Public Banks

Social unrest. Catastrophic weather. Pandemics. And, thanks to A.I., it’s becoming more and more difficult to tell the difference between real and fake. These are chaotic times. The very least we can do is keep an open mind about what money is, and what money can be, so we can better adapt to the changes happening all around us. The best thing we can do is consider how banking can be reoriented and restructured to help our communities thrive.

Public banks are intended to give everyone tools for managing money. If a bank is going to be created in the name of the people, then the people should have the opportunity to understand and decide on all the available options including building the system on digital public infrastructure like Ethereum.

Building a public bank on a blockchain does not mean we have to create a new currency or program new types of assets, but why not have these capabilities in our toolbox? We all know, on some level, that money is just a story. It is time to embrace the capacity to tinker with the parameters of money so we can protect human dignity in ways the current system is simply failing to do.

Common ground

Ethereum is already a live public banking system. Anyone with an internet connection can send, borrow, or lend money for a transaction fee that is fairly and transparently distributed to the network. It is an online public bank that is global, permissionless, and collectively owned.

As Ethereum’s base layer (“Layer 1”) is open to everyone, money can mean anything from highly regulated and stable digital currencies pegged to the US dollar to hyper-volatile scams based on dog pictures. This experience is not for everyone. It’s also not all bad. Ethereum’s Layer 1 is like the early internet: dangerous and unpredictable but full of potential. Our public bank should be more tame (and be built as a “Layer 2” which will be explained more later) but there is no need to resort to the other end of the spectrum – closed-off control by a small, privileged group. Even if we trust who is in control now, there are no guarantees of who will inherit our bank in the future. The people’s bank should be built on a foundation secure enough to endure for the next 100 years.

One way to think about blockchains is as a collective record of events. The record can keep track of who owns what, which turns blockchains into a shared ledger. This digital ledger can track digital scarcity, but money is only one application of a blockchain. If we add the ability to create any type of software on this public record, the blockchain becomes a global computer that is collectively owned. Participants reach a mutual agreement or consensus of what is true based on a pre-determined set of rules, and that event is entered into the record.

A type of math called cryptography allows all participants in the network to verify and authenticate the software is running correctly. If the blockchain is not recording events and following the rules as expected, according to the math – according to the cryptography – these events are automatically rejected by the network. This allows for large-scale coordination without a central control point. Most importantly, it allows people in the network to trust each other because cryptography reliably constrains cheating.

According to, there are over 750,00 active Ethereum validators at the time of writing. These validators, run the software that collectively make up the Ethereum network and these validators are where transaction fees go to. Anyone can run a validator, each validator is equally as powerful as the next, and each one performs the important work of contributing to the security of the network. The more active validators there are, the more decentralized the network is.

Properly decentralized blockchains like Ethereum are shared digital infrastructure where costs, maintenance, and control are spread out across the world. It is a common ground on which to build things.

On Ethereum, applications are built on an ever-growing assortment of smart contracts, which can be thought of as composable building blocks or Legos. Because the platform is neutral, developers can come from anywhere, willing to invest precious time and energy knowing that their creations can’t be arbitrarily manipulated or taken away. Code is constantly being created, used, re-used, and battle-tested in a live system. These robust smart contracts are free for anyone to investigate, audit, and copy-and-paste, including public institutions.

Consultants building proprietary, closed-off “public” banking software could never emulate an ecosystem, which becomes stronger and more robust as more people join and contribute. Ethereum is like a giant box of Legos. It’s messy, but people have already built rugged and secure building blocks with more being created every day. If we started a new set of Legos, it is highly likely no one else would use it, and almost guaranteed to be much more fragile than what already exists.

By using existing and proven digital infrastructure, public banks can focus on the social aspects of financial services: community outreach, financial education, and consumer protection. More energy can be spent on ways to make people’s lives better. More resources can be put into helping marginalized, excluded, and neglected communities better manage their money and grow community wealth. By letting a blockchain take care of the numbers, the ledger, the accounting, and the transactions, humans can focus on taking care of each other.

Secure, flexible architecture

What a public bank does exactly will depend on specific legislation. For example, AB1177 in California, the author’s home state, prevents public banks from competing with retail banking services like checking and banking accounts.

The writing here is not the case for why a public bank should exist or what it should do. This is the case for choosing a simple yet powerful foundation that is inherently decentralized and transparent, with the option to build custom features on top, like privacy for individual users.

On a blockchain-based public bank, sending money to and from accounts would be as easy as sending an email. Aid programs like stimulus checks, food stamps, and child tax credits could be distributed, tracked, and audited automatically. If a public bank was tasked to distribute a $1200 stimulus payment to all accounts, it could simply execute one smart contract to do so. Every eligible account would receive the same amount, at the same time, with no exceptions. This type of speed and efficiency would be vital in situations where natural disaster displaces entire communities.

Many of the problems we face have been created by an economic system we have inherited and have little power to change or escape. Blockchains give us the power to tinker with the rules governing how money is created and how it flows. We are in the middle of many different crises with many different causes that blockchains will not solve. But when combined with public banks, radical experiments involving money become possible, which might lead us to the solutions we need.

For example, a public bank could create a localized credit score system where all users start fresh – or base the score on new sets of parameters. Ideas like universal basic income and baby bonds could be experimented with on a small scale, then if successful, easily scaled up. You could even use cryptography to guarantee that the public bank is solvent (has more assets than liabilities) and make it so the system is incapable of stealing user funds.

