Profile

GN

Here’s how I see the future of bitcoin custody, banking, and payments: On-chain UTXOs will be used as savings for high net worth individuals, families, business treasuries, banks, payment providers, etc. This layer is not for commerce. Small retail payments and settlements, even for a couple thousand dollars, do not belong on a global ledger. Lightning will be used by banks, payment providers, and high net worth individuals who, for whatever reason, are willing to pay the cost of channel and liquidity management. I envision a hub and spoke model where a given bank/mint only needs to maintain channels with other reputable/acceptable banks/mints in its network. The criteria would be different for every bank. I’ve frankly become disillusioned of the idea that non-technical, or even semi-technical, individuals will tolerate channel or liquidity management. At its essence, lightning punishes positive cash flow by requiring inbound liquidity to be pre-funded. Truthfully, and I’m willing to have my mind changed here, lightning is actually an extremely poor payment routing network. At its foundation, it requires multiples of payment volume to be held in reserves because bitcoin doesn’t actually flow through a routing node; it collects in isolated pockets on the edges of a routing node which are inaccessible without some convoluted looping route or an on-chain fee. To me, and again, I’d love to be proven wrong here, lightning is most useful as a coordination mechanism between two entities sharing a single, ideally, private channel. Bitcoin is money, lightning is inter-bank clearing, and e-cash will be currency. I am essentially advocating for and envisioning the proliferation of a protocol such as Cashu except the deposits and redemptions into a mint being done solely on-chain rather than lightning. No user should even read the word “lightning” in their wallet. The end user would only ever face material transaction fees when depositing on chain into the mint as the sender. This incentives due diligence and commitment. A mint could batch redemptions out to the extent that it can fit its outputs into a given transaction. One on-chain transaction could contain hundreds or thousands of redemptions (someone please correct me if I’m wrong there). In this scenario, the bank/mint does not have to manage liquidity or channels with retail users (and vice versa) or their LSPs, which exist solely to solve inbound liquidity. All of the deposits could be used more economically in channels with other banks/mints. From the end user perspective, they have bitcoin deposited in a bank of their choosing to use for commerce and lending just as a free banking system always worked. However, the option to self custody their UTXOs, which implies a sizable savings, is the optionality that bitcoin uniquely provides to the world. Ecash will exist on a spectrum. The issuance of ecash to the depositor will depend on the needs and risk tolerance of the depositor, the regulatory environment the bank resides in, and the internal policy of a given bank. Certain market actors will desire bitcoin redeemable ecash or some type of USD ecash while other market actors will not care to or be allowed to custody bearer ecash tokens and will prefer the bank handles everything. Others, such as anarcho-capitalists or those desiring maximum privacy, will network with banks that issue non-KYC ecash and take on that extra custodial risk as a trade off. Each of these diverse banking and currency networks ultimately mesh together into one global monetary network that settles in only one form of money…bitcoin.