Hal Finney predicted Bitcoin banks, how does the software look like?

[Synchronice]

If we modify the Bitcoin's code and make block sizes dynamic, I think it's very possible

Great idea, we have 600 GB blockchain, and people don't want to start full nodes, because of that. So, let's make it bigger, so even less users will do that.

I wouldn't be willing to run node in 2010 because that PC requirement would be too expensive for me but did it stop people from running full nodes? My point is that it's not necessary to do rapid advancement, we can slowly and steadily increase it, in a speed that will match the development of technology and accessibility of it.

If we modify the Bitcoin's code and make block sizes dynamic, I think it's very possible, especially today when you can buy a terabytes of storages for a few bucks and I imagine in the next 10 years there will be something more evolutionary and cheap. We advance, technology advances, Bitcoin should advance too to my mind.

Good luck getting majority of Bitcoin community agree with block size increase, especially when you only consider storage capacity. There are so many factors such as CPU, RAM, storage I/O, network connection and block/TX propagation.

I think that community agrees with the increased block size but the problem is that we can't agree on what's the optimal block size. Some might advocate for 8MB, some for 16MB, some might advocate for 1GB and so on. I think that if we don't increase the block size in the near future, we will kill Bitcoin payments and people will use altcoins for payments, which is not the good for Bitcoin because Bitcoin was created for solving payment problems.

By the way, CPU, RAM, Storage, I/O, network connection, storage and so on, are at least 10 times better today then they were in 2008-2009.

[john_egbert]

I think that community agrees with the increased block size but the problem is that we can't agree on what's the optimal block size. Some might advocate for 8MB, some for 16MB, some might advocate for 1GB and so on. I think that if we don't increase the block size in the near future, we will kill Bitcoin payments and people will use altcoins for payments, which is not the good for Bitcoin because Bitcoin was created for solving payment problems.

By the way, CPU, RAM, Storage, I/O, network connection, storage and so on, are at least 10 times better today then they were in 2008-2009.

Bitcoin always adapted to changes in the wind.
And it will do so again, enduring all the hardships.
It will prevail, because who else will?

[pooya87]

What is described here sounds more like a bigger category that also includes side-chains. Generally it is anything that is "pegged" to bitcoin, from shittokens like Wrapped Bitcoin all the way to anything that claims to have been pegged to bitcoin with any rate (1:1 or 1:10 or anything) whether it is created as a sidechain or not.

Wrapped Bitcoin cryptocurrencies are altcoins and they are not bitcoins.

Wrapped Bitcoin tokens have their pegs to Bitcoin price but pegs can depeg, and if depeg happens, holders of Wrapped Bitcoin tokens will lose their money like many people lose money to Terra and their ironic and terrible "algorithmic stable coin" UST.

Exactly, and this is one of the reasons why I said this idea is a bad one. These things also introduce centralization into the equation, specially the "bank" idea that Hal Finney had in mind. That is another big negative side to that idea.
We are already seeing how bad they are in these supposedly pegged shitcoins.

[gmaxwell]

I think Hal literally meant banks--  the shittyness of banks today is driven by two factors: Central Banks and the state regulatory environment.  Both groups impose requirements on banks which make otherwise good ones behave shitty and protect bad ones from competition.  Fixing the state regulatory side is not impossible but it's almost pointless with the central bank hold on the system.   The situation for Bitcoin has a fighting chance of being different.  I think it will be, due to the potential of technology powered 'banks' making real competition for more traditional banks and for the lack of a central bank forcing in bad policy.

To whatever extent that Hal was thinking about technology powered banking-- he himself was a developer of a unbacked chaumian token banking system, so I'd imagine he'd be thinking of something like that but backed with Bitcoin.  It's doubtful he was thinking of defi whatever mumble mumble because it didn't exist then (and much of what exists now is just fraud).  But we shouldn't be limited to just what Hal would have imagined back then-- we know about possibilities today that he couldn't have known of then.  (though chaum tokens are pretty rad).  So for example, for a Bitcoin bank to get lots of adoption it has to compete against on chain transactions and lightning, etc..

I didn't know about this post of Hal Finney, I guess I should dig more into this forum and understand the past days of Bitcoin. But I don't understand why he says that Bitcoin can't scale to have every single financial transaction included on blockchain. Why did he think that it was impossible?

