It's 2022, there has been a steady stream of financial crises around the world in recent years - Greece and Euroland, China, Russia, Argentina, Venezuela, Peru. The Anglo-saxon countries are stable but continue to inflate their debts away causing increasing dissent.



Every year increasing numbers of people have become disillusioned with bankers and governments and have sought ways of using bitcoin for savings, at first it was a trickle, but that trickle became a flood. However, managing private keys is something most don't want to deal with, instead most people take an easier option and trust a third party despite the protestations of the bitcoin old guard. Following some large frauds in 2020 governments extended banking regulations to bitcoin accounts, many operations shut down, but many more were sold to a handful of big players controlled by the traditional banks. Today I received an email from my traditional bank, it says they have a new type of account for depositing bitcoins - wow, how far we've come. The regulations demand that accounts must have deposit protection and since bitcoin can't be created at will a fund has been set up to cover the cost of frauds, essentially a banking insurance fund.



So in summation, the traditional banking system is now the largest holder of bitcoins and is operating a fractional reserve system on top of them. The irony is startling to the bitcoin old guard, but, alas, all of this was arguably highly predictable.



Most day-to-day bitcoin transactions are performed off-chain which takes a lot of stress off the blockchain. Nevertheless, demand for space on the blockchain is high, hence the transaction fees per kilobyte are significant but not beyond the reach of individuals for larger payments, say of $1000+, but small 'cup of coffee' transactions are out of the question. The blockchain limit was lifted gradually and is now controlled purely by the economics of supply and demand, i.e. adding bytes to a block has cost to a miner, but you can always tempt them into adding your tx to a block by exceeding that cost with your tx fee. Specialist hardware emerged around blockchain processing, validation, etc. which massively reduced computing delays, so the costs are mostly around network bandwidth and mining time lost to receiving the last block.



Miners are profitable enough to have built fat data pipes into their operations, some have taken on high speed fibre vacated by high frequency trader firms following new regulations that made most of them unprofitable. Some miners have been forced to seek out and even fund the construction of, large renewable energy projects due to tensions with local governments about CO2 emission obligations and climate change. Some governments have even provided subsidies to miners to prevent them from moving away, due to concerns about losses to their economy and loss of bitcoin income.



The existence of a growing bitcoin based fractional reserve banking system is the source of many a heated debate in various bitcoin forums, the 'hard core' bitcoiners all manage their own private keys of course, the high tx costs are an issue but not massively so for those using bitcoin primarily as a store of wealth.



The bitcoin ecosystem currently represents a relatively small portion of global transactions and wealth storage, but it is growing fast. Most think bitcoin will exist alongside the traditional systems for the foreseeable future rather than replacing them. TV didn't kill the radio or the cinema, ebooks didn't kill paper books, etc. Like many of those previous new technologies, it appears that bitcoin is adding to an increasingly complex set of choices rather than replacing them. Tags: bitcoin