In a conversation I had with LVL, I realized that a Bitcoin-only bank would need to implement certain features in order to first gain adoption by Bitcoiners, which would naturally lead to wider adoption of people wanting to get on a Bitcoin standard. So I decided to flesh out my thoughts a little more as a list of what I would expect out of a Bitcoin bank.
  1. Be Bitcoin-only. Having other "crypto" is not only a platform risk but also a distraction. Being Bitcoin-only would allow the company to focus on what matters to me, which means taking advantage of the advances in the Bitcoin space. Paraphrasing Jack Mallers, this would even mean "competitors building on Lightning network would benefit you, since everyone is on the same monetary network."
  2. Custody your users' deposits. Do not rely on external custodians like BitGo, as this is more platform risk. As a Bitcoin bank, I expect you to be experts in being a custodian of your users' funds, and not pass off that responsibility to another company. This also means you'll be responsible for managing LN channels, settling payments on-chain with other banks, and private key security.
  3. Custodial Lightning wallet. There is the saying "not your keys not your coins" but I don't need a bank for that, so that is not the reason why I'm using a bank in the first place. I'm using a bank out of convenience or necessity, therefore I'm only going to put what funds in the bank that are necessary for me to do banky things. This wallet would essentially be my checking account connecting to the fiat world, so I expect to make instant spends/deposits/withdrawals.
  4. Bitcoin-backed loans. Unchained Capital is currently the king of this service, IMO. Being able to borrow against my bitcoin is an essential service that I would expect from a Bitcoin bank. As long as fiat is alive, this will be a necessary evil that Bitcoiners will likely need to utilize. This is where the bank would touch the main chain for a multisig deposit address.
  5. Bitcoin lending. This can ride off the point in #4 or it can be an integration with external Bitcoin lending platforms. There are Bitcoin-only DeFi (real DeFi, not dinoFi) options starting to pop up that a Bitcoin-only bank could benefit from by simplifying the UX around using these products. Hodl Hodl's Lend and Atomic Finance are some examples of what I'm referring to. I want to clarify that I'm not referring to services like Celsius or Nexo, which are outright scams, or anything that touches companies like Genesis Capital, as these are not DeFi and introduce massive amounts of platform risk.
Notice there is no Bitcoin-rewards card listed. I consider a credit/debit card as part of legacy finance and the ability to spend directly from BTC via the bank is worth it enough. I would and should be able to use whatever credit card I prefer, even outside of this theoretical Bitcoin bank, and either pay it off monthly or let it ride. While a credit card offered by the same bank would be nice, I don't believe it to be a necessity.
I also don't mention anything about fees. I think the market will figure out how to deal with fees in the long-term, and in this short-term I don't think it really matters too much, since a true Bitcoin-only bank should be able to charge some sort of fees for their services and still attract customers. Fees can be good in a sense that I want to know how this bank is actually making money, since that will keep their doors open (figuratively).
It is my true belief that the first bank to figure this out will be the next JP Morgan of the 21st century (but with less evil). I think this because as Bitcoiners shift to getting on 0 fiat, through their success of being able to retain value, others will want to do the same.
I like this. I'll add a fifth one.
Programmatic Access. I want a simple REST API with a token, scopes I can grant, revoke, etc. I want to be able to pull transaction data, move money between the above features, setup re-occuring payments, give my kids a lightning allowance that pays them fake interest, and make sure my hot wallet on my phone always has at least 5x my hourly wage in it...etc.
There is no need for a bitcoin only bank. WE ARE ALL BANKS, WITH OUR NODES. That's all. All the rest is BULLSHIT CRAP
Bitcoin banks is what will get a lot of precoiners into Bitcoin, IMO. They, and most Bitcoiners, will have to interface with legacy banking systems for some time. Having a Bitcoin specific bank is a net positive than not having one. For everything else, of course you would run your own node.
The main value add is as a Bitcoin-based interface to the legacy financial system. Most bitcoiners I know still have bank accounts for practical reasons - like qualifying for residential leases, home loans, and that sort of thing.
If you still use fiat "legacy" system, you are not a bitcoiner.
Well dang. Most of us wouldn’t use it if we didn’t have to.
I don't think number 1 is realistic. If it's a healthy for-profit company, it will expand it's offering in the direction of product-market-fit.
BUT, I do think it would be hard to create a nice UI that didn't attempt to generalize everything down to the lowest common denominator.
I guess, my wishlist is a BTC-native account with the latest and greatest the network can do. But then, I wouldn't really care if they offered shitcoin services in parallel. That said, don't send me spam trying to get me to buy some meme.
My concern if they offered shitcoins is increased regulatory risk, increased development requirements - slower release cycles on bitcoin features. There are negatives in offering shitcoins
I wasn't aware of lvl! Are you aware of any bitcoin-only competitors?
I'm hoping someone like Unchained gets into this market personally. It'd make an interesting compliment to a shared custody model where users self-custody emergency funds in a cold storage savings account and can easily transfer in and out of hot storage at the "bank."
LVL is the only one that I know of that provides actual banking services. So, technically different than Fold or Strike.