I see three relevant factors:

The first one is that Bitcoin is designed so that it's security is paid for as a side effect on the market price for space in blocks.  If that space is functionally unlimited (IOW above demand) then the market price for space is ~0 and security can't be paid for without perpetual inflation.  We've seen this play out in practice, where blockchains without functional limits are stuck at essentially no fee income and require inflation to survive and ones with function limits generate significant fee income and can survive without inflation[1].

The second is that the resource costs to run a full node increase significantly with larger blocks but for node operations to be wide these costs must be surprisingly low.  Early on in Bitcoin's life I expected node costs could go up a fair bit because businesses would run nodes.  But the reality is that businesses even supposedly bitcoin centric businesses reliably outsource node operations and are rather mercenary about maintaining Bitcoin's economic properties -- as in "Oh you want to inflate bitcoin? fine so long as you've got a way for it to make me money."  So for Bitcoin's security to be upheld it needs to be realistic for people who own Bitcoin to run nodes to force businesses to not adopt changes adverse to them, and because these people aren't IT experts the threshold is fairly low.    Similar to the fees point, we've seen this play out--  in BSV they removed the blocksize limit then pumped the chain with worthless spam until it reached terabytes in size.  At that point it became unrealistic (maybe not even possible without software fixes) for new participants to bring up nodes and the existing parties imposed changes to the system rules like granting themselves the ability to seize arbitrary coins from anyone in the system.

The third is just that it's gravely inefficient, non-private, and unnecessary.   In Chicago, you pass last night's hookup some money to buy Plan B after an oops. Why is a computer in a rice field in Thailand processing your potentially privacy destroying transaction?   With Bitcoin even without any banks of any kind it's possible to transact without every transaction hitting the global chain.  One of Satoshi's insights was that a global broadcast media is more useful than many people initially expect but that doesn't mean it solves all problems.  We know Satoshi envisioned people using payment channels because he both added functionality for that into the transaction format and wrote about it, and that he also considered Bitcoin users being militant about managing the size of the blockchain to keep it accessible.  It turns out that there are many ways to keep transactions off the chain while maintaining good or even better properties.  Given that transactions on the chain need to pay for the network security (see the first point) these schemes should save money, so we should expect them to be used and because managing the operating costs of nodes is important (see second point) we should be happy for it.  Because a transaction the outside world never sees *at all* will inherently have better privacy than even some pseudonymous or even cryptographically blinded transaction and because confirmation on the chain can often take an hour the ultimate user ought to be happy for the ability to keep some transactions off the global chain too.


[1] E.g. even though fees are low right now in Bitcoin it is still earning more in fees per block than several 'large block' competitors get from inflation and fees combined, which is a good argument that Bitcoin is viable long term.  Survive doesn't necessarily mean have strong enough security for a tiny number of confirms to be acceptable for many transactions, but assuming people have alternatives to on chain confirmations for fast transactions, having to wait some dozens of blocks for security isn't the end of the world--- bank transactions often don't settle for days or weeks today and people seem to be able to handle it.

[Alphakilo]

I do not think he was talking about actual banks in the traditional sense. Maybe he was thinking of an early type of DeFi? After all, the very point of Bitcoin is "to be your own bank".

I wish Hal Finney was alive to see and explain better what he was talking about. Maybe with the new technologies around bitcoin he would have made it clearer enough instead of us having to speculate on what we think he meant or not.

Maybe he really meant the decentralization in every sense of the word. If he meant a bitcoin bank, it is basically like a bitcoin holding and I think that is what the bitcoin ETFs are already doing.

[Wind_FURY]

What is described here sounds more like a bigger category that also includes side-chains. Generally it is anything that is "pegged" to bitcoin, from shittokens like Wrapped Bitcoin all the way to anything that claims to have been pegged to bitcoin with any rate (1:1 or 1:10 or anything) whether it is created as a sidechain or not.

And I have to say it is a terrible idea specially the part about "fractional reserve banking". They may provide some utility and attract some costumers but they'll destroy Bitcoin market until it ceases to exist. Because if such a system is created and largely used and then it can print bitcoin out of thin air without cap, the supply will no longer be limited! That will hurt bitcoin reputation and the price, but eventually it will be categorized as a shitcoin and stops having anything to do with Bitcoin...

