Bitcoin and Banks
Banking systems, all over the world, have controlled the loanable funds market, volatility of a currency, the money supply, inflation and the list can go on and on. These usually result in a number of regulations and expenses on society, because of which people have always wanted to be somehow independent of these frames set by certain systems. In 2009, the founder(s) of Bitcoin managed to come up with an idea that could give people the freedom they wanted, drastic reduction of fees that people have paid to banks for ages, as well as by making transactions as fast as a few seconds.
Bitcoin was created as a cryptocurrency by an entity, which is recognized as Satoshi Nakamoto.
- In contrast to the centralized traditional systems, such as banking, which is in charge of issuing a certain currency, Bitcoin has a decentralized, peer-to-peer system and anyone including you can be involved in the process of issuing Bitcoins.
- Bitcoin allows two parties to exchange value virtually without any loss of value or having to pay a third party.
- There is no need for centralized control for transactions with Bitcoins and people can exchange goods and services within milliseconds.
What is the difference between Bitcoin and banks?
Bitcoins and banks are fundamentally different from one another.
- Bitcoins, just like commodity money, have a finite supply.
- The supply of the Bitcoins are blocks with complex algorithms, which have to be solved, and when they are – the reward is a certain amount of Bitcoins.
- The process is known as mining and the people who do it are the miners.
- The price of the Bitcoins is usually decided by the supply and the demand of this currency, and it goes up as the algorithms are harder to solve and there are tons of people who want to become a Bitcoin owner.
When someone says banks vs Bitcoins or Bitcoins vs banks, people often associate it with the end of the banking system, however, Bitcoin is a creator of new markets. It is not a threat but an opportunity to the banking system. The application of blockchain into banking system could solve tons of problems for them too and reduce many costs. Here are some of the features of blockchain that banks use and are much better off thanks to those.
- Clearing and settlement.
|Clearing is the update of the accounts of the trading entities along with making arrangement for given transactions and securities.
The settlement is the exchange of money for securities.
These processes cost millions of dollars to the banks.
|Accenture research has shown that even large banks may save several billion thanks to blockchain technology, which will also improve the productivity while clearing and settlement.
The majority of post-trade clearing and settlement will be done by blockchain.
|A number of Central Banks around the world are trying to substitute some segments of their payment system.||For instance, UBS in Switzerland is using “utility settlement coin” to create cryptocurrency, which can be converted into cash deposits at Central Banks.|
|For instance, syndicated loans may take around a month until the transaction is done.||A bright example of a success story, in this case, may be Credit Suisse, which has put a syndicated loan system on a blockchain. The blockchain managed to improve the service lifecycle a lot.|
What is the position of banks to Bitcoin?
By the end of 2017, when Bitcoin prices rose up dramatically, it made some big players worry. Soon, China has forbidden Bitcoins; several huge corporations like JP Morgan and some others talked of Bitcoin negatively, and all of these somehow caused public panic. So, here is what worries some of the banks and governments:
- Bitcoins are anonymous and decentralized.
- There is no need for a third party (e.g. banks) for making transactions.
- There are no extra costs for Bitcoin users.
- As it is more attractive to people, it is becoming a competitor of the current banking system.
- As a competitor, it will decrease the profits banks are generation (e.g. from transaction fees etc.)
- The governments do not like the idea of letting people alone, with no regulations.
However, despite all these fears and fights against the revolutionary cryptocurrency, there are some smart players. Due to realization and acceptance of the tech-revolution, Bitcoin-friendly banks are getting more and more common during the time. For instance, currently, many Bitcoin exchange platforms enable people buying Bitcoin with a bank account as the method of payment. Despite, the rumors and the so-called “stereotype” that Bitcoin and other cryptocurrencies are a threat to banks, as you saw (from the tables above) these two might also have a great collaboration and benefit one another a lot.
Now let us see what some of the biggest banks around the world have to say about Bitcoins.
Bitcoin bank account
When it comes to bank account Bitcoin is working quietly different. Many people often confuse Bitcoin wallets with some kind of bank account. However, these are completely different things. Bitcoin wallets usually come in different forms: hardware, software, and online wallets. Despite their different features, all the wallets allow users to store and exchange Bitcoins. Here are the pros and cons of these wallets:
- Very handy.
- Easy to use.
- The wallets are available all the time.
- The wallets can be hacked as they work online.
- If something happens to the device, the coins will be lost.
Hardware wallets are classified as cold storage wallets:
- The safest wallets.
- These are portable and the users can carry around.
- Not very convenient and accessible.
- May be expensive.
Paper wallets are classified as cold storage wallets. Their main function is providing the user’s private and public keys on a piece of paper.
- Can be easily stolen if you do not keep it in a safe place.
- If the paper is damaged, there will be problems with recovering the Bitcoins.
However, as Bitcoins are getting common there people are starting banks designed for Bitcoins especially. For instance, BitcoinCryptoBank. Here is what they do:
- It is a private company.
- Allows people depositing their Bitcoins.
- It’s open for worldwide investments.
- The experts of the company manage the investments.
- The investments are added to a pool and when the returns are available; the pool is divided and given to the investors.
- The pool option decreases the fees for investment and increases the returns.
Buying Bitcoins with bank transfers
There are a lot of Bitcoin trading websites, which allow users buying Bitcoins with bank transfers. To learn more about that please check this.
To Sum Things Up
Bitcoins have been a hot topic for the last few years for a reason. Their world-changing nature made some people optimistic about future, while others started fearing from the collapse of the current institutions, which may be replaced and become more efficient thanks to Bitcoin-like blockchain technology.
Thank you; make sure you check our website to learn more about the amazing world of cryptocurrencies.