Bitcoin Banks (or Binks). It’s happening. Guaranteed. Done deal. In the bag. It’s just a question of when? Germany cleared banks to custody and handle Bitcoin and Bitcoin accounts for customer starting 2020. Who will be the first?
This is one thing that people will spaz out about, and I get why, but ultimately I think it’s childishly naive to think this wouldn’t happen. First off, banks don’t exist just to hold your money for you and process payments. They make loans. There is a reason they do this, it’s a useful thing in an economy and society, it provides a return to the liquidity providers (with risk) and allows entrepreneurs to engage in endeavors they otherwise would not be able to finance. This alone guarantees they will continue to exist. Loans are based on trust, they require coordinators and people to manage and track them. They require central points: banks.
That said, I guarantee they will thrive on just custodying Bitcoin and processing payments on their own private second layers. People like having someone to call for customer support, they like having recourse when things go wrong, they like having specialists take care of things they are not specialized in. This is why people have a Google or Facebook account, and don’t run their own SMTP server or decentralized social media node. Now, I absolutely think things are going to shift back in that direction and that we’re already seeing the beginnings of that, but that trend is going to be a generational thing. It’s not going to happen overnight, and possibly not even within our lifetime. Or maybe things just trend that direction and falter before actually getting all the way to the extreme. Who knows. But I do know what the world is like today, and I do know the reasons it is like that today. So this will happen, count on it.
Fear not though, all is not lost. Centralized but private electronic cash has been possible since David Chaum came up with the original “Ecash” design in the 1980s. Extending these designs to encompass more complicated “smart contract” analogs with a centralized enforcement probably isn’t impossible, or even relatively hard. It is also perfectly possible to offer accounts denominated in Bitcoin without KYC/AML intrusion or doxxing. The impediments to these things have nothing to do with technological limitations, and everything to do with legal, regulatory, and social impediments. Those are things that can be shaped and directed. Yes, at the scales necessary for these types of impediments being removed the effort would be massive, but one cannot honestly say it is impossible.
There’s even an incentive to push people in that direction: regulatory arbitrage. Given that Bitcoin is global and entirely digital, any jurisdictions loosening regulations and laws regarding financial services could see revenue influxes from across the entire world by doing so.
The Political Arena
We are now full on in the spot light of the global political arena. Ignore that at your own peril.
Yes Bitcoin the technology is apolitical. Neutral. All technology is. But if you try and make the argument that Bitcoin’s effects on the world around it at scale are not political, and do not politically back everyone into a choice between individual liberty and full on totalitarianism, you are asleep. I’m American, this is going to be to some degree Amero-centric, so we’ll lay it out like this:
The right: The direction, DIRECTION, the Republican party leans. I am not saying it embodies it, just its a landmark in that direction.
The left: The direction the Democrat party leans. Again, same disclaimers as above.
Bitcoin’s mere existence shapes the environment to favor right leaning political structures. Structures that bias their actions towards those favoring individual liberty above all else. The bigger Bitcoin gets, the more it shapes the environment around it to favor that type of political structure. That is just the reality. The bigger Bitcoin gets, the more inevitable it is politicians begin framing it in these left/right terms. They will do it because that is what politicians do, and there is the kernel of truth in that framing to reinforce it plus the hyperbole, lies, and exaggerations that tag along for the ride.
This divide will likely concentrate mostly around two issues:
- Wealth inequality: Bitcoin will be a hot-button topic in relation to this isssue. Bitcoin will definitely redistribute massive wealth, but not even close to evenly.
- Environmentalism: the narrative that Bitcoin is hurting the environment will not be going away any time soon.
I could very well be wrong, but I see these dynamics playing out as almost foregone conclusions personally. Its just how Bitcoin falls into the current tug of war going on globally between ranges on the political spectrum. There is a giant tug of war going on everywhere between more localized small scale sovereignty, and less localized larger scale relinquishment of sovereignty to massive sovereign entities. Bitcoin naturally empowers and encourages the former, and is the natural enemy of the latter. As it grows larger, it will become more inter-connected with politics around the world, and this is likely a rough idea of how it will play out.
This will play out all over the world on the national level, the state level, probably even down to the city level after enough time. This will eventually get to the point where it moves beyond the point of international bodies debating regulation to respond to Bitcoin. It will start moving into the territory of alliances between nations based on their stance regarding Bitcoin. Once things really escalate to that level, it really is an open question how exactly that starts playing out.
You have two options:
- Work within whatever your local political process is to push things in the direction of localized smaller scale sovereignty.
- Opt out of the political process and its results where you can, and shut up and comply with its results where you can’t.
Choose wisely.
Big Boys Entering The Ring
Bigger markets = more liquidity = bigger players. This has already been occurring in a serious way for the past few years. The end of the last bull market saw the launch of the first cash settled Bitcoin futures. Since then we’ve seen trading start (and stop) for multiple Bitcoin products traded on legacy financial platforms. We now also have physically settled (delivering real BTC) futures on Bakkt, as well as options on those futures and their own cash settled futures product. German banks have been cleared to handle and offer cryptocurrency to their customers. The Swiss financial authorities and institutions have been friendly with the ecosystem for years.