The description is not like Lightning Network either. LN is not a separate "chain" with a separate token that is pegged to bitcoin. It is a second layer (not a sidechain) and a second layer is built on top of a first layer and depends on it. A pegged coin on the other hand, does NOT depend on what it is pegged to. For example if Bitcoin were to disappear today, technically WBTC can continue to exist because it does not rely on bitcoin network (it's a useless token on a token creation platform).

Same with the banking system that is being described, since it wouldn't have anything to do with bitcoin and doesn't rely on it from a technical perspective, it can continue to exist and operate without Bitcoin!

I respect your opinion, but that doesn't actually matter because Bitcoin at the base layer, will always be Bitcoin with its consensus rules enforced by an army of full nodes. Anyone could build ANYTHING on top. They can be centralized, semi-centralized, fully-backed, partially-backed, DeFi pegged assets, ANYTHING. But everything that happens on the top layers will have nothing to do with the base layer.

Plus it was merely a shower thought from Hal. It wasn't a proposal.

  ¯\_(ツ)_/¯

[ABCbits]

If we modify the Bitcoin's code and make block sizes dynamic, I think it's very possible, especially today when you can buy a terabytes of storages for a few bucks and I imagine in the next 10 years there will be something more evolutionary and cheap. We advance, technology advances, Bitcoin should advance too to my mind.

Good luck getting majority of Bitcoin community agree with block size increase, especially when you only consider storage capacity. There are so many factors such as CPU, RAM, storage I/O, network connection and block/TX propagation.

I think that community agrees with the increased block size but the problem is that we can't agree on what's the optimal block size. Some might advocate for 8MB, some for 16MB, some might advocate for 1GB and so on.

Looking at past discussion, that's probably true although some simply don't like any form of hard-fork.

I think that if we don't increase the block size in the near future, we will kill Bitcoin payments and people will use altcoins for payments, which is not the good for Bitcoin because Bitcoin was created for solving payment problems.

I agree, especially when Bitcoin sidechain/L2 have some trade-off that people don't want.

By the way, CPU, RAM, Storage, I/O, network connection, storage and so on, are at least 10 times better today then they were in 2008-2009.

I'm aware of that fact. I just want to emphasize that people usually suggest arbitrary block size limit without considering many kinds of hardware and technology.

[Pablo-wood]

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...

The frustration will start when users get to know the whole bank idea Hal Finney had in mind there is no way it will be decentralised because they must always be a way to regulate the operations revolving around it's transactions so as to maintain trust, Security and compliance of their customers like every other regular banking system. The negative side will varry from shifting focus from the initial innovation even if it won't affect the base layer, trustless system, obviously as an pegged coin there will be manipulation and most novice will get mislead if not properly educated to believe it is the original innovation or an improvement on the initial innovation of bitcoin not knowing it is a side-chain with a pegged asset.

[Wind_FURY]

...

...

The frustration will start when users get to know the whole bank idea Hal Finney had in mind there is no way it will be decentralised because they must always be a way to regulate the operations revolving around it's transactions so as to maintain trust, Security and compliance of their customers like every other regular banking system. The negative side will varry from shifting focus from the initial innovation even if it won't affect the base layer, trustless system, obviously as an pegged coin there will be manipulation and most novice will get mislead if not properly educated to believe it is the original innovation or an improvement on the initial innovation of bitcoin not knowing it is a side-chain with a pegged asset.

I believe not, because if it's a layer on top of Bitcoin, and if it's built to scale and to serve millions of users to make billions of transactions, then perhaps some of those built will be centralized, no? Or will NEED to be centralized. It probably isn't only about Bitcoin the network itself, but also Bitcoin the currency as well.

[fikrett]

I believe not, because if it's a layer on top of Bitcoin, and if it's built to scale and to serve millions of users to make billions of transactions, then perhaps some of those built will be centralized, no? Or will NEED to be centralized. It probably isn't only about Bitcoin the network itself, but also Bitcoin the currency as well.

It may be just inevitable in that case.
And after all - it will be an alternative, just like BTC itself.

[PrivacyG]

I believe gmaxwell is closest to what Hal meant.  Banks.  Banks that work in a way very close to how the world was back when the Gold Standard was a thing.

