In a conversation I had with LVL, I realized that a Bitcoin-only bank would need to implement certain features in order to first gain adoption by Bitcoiners, which would naturally lead to wider adoption of people wanting to get on a Bitcoin standard. So I decided to flesh out my thoughts a little more as a list of what I would expect out of a Bitcoin bank.
- Be Bitcoin-only. Having other "crypto" is not only a platform risk but also a distraction. Being Bitcoin-only would allow the company to focus on what matters to me, which means taking advantage of the advances in the Bitcoin space. Paraphrasing Jack Mallers, this would even mean "competitors building on Lightning network would benefit you, since everyone is on the same monetary network."
- Custody your users' deposits. Do not rely on external custodians like BitGo, as this is more platform risk. As a Bitcoin bank, I expect you to be experts in being a custodian of your users' funds, and not pass off that responsibility to another company. This also means you'll be responsible for managing LN channels, settling payments on-chain with other banks, and private key security.
- Custodial Lightning wallet. There is the saying "not your keys not your coins" but I don't need a bank for that, so that is not the reason why I'm using a bank in the first place. I'm using a bank out of convenience or necessity, therefore I'm only going to put what funds in the bank that are necessary for me to do banky things. This wallet would essentially be my checking account connecting to the fiat world, so I expect to make instant spends/deposits/withdrawals.
- Bitcoin-backed loans. Unchained Capital is currently the king of this service, IMO. Being able to borrow against my bitcoin is an essential service that I would expect from a Bitcoin bank. As long as fiat is alive, this will be a necessary evil that Bitcoiners will likely need to utilize. This is where the bank would touch the main chain for a multisig deposit address.
- Bitcoin lending. This can ride off the point in #4 or it can be an integration with external Bitcoin lending platforms. There are Bitcoin-only DeFi (real DeFi, not dinoFi) options starting to pop up that a Bitcoin-only bank could benefit from by simplifying the UX around using these products. Hodl Hodl's Lend and Atomic Finance are some examples of what I'm referring to. I want to clarify that I'm not referring to services like Celsius or Nexo, which are outright scams, or anything that touches companies like Genesis Capital, as these are not DeFi and introduce massive amounts of platform risk.
Notice there is no Bitcoin-rewards card listed. I consider a credit/debit card as part of legacy finance and the ability to spend directly from BTC via the bank is worth it enough. I would and should be able to use whatever credit card I prefer, even outside of this theoretical Bitcoin bank, and either pay it off monthly or let it ride. While a credit card offered by the same bank would be nice, I don't believe it to be a necessity.
I also don't mention anything about fees. I think the market will figure out how to deal with fees in the long-term, and in this short-term I don't think it really matters too much, since a true Bitcoin-only bank should be able to charge some sort of fees for their services and still attract customers. Fees can be good in a sense that I want to know how this bank is actually making money, since that will keep their doors open (figuratively).
It is my true belief that the first bank to figure this out will be the next JP Morgan of the 21st century (but with less evil). I think this because as Bitcoiners shift to getting on 0 fiat, through their success of being able to retain value, others will want to do the same.