The Future of Bitcoin Banking with Eric Yakes

 
 

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“The whole point is that we have enough self-custody to where the system remains permissionless so that we don’t turn into digital gold 2.0. That’s the whole point. Maybe that’s 20% of all Bitcoin, maybe that’s 30%. I have no idea. But it needs to be as much as we could possibly make it based on the consumer utility trade-offs.”
— Eric Yakes

SHOW DESCRIPTION

Eric Yakes is the author of ‘The 7th Property’. In this interview, we discuss how a Bitcoin native banking system could evolve, predicated on a practical vision where not everyone will be able or willing to self-custody. Eric has theorised how Fedimints may form the basis for a new digital age of free banking, and the risks and opportunities this would present.

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As Bitcoin is a new form of money, then it stands to reason that it could become the basis for a new global monetary system. Yet, it is not a certainty that this will happen. And how it may manifest is far from settled. Eric Yakes is one of the leading thinkers on this topic. His ideas around how Bitcoin banking may develop are evolving to respect the central tenets of Bitcoin’s ideology, whilst making pragmatic allowances for real-world constraints.

The principal issue for Bitcoin banking is the provision of custody. 2022 gave everyone clear grounds to promote cold storage. However, with widescale adoption, there will still be significant demand for third-party custody solutions. Therefore, one must consider which custody solutions maximise trust. Fedimint provides such an alternative where trust is federated, with the intention that this federation is a known community.

Fedimint is not only a custody solution, it is also a means for issuing value. A Fedimint can issue Ecash against the held Bitcoin. This Ecash acts as a bearer instrument that can be stored on mobile phones, with the privacy characteristics of physical cash. Ecash could also be transferred via the Lightning Network. This opens up the possibility of a quantum of decentralized federations developing and operating akin to the free banking era of the 19th century.

There are issues. Third-party custody in any form involves risk. There will be occasions when trust is broken, Bitcoin is lost and innocent people are affected. There are also risks associated with a rise in fractional reserve banking, and questions over the issuance of credit through such systems. However, as Eric Yakes asserts, if Bitcoin is to be more than Gold 2.0 and become the basis for a global monetary system, then these are risks that need to be faced.

TIMESTAMPS

00:01:43: Introductions
00:02:11: Real Bedford
00:06:09: Twitter and Nostr
00:09:52: Bitcoin and the future of credit
00:19:53: Bitcoin as an alternative monetary system
00:24:33: Bitcoin's primary problems and potential solutions
00:28:24: Fedimint and theories of social cooperation
00:38:27: Fedimint process and Ecash
00:44:40: Ecash: trust and security issues
00:48:50: Ecash: issuance
00:55:31: Ecash: inter-compatibility, and market makers
00:59:04: Alternative custody options
01:08:18: Ecash systems: use cases
01:14:40: Ecash systems: scaling limitations
01:19:17: Ecash systems: fractional-reserve and free banking
01:27:32: UX for plebs, and regulation
01:35:47: The path to freedom money
01:40:13: Final comments

 

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SHOW NOTES

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Mentioned in the interview:

Other Relevant WBD Podcasts:

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