The first thing that comes into my mind is hype, acceptance and real interest of the people.  I do not think there are many left who still think Fiat has any real value.  We all know the gimmicks and we all know how fake the entire economy really is.  Nothing seems real or certain any more, we are left to paving our own future knowing there is a good probability that our own Governments will become so inefficient we would run our lives way better off what we pave ourselves than what they are trying to ensure us we will have within 10 or 20, let alone 50 years.

Therefore, a significant REAL interest will spark into people once they hear a new system similar to the Gold Standard comes.  And if it functions like a Bank, it will not have to sit in a gray area of the economy.  It can be regulated, it can do everything with no more doubts.  Whether we like it or not, Bitcoin really is decreasingly efficient for larger payments.  Remember that at the time Hal posted this, Bitcoin was WAY less complicated than it is now.  The likelihood of a new person to Bitcoin understanding how it works was likely higher too.  There was just less information to learn.

Now that it became much more complicated, it complicates everything around it too.  For example, Replace By Fee was inexistent back then.  RBF sort of put a barricade between customers and some shops.  Now of course you can be a shop and warn the customers and clearly put one rule before payments,  It must NOT be an RBF enabled payment.  Because if the Bitcoin Mempool is clogged up, you do not want to ask your customers to have a sit and wait for an hour or so or to spend hefty fees for faster confirmation.

But all the trouble can be solved with a real Bank offering a digital currency backed by Bitcoin.  If it works like currency used to, you can deposit Bitcoin and swap it for the regulated digital currency.  Now you own a digital currency that you KNOW is worth the same amount of Bitcoin you initially deposited.

And obviously, the Bank will be a way better alternative for merchants and for the customer too.  All transactions can be instant with no waiting time.  Maybe the closest thing to this is how Binance offered 'Binance Chain Network' Bitcoin.  But again, they are not a Bank and they were in a sort of gray area too.

Realistically, we will most likely never have massively adopted Bitcoin unless it somehow becomes more controllable and regulated in a way that Bitcoin becomes closer to Fiat and wallets become closer to Banks of today.  Probably, the only solution is unfortunately this.  Will there still be people spending and receiving Bitcoin the classic way?  Yes, definitely.  Will there be many though?  Like Hal says, they will likely be extremely rare.  Because most of the Bitcoin will be circulating on the side of the network that is widest accepted, which would definitely be Banks because in that situation most merchants will move on to work with them only, and the little Bitcoin remaining to still circulate on chain will probably be so little it will be really inconvenient.

Come on.  We can say whatever we want.  If a real Bank providing a digital currency backed 1 to 1 by Bitcoin pops up tomorrow, most of the Bitcoin holders will move over there.  Most will say, I already have a Bank account.  Why complicate things like you Bitcoiners do when I can just purchase this regulated currency backed in it and I can hold it into a Bank that provides much faster support, quicker payments et cetera?

Most of the world would not give a crap.  Bitcoin may then only remain the way to store your money 'under the mattress' if you will.  Like some people hold Gold in their own safes while others feel safer holding it onto paper or into the safe of a Bank.  I wish I am wrong.  But particularly now when we are living an era of speed, when most of us feel like we have no time for everything a day should involve, when technology moves so fast, I think people will much rather pick convenience.  And the biggest motive will be the backing of the currency.  'I have Bitcoin too, it is ensured and proved!'.

[BenCodie]

Was the Lighting Network being described here, or did he talk of something else?

I guess it't not the LN or second layer, it's a different token backed by Bitcoin and we have the bitcoin backed tokens on multiple chains but it didn't solve anything.

The concept of Micropayments came in the year 2013 [ANNOUNCE] Micro-payment channels implementation now in bitcoin  and the concept of LN came into the discussion since 2015 and finally implemented on the year 2018.

Would this bitcoin-backed token be native to the Bitcoin blockchain?

Coincidentally (did not see this thread at the time of posting) I posted this recently about a bitcoin-backed stable token native to the bitcoin blockchain. In your opinion is this in line with what is being described, to be used in line with whatever Bitcoin banking technology surrounds it?

In my opinion, I see clear utility in a bitcoin-backed stablecoin/digital cash, to avoid volatility while still being able to harness the benefits of using the bitcoin blockchain, though Bitcoin banks...I don't quite understand how they are necessary. Would the primary use case be for those who don't trust themselves with private keys, or to keep their coins safe?

