The debate between Bitcoin and banks stems from some fundamental differences in how money is conceived in its nature.
Key facts:
- Bitcoin changes money, which is why the banks fear or reject him
- Banks are the “old acquaintance” that the majority still trust
- There are still some advantages on the part of the banks
- Bitcoin represents decentralization, while banks embody centralization and censorship
What do banks offer that Bitcoin cannot give?
Banks vs. Bitcoin, and vice versa. Is this the fight of the century? Since introducing Bitcoin to the world, Satoshi Nakamoto postulated Bitcoin, his creation, as an 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, conflict was expected without control of a person or entity over the network’s monetary policy.
Bitcoin is a monetary proposal and 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.
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 other hand, the code is the law: there can be no more than 21 million bitcoins (BTC), and no one can issue coins at will or change the rate at which those coins are issued.
Another clear rule in Bitcoin is that this issue, although inflationary because it makes the money supply growth, 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 other fiat currencies? 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 private banks, which do not issue but hold funds, there are other differences: in Bitcoin, the user has complete 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 primary model the offer of debt to their clients, Bitcoin is nothing more than a network that, through issuance, rewards those who participate in securing said network.
At the same time, regular users (because miners are also users) do not pay higher instances for using Bitcoin. In the process, they simply pay commissions for the miners’ work without a debt policy (the well-known bank credit.)
Distancing banks from Bitcoin and its approaches
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). This a straightforward way to oppose privacy in Bitcoin and money in general.
Many banks have become friendly with Bitcoin in recent years and months, mainly because they seem to see a business opportunity in this emerging market. 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.
Banks don’t want Bitcoin
Although the banks are approaching bitcoin, they continue to do so to stay current. Bitcoin could be more convenient for banks because it represents a paradigm shift that delegitimizes them.
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 purchasing with a card, and 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, by contrast, is resistant to censorship. 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 worldwide, all connected to Bitcoin in real-time.
Bitcoin is not really anonymous
Some 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 another platform with your data, that address can be tracked as part of your financial movements on the Bitcoin network.
But suppose you trade directly with peers without going through an identity verification process. In that case, the only thing a third party will have about that transaction is an alphanumeric address and the 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 required. We don’t have anything to hide, 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 that happens on the network is transparent and public for the eyes of any user. Anyone can view transactions on the network through a blockchain explorer, 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.
What do banks offer that Bitcoin cannot give?
One of the things in which banks can be considered advantaged against Bitcoin is credit. This is the pillar of bank operations and a product that 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 asset’s value blocked as collateral. That is, the client must have even more money than he or she is borrowing.
Although banks have their requirements to grant loans, among those requirements, they require guarantees that collateral is not money but property or even the figure of a guarantor who serves as a guarantor of payment on the client’s part.
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.
The great advantage of banks
Access to credit, which expands daily consumption and life improvements (house, car, remodeling, etc.), continues to be banks’ primary letter of presentation. And also its significant advantage over Bitcoin.
Another advantage in favor of banks is, at the same time, a weakness in the eyes of Bitcoin adopters. Although centralization lends itself to blocking funds and censoring the movement of money, it also serves to resolve conflicts, disputes, and theft.
With Bitcoin, no figure is involved: if you 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 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.
