 sats \ 1 reply \ @PRA3S3NT1A 8 Feb

How could he see so early what will happen ? I know he had a very deep understanding and knowledge about bitcoin but that time it was just too early to make a statement like this.

10 sats \ 0 replies \ @0xbitcoiner OP 8 Feb

I had the same thought. Hal was a visionary.

21 sats \ 1 reply \ @kurszusz 8 Feb

Hm... a centralized institution for a decentralized asset?

674 sats \ 0 replies \ @ek 8 Feb

Yes. I think one underappreciated thing about decentralization is that you can build many different decentralized and centralized things on top (like SN). Users can then choose between many options with each option having its own set of trade-offs. They can pick what matches their needs the most. But you can't build something decentralized on top of something centralized.

Many people say that most people won't use bitcoin in a self-custodial way. But is that a problem as long as everyone has the option for self-custody? We just need to make sure that it's not "too hard". But it's hard to say what "too hard" means. Is running a server too hard? Is storing your own keys too hard? Is transacting on the base layer too hard? Can we rely on the ones who really want something (self-custody in this case) to then also go above and beyond to get what they want?

21 sats \ 0 replies \ @KLT 8 Feb

Completely agree with this, it makes sense for bitcoin to continue to scale in layers.

None of us are using Fedwire to send transactions of a small denomination. We have:

Fedwire settling trillions of dollars similar to base layer BTC.
Cash
Debit cards -Credit cards -Checks

And so on. Bitcoin having many layers built on top of a strong base layer is where it’s headed. Some of us will choose self custody, others will run everything on strike or a similar company for convenience. The second one of these companies plays fiat games, unfortunately some folks will go down along with the company.

21 sats \ 0 replies \ @Bell_curve 8 Feb

Love Hal Finney. This post is from December 2010. My intro to bitcoin was in 2012. 5 bucks and mount gox lol

11 sats \ 0 replies \ @EagleSats 8 Feb

Yes, Bitcoin replaces central banking, not retail banking.

11 sats \ 0 replies \ @FallingD02 8 Feb

An interesting idea, bitcoin is the best asset in the world, and everything that is really backed by bitcoin will offer confidence to those who understand the subject.

11 sats \ 0 replies \ @03479d0ee6 8 Feb

Fedimints will be something like this, in regards to normal banks, well currently with fiat there is fractional reserve and rug pulls. With bitcoin maybe that can be avoided because at least you can see onchain that your btc is there, you could even have 1of2 or 2of3 keys so that you had to sign every move. Transfers could be settled by banks onchain at the end of the day or something.

11 sats \ 1 reply \ @Tef 8 Feb

“I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today”.

That sounds very disappointing. Do you really believe that this can happen?

0 sats \ 0 replies \ @0xbitcoiner OP 8 Feb

I think it will depend on the on-chain transaction fee. If it is cheap, ordinary people can afford it. Otherwise, only whales can afford it.

100 sats \ 0 replies \ @lunanto 8 Feb

Bitcoin will be used as a world reserve currency which is why you see big institutions running to buy more and hodl