[Wind_FURY]

I believe not, because if it's a layer on top of Bitcoin, and if it's built to scale and to serve millions of users to make billions of transactions, then perhaps some of those built will be centralized, no? Or will NEED to be centralized. It probably isn't only about Bitcoin the network itself, but also Bitcoin the currency as well.

It may be just inevitable in that case.
And after all - it will be an alternative, just like BTC itself.

You're RIGHT, it actually IS!

Plus will not merely be an alternative. I believe it will be seen by the world as mainstream, REAL WORLD, acceptance of an asset that originated from the internet.

What an era to experience waking life.

 👍

[pooya87]

I respect your opinion, but that doesn't actually matter because Bitcoin at the base layer, will always be Bitcoin with its consensus rules enforced by an army of full nodes. Anyone could build ANYTHING on top. They can be centralized, semi-centralized, fully-backed, partially-backed, DeFi pegged assets, ANYTHING. But everything that happens on the top layers will have nothing to do with the base layer.

Plus it was merely a shower thought from Hal. It wasn't a proposal.

That's true, It is a free world and we cannot prevent creation of anything on top of Bitcoin. Just like we cannot prevent creation of centralized exchanges and prevent people from leaving their coins there just to have it stolen when the CEX is hacked or just runs away.

But that doesn't mean we shouldn't speak out against them. Every now and then people run a campaign on social media encouraging newbies to withdraw from CEX and use an actual wallet to store their coins.
It's the same here, I personally consider fractional banking to be a big threat...

I believe not, because if it's a layer on top of Bitcoin, and if it's built to scale and to serve millions of users to make billions of transactions, then perhaps some of those built will be centralized, no? Or will NEED to be centralized. It probably isn't only about Bitcoin the network itself, but also Bitcoin the currency as well.

Does it need to be centralized? I mean we already have second layer solutions such as Lightning Network and it is not centralized and it has the potential to handle very large number of transactions. So the alternative to centralized banking solution already exists, meaning we don't have to go in the wrong direction.

[Findingnemo]

Was the Lighting Network being described here, or did he talk of something else?

I guess it't not the LN or second layer, it's a different token backed by Bitcoin and we have the bitcoin backed tokens on multiple chains but it didn't solve anything.

The concept of Micropayments came in the year 2013 [ANNOUNCE] Micro-payment channels implementation now in bitcoin  and the concept of LN came into the discussion since 2015 and finally implemented on the year 2018.

Would this bitcoin-backed token be native to the Bitcoin blockchain?

Coincidentally (did not see this thread at the time of posting) I posted this recently about a bitcoin-backed stable token native to the bitcoin blockchain. In your opinion is this in line with what is being described, to be used in line with whatever Bitcoin banking technology surrounds it?

In my opinion, I see clear utility in a bitcoin-backed stablecoin/digital cash, to avoid volatility while still being able to harness the benefits of using the bitcoin blockchain, though Bitcoin banks...I don't quite understand how they are necessary. Would the primary use case be for those who don't trust themselves with private keys, or to keep their coins safe?

Won't be running on Bitcoin network so even if it's backed by Bitcoin still it's different coin/token.

WBTC is Bitcoin backed token but it's not stable coin, so what you're suggesting is something like DAI that holds the stable value while pegged by BTC, not sure is there any project in the market of that kind.

Like said even if it's backed by Bitcoin it won't achieve the same level of decentralisation as Bitcoin network so it doesn't have real world use case other than trading purposes.

[Wind_FURY]

I respect your opinion, but that doesn't actually matter because Bitcoin at the base layer, will always be Bitcoin with its consensus rules enforced by an army of full nodes. Anyone could build ANYTHING on top. They can be centralized, semi-centralized, fully-backed, partially-backed, DeFi pegged assets, ANYTHING. But everything that happens on the top layers will have nothing to do with the base layer.

Plus it was merely a shower thought from Hal. It wasn't a proposal.

That's true, It is a free world and we cannot prevent creation of anything on top of Bitcoin. Just like we cannot prevent creation of centralized exchanges and prevent people from leaving their coins there just to have it stolen when the CEX is hacked or just runs away.

But that doesn't mean we shouldn't speak out against them. Every now and then people run a campaign on social media encouraging newbies to withdraw from CEX and use an actual wallet to store their coins.
It's the same here, I personally consider fractional banking to be a big threat...