The main reason to use a blockchain is as a defensive mechanism. If, for example, the California economy were to be cut off from the Federal or global economy for whatever reason, we would still have a network on which money could flow unimpeded. This type of resiliency is possible because of the decentralized nature of a blockchain, which can only be shut down if every node in the network is shut down.

Just as we prepare for fires and floods by building physical infrastructure, we should also prepare our economy by building robust digital infrastructure.

Layer 2

A Layer 2 can be thought of as a small, customized blockchain that is built on top of a much larger, more decentralized and open blockchain. Whereas a Layer 1 is permissionless and accessible to anyone with an internet connection, a Layer 2 can control the valves of who and what can come in or out. Unwanted users or programs can be blacklisted. Only high quality, approved programs could be allowed into the system through a transparent and democratic process. The control valve could be loosened or tightened depending on how we want to balance safety and opportunity – access and protection.

The basic security and consensus properties of Ethereum Layer 1 are inherited by the Layer 2. The existing, battle-tested, and composable Layer 1 code – the Legos – can also be re-used. Since the Layer 2 is smaller and more localized, it would be faster for the user and cheaper to maintain overall. Fees could be subsidized or abstracted away. Privacy preserving features could be added modularly.

As we continue transitioning from physical to digital payments, we need infrastructure that is accessible yet privacy preserving. There are few digital payment options that are not controlled by corporations who have every incentive to harvest user financial data for profit, but the ones that do exist are happening in the world of blockchain. Advance forms of cryptography such as zero-knowledge (ZK) protocols and homomorphic encryption (FHE) are being used to mathematically guarantee individual privacy is protected. These same guarantees could be used to protect citizens who rely on public banking.

In a 2023 report called Tornado Cash and Blockchain Privacy: A Primer for Economists and Policymakers, the St. Louis Federal Reserve states:

“The fundamental problem with any discussion around privacy is that there are good arguments for both sides. On the one hand, privacy-enhancing tools are being used by criminals and this is certainly an undesirable outcome. On the other hand, privacy may be desirable. For example, it may serve as an insurance against excessive centralization of power and contribute toward the resilience of a democratic system. An optimal solution will likely lie somewhere between perfect privacy and perfect observability.”

Transparency and privacy are not binary choices. The best public banking system should be both private and transparent. And it is possible to have both – at the same time, in the same system – but at different layers.

Privacy for the vulnerable

Blockchains are built on the assumption that one piece of information is kept secret: the private key. Private keys take the form of a long string of numbers and letters that look something like this: 8da4ef21b864d2cc526dbdb2a120bd2874c36c9d0a1fb7f8c63d7f7a8b41de8f
The estimated time to crack such a key with current technology is longer than the age of the universe.

Private keys can be thought of as the ultimate password on a blockchain. They let users control their accounts, allowing them to move assets and interact with programs and other users on the network. Losing a private key means losing access to the account.

This is where governments and trusted public institutions such as our imagined public bank can fulfill a role they are uniquely qualified for: identifying unique humans and providing them with private keys. Blockchains have no inherent way of figuring out who is human and who is not. Popular workarounds at the moment include submitting a video of yourself and using complex social checks and balances, as is being done by the Proof of Humanity project; and scanning your eyeball into a shiny metal orb, as is being done by the Worldcoin project.

As much as it may pain some die-hard crypto enthusiasts to admit, governments are good at identifying unique humans, which is becoming more important as generative A.I. becomes more prevalent and realistic. Birth certificates, passports, driver’s licenses, social security numbers – and their non-U.S. equivalents – are old school ink and paper methods that are trusted by most the world’s population. Democracies need a registry of unique humans to run legitimate elections. And all governments need to know who to collect taxes from.

Verifiably unique humans with private keys make ideas like basic income and non-financial applications more practical and realistic.

As private keys are linked to people’s identities, financial histories, and control their funds, the responsible management of private keys, and general protection of privacy, would be the most important responsibility of a public bank built on a blockchain.

Cryptography is powerful, powerful enough to disrupt our financial system, and this power should be distributed widely because it makes a decentralized network more resilient. On a moral level, people who were left out of the old system should not be left out of the new one. There was once an era in blockchain history where “banking the unbanked” was being heralded as a noble cause made possible by this new technology. Though that era is mostly forgotten, it is not lost, and public banks make it possible to take the mission of financial inclusion to the next level.

Transparency for the powerful

At the level of the user or individual, privacy must be preserved. At the level of the bank itself – at the layer of its governing structure – there should be as much transparency as possible.

Who has power and who leads can change drastically. No matter who is in charge or what their agenda is, transparency keeps public institutions auditable and accountable.

Transparency is not for the purpose of surveillance over citizens, but accountability over the system itself. Anyone in the world should be able to look at the software that runs our banking system and be able to tell how it works. If you can’t read code, trusted engineers can translate the code to English. A.I. systems like ChatGPT make it increasingly easy to copy-and-paste code and ask for a translation in any language. The A.I. has no incentive to lie. And the bank has an incentive not to cheat because it will be caught.

Transparency can also mean more efficiency. Over time, bureaucratic systems tend to get more complex and difficult for people outside the system to navigate. The levers and control valves get rusty from neglect and misuse, or simply become outdated. Starting on a new foundation means a clean slate for the entire system, and if transparency is built-in, it becomes possible for everyone to follow along with how the system works and changes over time. It’s easier to fix things when we can actually see what’s happening.


Blockchains and public banks won’t save the world. But they open paths to solutions we may have never considered before. Even thinking about radically different alternatives is a powerful step to making money work better for more people.

Financial services can be a public good that not only provides the bare minimum but is capable of growing in ways that meet the people where they are, even in times of great change.

This is version 2.

Version 1 is here:

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