I'm going to break out my famous old saw and saw on it a little.
The banks are scrambling. They've been doing things behind the scenes. Sometimes the right hand doesn't know what the left hand is doing, sometimes they're just lying to us.
But, if you think the rest of the major world banks jumping in all at the same time here at the end of this year was just some weird happenstance, then I've got some ocean shore property to sell you somewhere in Austin.
Certainly, there are people with these banks smart enough to have figured out that their job now is to develop their "layer two" solution for Bitcoin. And they will be tempted to rig it to where they have full control, full visibility into it, that it can be as fractional as they want, that they can hide the details they don't want us to see, but see everything we do, etc. And some of them will go down this road, trying to bend Bitcoin to their use case. And they will be successful to some extent.
But certainly others will build products that are more open as to how they are built, but preserve privacy. For example, a major bank could choose to implement the elements project, basically building their own Liquid network.
Another one might implement chaumian mints where we place the trust in the organization as we always have to posit Bitcoin with them as we see fit and spend money back and forth with total pure privacy.
Or, perhaps, a group of them could implement multiple things like an element's blockchain, mints, federated with each other. And so on
And, for better and worse, we are almost certainly headed towards some kind of dollar-backed stablecoin, hopefully existing on multiple networks.
Or, perhaps, a group of them could implement multiple things like an element's blockchain, mints, federated with each other. And so on.
But the free market will begin to gravitate towards the organizations that don't tilt the board.
And it will be on the people to decide where they want to bank, as it always has been.
This reminds me of the beginning of the MP3 era. I was a performing musician and soon to be studio owner and I had a front row seat to watch the bomb that went off in the music industry when everything went digital. They tried for so long to try to stop people from being able to move digital information and they lost over and over and over again until they finally changed course.
But, yeah, the banks are coming and there will be traps for some fools who think they own Bitcoin when they just own a hollow promise, but I believe there will also be good players out there that understand it and build systems with trade-offs that preserve as much of our sovereignty and privacy and human dignity as possible, and I believe those systems will win.
And of course, hopefully we will all still be able to just hold our corn if we want to.
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.