I didn't tell you shouldn't. In fact, I said I RESPECT your opinion. BUT we should also accept its inevitability that because of Bitcoin's permissionless nature, ANYTHING could be built on top of it.

I believe not, because if it's a layer on top of Bitcoin, and if it's built to scale and to serve millions of users to make billions of transactions, then perhaps some of those built will be centralized, no? Or will NEED to be centralized. It
probably isn't only about Bitcoin the network itself, but also Bitcoin the currency as well.

Does it need to be centralized? I mean we already have second layer solutions such as Lightning Network and it is not centralized and it has the potential to handle very large number of transactions. So the alternative to centralized banking solution already exists, meaning we don't have to go in the wrong direction.

I don't know. But if it needs serve A BILLION USERS to make BILLIONS OF TRANSACTIONS A DAY, then I believe it will be tipping more towards centralization than decentralization.

  ¯\_(ツ)_/¯

[kotajikikox]

I do not think he was talking about actual banks in the traditional sense. Maybe he was thinking of an early type of DeFi? After all, the very point of Bitcoin is "to be your own bank".

I wish Hal Finney was alive to see and explain better what he was talking about. Maybe with the new technologies around bitcoin he would have made it clearer enough instead of us having to speculate on what we think he meant or not.

Maybe he really meant the decentralization in every sense of the word. If he meant a bitcoin bank, it is basically like a bitcoin holding and I think that is what the bitcoin ETFs are already doing.

It is impossible now for us to know fully what he meant but the best we can do now is to try and understand his words the best that we can. He mentioned bitcoin-backed banks which to me implies centralized banks having bitcoin and offering their services to holding and transacting bitcoins. He also said that he sees bitcoin could be reserve currencies offering the same purpose as gold used to do back in the days except with more privacy security and much more efficient.

He was definitely ahead of his time and 10 years after he died, almost everything he has envisioned has become into fruition.

[john_egbert]

I don't know. But if it needs serve A BILLION USERS to make BILLIONS OF TRANSACTIONS A DAY then I believe it will be tipping more towards centralization than decentralization.

  ¯\_(ツ)_/¯

I also see it that way.
It's either this, or no massive and overwhelming usage of the chain for daily transactions (we are not talking about bigger ones).

[JollyGood]

It would be fascinating to read his views on the matter were he here today. As far as the central bank grip on the banking system is concerned, I think a lot of that has to do with lobbying groups and in this case the financial sector. Those that have an interest in promoting their own agenda will no doubt make political donations to those they can influence. Crypto has to catch up.

I think Hal literally meant banks--  the shittyness of banks today is driven by two factors: Central Banks and the state regulatory environment.  Both groups impose requirements on banks which make otherwise good ones behave shitty and protect bad ones from competition.  Fixing the state regulatory side is not impossible but it's almost pointless with the central bank hold on the system.   The situation for Bitcoin has a fighting chance of being different.  I think it will be, due to the potential of technology powered 'banks' making real competition for more traditional banks and for the lack of a central bank forcing in bad policy.

[Wind_FURY]

It would be fascinating to read his views on the matter were he here today. As far as the central bank grip on the banking system is concerned, I think a lot of that has to do with lobbying groups and in this case the financial sector. Those that have an interest in promoting their own agenda will no doubt make political donations to those they can influence.

I think Hal literally meant banks--  the shittyness of banks today is driven by two factors: Central Banks and the state regulatory environment.  Both groups impose requirements on banks which make otherwise good ones behave shitty and protect bad ones from competition.  Fixing the state regulatory side is not impossible but it's almost pointless with the central bank hold on the system.   The situation for Bitcoin has a fighting chance of being different.  I think it will be, due to the potential of technology powered 'banks' making real competition for more traditional banks and for the lack of a central bank forcing in bad policy.

The actual Cabal that really run the system doesn't need lobbying and "political donations" to get what they want. They already HAVE what they want, and it has been that way since the invention of the concept of Central Banking.

Read this book, "A History Of Central Banking And The Enslavement Of Mankind" by Stephen Mitford Goodson.

 👀

Crypto has to catch up.

Catch up politically?

 👍

I believe people are starting to understand that for HyperBitcoinization, the path isn't only technological. It's also political.