Bitcoin Banks Vision: Hal Finney's 2010 Prediction Partially Realized

In 2010, Hal Finney, a prominent cypherpunk and early Bitcoin advocate, envisioned the future of Bitcoin banks in a Bitcointalk forum post. Finney, known for his work on maintaining online privacy and his role as the first person to receive a Bitcoin transaction from Satoshi Nakamoto, saw a future where peer-to-peer Bitcoin transactions would be rare. Instead, he predicted that people would use digital cash issued by Bitcoin-backed banks, which would serve as a more efficient means of exchange.

Finney described Bitcoin banks as organizations that would issue Bitcoin-redeemable digital cash for settling transactions. He noted that Bitcoin itself is not an efficient means of exchange due to the time required for confirmations in large purchases. Therefore, a secondary layer payment system would be necessary to avoid this inconvenience. According to Finney, banks would use Bitcoin to settle net transfers between each other, while individuals would use other digital money for regular transactions. He referenced George Selgin’s findings on free banking, suggesting that these banks could be self-regulating, stable, and inflation-resistant.

Finney's vision of Bitcoin banks has not fully materialized today. However, elements of his prediction can be seen in the current financial landscape. Some banks have started to accumulate Bitcoin as a hedge against fiat money debasement, believing that Bitcoin reserves can boost their holdings. For example, Solar Bank has recently begun to accumulate Bitcoin. The idea of a second-layer digital payment system and multiple digital currencies is also realized in the form of the altcoin market, where many cryptocurrencies are cheap and quick to transact. Stablecoins, which serve as a convenient means of payment and savings, have been embraced by the crypto community.

Central banks of several countries are working on Central Bank Digital Currencies (CBDCs), which are not Bitcoin-backed. Decentralized Finance (DeFi) platforms provide some banking services in a decentralized manner, allowing users to lend, borrow, or keep crypto in exchange for yield. However, these cryptocurrencies cannot be redeemed for a fixed Bitcoin price. Neobanks, which provide bank-like services and allow operations with crypto, are another type of platform that has emerged.

George Selgin, whose work was mentioned by Finney, noted that the emergence of Bitcoin banks is not imminent. Selgin believes that until Bitcoin becomes much more widely used as a means of payment, there will not be any profit in supplying substitutes for a relatively unpopular means of exchange. However, he does not dismiss the possibility of Bitcoin banks emerging in the future.