Banks vs. Bitcoin, and vice versa. Is this the fight of the century? Since the introduction of it to the world, Satoshi Nakamoto postulated Bitcoin, the creation of it, as a alternative to traditional banking. It was, after all, a network in which the figure of the trusted third party did not exist to transact between peers. In other words, the banks’ raison d’être was eliminated.
This, clearly, did not sit well in the offices of the banks, be they the private ones or even the central banks of the countries. As it is a decentralized monetary issuance system, without control of a person or entity over the monetary policy of the network, the conflict was expected.
Bitcoin is a monetary propositionas well as a network to store and share value, through the Internet. bitcoin is money and is offered as a model change on what financial institutions and fiat money, issued by central banks, represent.
1 What differentiates Bitcoin from banks?
Bitcoin is the ultimate separation of money and state. In the fiat model, central banks have absolute control over monetary policy, the issuance and circulation of money, in addition to its value, is in the hands of politicians. With Bitcoin, on the contrary, the code is law: There can be no more than 21 million bitcoins (BTC), nobody can issue coins at will or change the rate at which said coins are issued.
Another clear rule in Bitcoin is that this issue, although inflationary because it makes the money supply grow, is at a decreasing rate. Less and less money is being issued on the Bitcoin network, through the mechanism known as halving.
Can we say the same about dollars, euros or any other fiat currency? No. And both the US Federal Reserve and the European Central Bank have shown it by printing at unprecedented rates in recent years. This is supported by data from the Fed in the United States and the European Central Bank.
As for the private banks, which do not issue but do hold funds, the differences are others: in Bitcoin, the user has full control of their coins as long as they use a non-custodial wallet. There is no blocking of transactions, there is no censorship or schedules. It is a value (money) exchange network that works 24/7, 365 days a year.
Furthermore, banks are organizations that seek their own benefit and shape rules accordingly. The Bitcoin network is neutral: Everyone can use it without anyone being able to stop them. For better or worse.
The other big difference is in the incentives. While banks have among their main model the offer of debt to their clients, Bitcoin is nothing more than a network that, through the issuance, rewards those who participate in securing said network. The miners. While regular users (because miners are also users) do not pay higher instance for using Bitcoin. They simply pay commissions for the work of the miners, without a debt policy (the well-known bank credit) in the process.
two Approaches and distances of banks to Bitcoin
Unsurprisingly, the banks’ first instinct was to reject Bitcoin altogether. And although that position has gradually softened, there is still a majority attitude against cryptocurrency and other digital assets. And it seems logical if, as the Bank for International Settlements (BIS) has pointed out, Bitcoin can “outshine” the banks.
Many banks still put obstacles and even close accounts that they identify as belonging to exchanges and companies that work with bitcoin and other cryptocurrencies. They also aim to exclude users from cryptocurrency mixers (those that help obscure the trail of their fund movements). A clear way to oppose privacy in Bitcoin and money in general.
Banks that have become Bitcoin friendly are many in recent years and months. Particularly, because they seem to be seeing a business opportunity in this emerging market. And this reaction goes hand in hand with the growth in demand for Bitcoin from users. Banks have had to bet on joining or staying out of the new trends.
Institutions such as Banco Galicia or BTG Pactual have already joined the trend of offering investments or exchange of digital assets, something that has become popular in American and European entities lately.
Banks don’t want Bitcoin
Although the banks are approaching bitcoin, they continue to do so to stay current. Deep down, Bitcoin is not really convenient for banks because it represents a paradigm shift that delegitimizes them.
3 What is Bitcoin better than banks?
Banks have the power to block any transaction that a customer makes. They can prevent you from sending money, from making a purchase with a card, they can even block the receipt of money from specific accounts or clients. Many times, governments are the ones who give the order and the banks simply execute.
Bitcoin, on the other hand, is censorship resistant. Being a decentralized network, no one can force the blocking of any transaction. That decentralization is reinforced by its distributed registry on thousands of machines around the world, all connected to Bitcoin in real time.
Bitcoin is not really anonymous
There are those who believe that by being encrypted and identified by alphanumeric codes, Bitcoin transactions are directly anonymous. In reality, they are pseudonyms with the potential to cease to be pseudonyms: if a transaction can be traced back to your data delivered to an exchange or any other platform, then the address can be tagged and tied to your identity.
Another advantage of Bitcoin lies in its pseudonymous character. No address within the network is associated with the identity of its owner. At least not initially. If you register it with an exchange or some other platform that has your data, that address can be tracked as part of your financial movements on the Bitcoin network.
But if you trade directly with peers without going through an identity verification process, the only thing a third party will have about that transaction is a alphanumeric address and BTC transfer data associated with that transaction. Nothing about the people involved.
Banks have all kinds of customer data and know exactly what you do with your money at all times. In addition, they are obliged to share that data with governments if they so require. Not that we have anything to hide necessarily, but privacy is paramount in the new digital age. The more prints, the easier it will be for them to track you down.
Finally, in Bitcoin everything what happens on the network is transparent and public for the eyes of any user. Through a blockchain explorer, anyone can view transactions on the network, making Bitcoin money flows auditable. We cannot audit banks: once they have deposited our money, they can move it as they please without us knowing what they do with it.
4 What do banks offer that Bitcoin cannot give?
One of the things that banks can be considered advantaged against Bitcoin is credit. This is basically the pillar of bank operations and a product that clearly moves economies by increasing citizens’ immediate consumption capacity.
There are loans with Bitcoin, offered by companies that deliver fiat money or stablecoins in exchange for a guarantee in BTC. However, this is not something inherent to Bitcoin technology. In addition, these companies only provide a fraction of the value of the asset blocked as collateral. That is, the client must have even more money than he is borrowing.
Although the banks have their requirements to grant loans, and among those requirements they require guarantees, that collateral is not money but property or even the figure of a bondsman that serves as guarantor of payment on the part of the client. This is an advantage for those who require financing to set up their businesses, improve their homes or even buy them, in addition to accessing other goods and services necessary for day-to-day use.
Great advantage of banks
Access to credit, which allows expanding both daily consumption and life improvements (house, car, remodeling, etc.), continues to be the main letter of presentation of banks. And also its great advantage over Bitcoin.
Another advantage in favor of banks is at the same time a weakness in the eyes of bitcoiners. Although centralization lends itself to blocking funds and censoring the movement of money, it also serves for the resolution of conflicts, disputes, theft, among others. With Bitcoin there is no figure involved: if you make a mistake sending money or lose access to your wallet, you can say goodbye to your coins. Bitcoin makes you responsible for your own money, for better and for worse.
In conclusion, Bitcoin and banks have many differences. For the more traditional, it seems that the “old acquaintance” embodied in banks is safer. But if you really want to enter the new era of money, nothing better than doing it with the technology that inaugurated these new times: Bitcoin.