Balance, the company behind the current Balance Manager web wallet interface and exchange (currently in Beta) has recently floated around the concept of building a fully open-source, decentralized autonomous bank, known as a DAB.
While it is just a concept at this point with some major developments in the industry still needed to become a practical reality, some of the essential building blocks, particularly the open protocols that would be necessary to facilitate the creation of such an endeavor, are actually already in place or currently in development.
Banks, Custodians, and Centralization
The cryptocurrency community has long been critical of banks, since the entire principal of the industry’s emergence is predicated on building an open-source system of protocols that allows users to participate in a legitimate alternative to banks’ centralized control, inefficiencies, and misaligned incentives. While major banks may not be directly part of the cryptocurrency sphere, digital asset custodians (i.e. Coinbase) are, and some of them have essentially become digital currency banks.
Specifically, digital asset custodians are responsible for storing vast sums of value using traditional closed-source models in an industry predicated on open-source protocols. Although these custodians have proven to be a useful mechanism through which many people were introduced to the cryptocurrency sphere and subsequently given access to liquidity through their centralized exchanges (not currently available with decentralized exchanges), the closed-source model inherently creates misaligned incentives between the custodial organization and its users.
The existence of centralized custodians in the cryptocurrency field represents a trend back towards closed economic protocols. With decentralized exchange protocols such as 0x, decentralized organization governance frameworks like Aragon, and improvements in user interface applications interacting with the underlying cryptocurrency protocols on the horizon, an open and decentralized financial system using DABs may one day become the future economic framework.
Balance and The DAB
As previously mentioned, the concept of a DAB is still exactly that, a concept. Balance is aware of that, but are still pushing the envelope on the potential of an economy built on open protocols. Balance submitted a proposal to the Aragon Nest Program a few months ago for their DAB, a grants program focused on supporting the developments of Aragon ecosystems, and part of their proposal was accepted.
Currently, the part of Balance’s proposal is focusing on building their mobile iOS wallet, an important application for storing tokens and interacting with desktop dapps for Aragon and Ethereum. However, their long-term focus remains on helping to further develop the necessary open-source protocols and tools needed to make the DAB a reality.
Essentially, the DAB would need to function as a group of decentralized autonomous organizations (DAOs) which would utilize the specific open protocols to manage and control the functions of the DAB. It would effectively exist as an interface on top of the various open-source protocols and would, importantly, be non-custodial.
There are a number of substantial hurdles to overcome in order to achieve this, and its implementation at a practical level is years away. One of the hurdles specifically outlined by Balance in their original Aragon Nest proposal include a distributed network for key recovery access. If a decentralized password protocol existed, users could reset their passwords and regain account access at will, without fear of losing their funds.
Rather, users would be able to recover their keys without a custodian holding their private key or tokens. Although the underlying protocols of such an application would be highly complex, to foster mainstream adoption the underlying complexity would need to be obfuscated in order to reduce the requisite knowledge needed to overcome the technical hurdle that is currently limiting the adoption of decentralized applications today.
Looking to The Future
The potential of an open financial ecosystem utilizing DABs, although seemingly distant, is quite clear. Benefits such as open fee structures, global access to banking services for the billions of unbanked, and open-source regulation are just some of what would be paradigm shifting innovations.
Both users and banks would even have the ability to fork their DAB or trivially select another without having to worry about poor customer service, holding of funds, or various iterations of their banks abusing their trust. Such a financial system established on a network of interacting open protocols could provide the framework for the economic freedom envisioned with the birth of Bitcoin and increasing emphasis on giving financial power back to the individual.
Many of the open protocols and application interfaces necessary to achieve the goal of DABs functioning within a larger open financial model are already in development, established, or at least have been discussed as potential future implementations.
Regardless if the decentralized and open financial system is purely a concept or an actually attainable reality, Balance is trying to help facilitate the transition from closed-source banking to open-source banking, a transition that the cryptocurrency community has been arduously building towards for nearly a decade.