Step One: Transparent Bank Deposits as Taro Assets
Instead of using internal ledgers to keep track of clients’ deposits and withdrawals, a community bank may choose to issue its own stablecoin for each deposit and destroy it upon redemption for cash or bitcoin. By building the core of their banking infrastructure on open source and battle-tested software, deposits remain more easily controllable and difficult to tamper with.
By choosing an open protocol, community banks are able to piggyback on existing software infrastructure, such as nodes, wallets, payment processors or liquidity markets. A community bank does not need to develop its own wallet, it can simply open channels with Taro-enabled wallets that are readily available on Google and Apple’s app stores. It does not need to provide merchants with custom-built tools, as long as payment processors hosted by their own provider such as BTCPay Server or LNBits are configured to handle Taro assets.
Some community banks may not even open such channels to their customers themselves, or instead rely on non-custodial liquidity markets or Lightning service providers to do so.
When an individual or business has a channel open to their wallet or node with enough incoming capacity in the Taro asset of their choice, they can bill others for their work, services or goods. Anyone worldwide can instantly pay this invoice from their own wallet, have it routed through Bitcoin to the edge node, which exchanges the payment amount to the desired destination asset. All this happens immediately and without anyone taking custody of the funds.
Conversely, community banking clients can pay any Lightning invoice directly from their mobile wallet dollar balance. They do not need to take on volatility risk or rely on a custodian counterparty beyond the stablecoin issuer: their mutual bank.
Such a common bank does not need to maintain Lightning nodes themselves. Anyone can act as an edge node for their local or remote community and compete for customers and transaction volume the same way they can run a Lightning Network routing node today.
Bitcoinization of the dollar
The vision of being able to receive any currency or asset while transacting using the global, open source and permissionless Bitcoin network is appealing. It will make it easy to digitize, or bitcoinize, local dollar reserves, enabling billions to hold the asset of their choice while trading it digitally and cheaply. As Taro routes transactions through Bitcoin, it allows small players in the stablecoin market to benefit from and strengthen the network effects of the Lightning Network.
This gives people access to Bitcoin as a payment network and long-term savings tool without the risk of exposing users to short-term volatility. It greatly increases the number of potential sellers and users on the Lightning Network and establishes bitcoin as the backbone and medium of exchange for a truly global and accessible reserve currency.
This is a guest post by Leo Weese. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
