Open Source Banking
Forking over the closed financial system one protocol at a time
At the end of last year, we prototyped a web-based wallet for ERC-20 tokens that were running on Ethereum. Shortly after that, Maker released the DAI stable coin which is pegged to the dollar. When I first loaded up the wallet with some digital dollars running on an open source protocol, something flickered in my brain.
Since then, I have been thinking a lot about why that first prototype had such an impact on me. It boils down to one simple fact:
Anyone can buidl a bank on the open financial system.
We combined two open source protocols from Ethereum and MakerDAO to create an app that could store, receive and send dollars. Challenger banks in England like Revolut, Monzo, Starling and Loot have raised millions of pounds to get access to the British Pound. If you want to create a business on the closed financial system you have to get permission. The application process is only possible for incredible teams with true grit. Open financial protocols require no permission. Anyone can get started.
🏦 Protocol Powered Banking
New financial protocols are popping up every day. They are taking existing functions from the existing financial system and rebuilding them using open source tools. We are working with many of the promising protocols to integrate their services into our products.
Blockchains are slow, trust-worthy databases. They are best suited to transactions that have a high value and low frequency. Mortgages are a great example: you borrow a lot of money and pay it back in stages over a long period of time. Employee stock options are another great candidate: they are allocated once and distributed slowly over time. Both examples usually involve lots of time and dozens of PDFs. These kinds of problems can be improved upon by open economic protocols and financial dapps.
🦅 Decentralised Autonomous Banks
Banks that have their customers’ needs at heart have been around for a long time: they are called credit unions. Customer satisfaction for credit unions blows the traditional banks out of the water.
There is a lot of work going on to create scalable, digital and unstoppable organizations. Aragon is leading the charge here by buidling an operating system for Decentralised Autonomous Organisations that run on Ethereum. We want to create a bank which uses their tools to help us manage the share hodlers and the governance.
💸 Open Fee Structure
One of the biggest problems with the way banks are designed today is that it is hard to know who is making what. All of the incentives are mis-aligned because of back-handers, sweetheart deals and cheeky kickbacks. The ICO quagmire is full of this kind of behaviour as well. In the long run, the best token engineers will design protocols that will make the fees charged open and easy to understand. We will be able to display the costs of your token exchange, new loan or retirement account in clear terms. Balance will take a small cut on these transactions and openly display it.
🌎 Global Unstoppable Banking
Access to capital and strong financial tools is a luxury. In many parts of the world, people are stuck with terrible currencies and weak financial institutions. Open economic protocols are unstoppable. They can be attacked in lots of ways but the best ones will survive. These protocols need to become more scalable, available and accessible
- Consensus algorithm progress will make these protocols more scalable.
- Cheap satellite internet will make these protocols more widely available.
- Incredible user interfaces will make these protocols more accessible.
The convergence of these three things should help the billions of people who are about to come online and look for financial services to help them lead good lives.
⚖️ Open Financial System
Zoom out on the world and sit on the moon. If you looked down on earth, you would see lots of people doing the same job. Every bank has a software team. Those teams all make ledgers, transfer systems and tools to manage new products. They glue together a blend of enterprise solutions and old technology to keep the wheels turning. There is a huge duplication of effort across the industry. This is because all of the code is closed source and proprietary. They are independently investing in things that they collectively need.
That is starting to change. We have created a common digital system for describing and moving value.
Bitcoin created digital scarcity. Ethereum made it easy to create digital scarcity.
Every time a team learns something and shares it the system improves. All of the code is open to everyone. This allows us to work together to solve common problems co-operatively instead of working apart to solve them separately.
⚔️ Open Source Regulation
Today, the open financial system is being abused by scam artists and unethical actors to steal from the vulnerable. The token sale mania was absolutely criminal. Junior teams with absolutely no idea on how to innovate were raising sums of capital that should be reserved for projects that have proved their worth.
This new financial system needs to work with the old one to get the balance right between innovation and exploitation. Messari is an open source database for information on open source financial assets. They are doing fantastic work and I hope more efforts like this pop up:
As the system matures, I hope that regulation moves from being written in books to being written in code. We need a combination of humans and machines to police the system and protect the people. Wetware will become software.
♻️ Fork Your Bank
At Balance, we want to buidl an open source bank that anyone can use or improve. If you do not like something we are doing, you can fork the code and change it. If you are not technical, you can try to convince people who are to change it for you.
This is so different from today’s world. If you have a problem with your bank, you can send them a complaint. It is hard to switch between banks and none of them have your best interests atheart. We think that is going to change.
👩🏽💻 We Need Help
If you want to help us, we would love to hear from you. Every little bit helps.