These types of institutional entities and pools of liquidity entering the space is going to fundamentally alter the structure of this market to the foundation. With them is going to come the government regulations, government restrictions, and government requirements that come along with the legacy world. How much of the liquidity in this market that is attracted to the platforms these players build will dictate how much influence legacy government regulations and responses have in the overall ecosystem in the scope of the market and pricing mechanism. The more liquidity on these restricted platforms, the more indirect control governments will have over the pricing mechanism of Bitcoin. This indirect control over the pricing mechanism could potentially translate into another degree removed of indirect control over the outcome of any future consensus disputes. This is something to be wary of.
The observable trends suggest to me that the entrance into this market by these large pools of liquidity could very easily wind up crowding out the types of fly-by-night no-KYC bucket-shops currently making up a very sizable percentage of market platforms. This is going to make the market overall more restricted, more difficult to navigate while avoiding government bureaucracy and regulation, and potentially even difficult to maintain ideal consensus on the protocol itself if it follow through far enough to that extreme.
This very well could lead ultimately to a hard line partitioning the black market from the clear market in terms of Bitcoin trading platforms, maybe even Bitcoins themselves if things do not go our way regarding Bitcoin upgrades that ultimately compose to massive privacy improvements. Or if we become lax in defending our own rights to privacy if we reside in jurisdictions where those rights are recognized. This landscape is changing, and one way or another have to adapt.
Decentralizing The Infrastructure
Twitter censorship. Facebook censorship. Youtube censorship. Political bias. Political interference. Even DNS and VPS censorship. That is the world we are living in with regards to companies providing services on the internet or operating internet infrastructure. This isn’t a universal situation everywhere, nor is this type of censorship applied evenly to all things or activities, but it is undeniably a growing trend.
This needs to be attacked socially (though in a very thought out and cautious manner), but also technologically. The Fediverse is an experiment in creating a middle ground between a protocol and service through their federated environment where anyone can run a Mastodon instance (among many things) and connect them together through federations. Bluesky is a recent initiative started by Jack Dorsey at Twitter to engage in research to determine the viability of transforming Twitter from a private service into an open protocol, and if viable try to do so. We also have goTenna working on consumer products to actually decentralize physical infrastructure for data transmission. The bandwidth is limited, but it’s a start. There are also numerous DIY mesh networking projects.
That leads me into the efforts along this vein directly relating to Bitcoin itself. goTenna partnered with Samourai Wallet to produce txTenna. This allows someone to initially broadcast their Bitcoin transactions over a mesh network to obscure their identity, bouncing the transaction around the local goTenna network until it finds a node that can push it over the internet to the Bitcoin network. There is also the LochaMesh project in Venezuela, born out of the intermittent electricity and internet access due to the instability in the country. Their designs incorporate communication tools as well as Bitcoin and Lightning functionality, and they are according to my last understanding attempting to take their DIY project in a commercial direction to make available easily to consumers.
It would be remiss of me to go into this topic without talking about the Blockstream Satellite Feed. I wouldn’t call this full on “decentralization” of infrastructure, it is very much still centralized, but I would call it a substantial change that would be foolish to ignore. First, it is centralized. It is entirely dependent on centralized companies’ satellites; these companies are very much in a position to turn them off at any time. Second, it’s free and completely private. Being a one way broadcast from the satellite, all you have to do is set it up and point a dish in the sky and you’re receiving the Bitcoin blockchain. That doesn’t leave network fingerprints to identify you as a Bitcoin user, and as a benefit it’s free delivery of large amounts of data. So you depend on central entities, but gain a large degree of privacy.
These types of projects and different ways of designing and running infrastructure will continue thriving on the fringes of both Bitcoin and the internet in general over the next decade. There are also numerous ways to compose these things. Blockstream has partnered with txTenna to link their satellite feed now. I think that integration can go even further. Mesh and radio technology isn’t enough to scale the entire network globally using nothing else, but it can fill gaps or handle distribution for “sub-networks” concerned mostly with just propagating transactions and validating blocks. A node could receive blocks from the satellite feed and then propagate them over shorter range mesh networks that can handle higher throughput. This type of synergy might even translate to mining; with Compact Blocks miners can transmit only the block header and a small piece of data to construct the actual block from your mempool. If the latency trade off is practical, miners could attempt to use these types of mesh networks to obscure their physical location slightly during block propagation while receiving real-time block relay from an anonymous satellite feed.
I see a lot of potential for co-existence or integration between Lightning Network and mesh networking technology as well. Global Mesh Labs is working on the Lot49 Protocol to incentivize mesh network nodes by integrating Lightning Network to pay for relaying data. This is a very interesting direction things could go as far as evolving synergy between Bitcoin and mesh networking protocols, but its viability remains to be seen. Personally, I’m very optimistic but cautious in my expectations. Even without this type of tight integration of the two things though, mesh networking can be very useful for Bitcoin. I think it will be inevitable for localized Lightning sub-networks to start growing where everyone is peered over the mesh network, only interacting with local people over the mesh network, and receiving feeds of the blockchain for security. A few bridge nodes can route money in and out of these sub-networks as needed. At global scale those types of network structures just make sense to me and seem like a natural pattern things will fall into.
This stuff isn’t going mainstream in the next decade, but expect rapid progress and development as the die-hards and the crazies rapidly iterate on the fringes.
This is just Part 3 of 4, read the last part tomorrow.
