We live in a world where most of us store our wealth in digitized (or soon to be digitized) assets like money in the bank, mutual funds, stocks or real estate. You probably have a financial advisor guiding you through your investments, a manager from your bank who helps you stay on top of your mortgage payments and a government that prints money responsibly to not devalue your lifetime of savings.

But what is the guarantee that the bank manager or your financial advisor has your best interests at heart instead of their own fee and commissions? Your contract explicitly states that they are not responsible for your loss even as they verbally assure you otherwise.

How do you know that the digital assets won’t be hacked or stolen or even taken by fraud?

Governments fall all the time, or change their monetary policies — and your currency today can literally have no value tomorrow. Take, for example, the recent case in Venezuela.

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As of October 2018, Venezuela’s annual inflation rates have crossed 60,324%. This can be attributed to corruption and a collapsing oil industry in the country. The new economic policies brought up by the government haven’t contributed to much, and the inflation rate continues to be on the rise.

How do you know that this will not happen to your country sometime in the future? Every government is one bad leader away from this.

To find out solutions to these issues, we have to dive into the details of how banking evolved.

A Brief on the Evolution of Banking

As early as the 2nd century BC, people who could save money started lending them out to people who could borrow and pay back with interest. Banking as an industry thrived in Italy and grew with the expansion of the Roman Empire.

During the 20th century, developments in telecommunication and computing caused major changes to the way banks operate letting banks dramatically increase in size and geographic spread. Traditional banks started investigating methods of delivering limited online services with the purpose of reducing operating costs.

This led to a lot of online services being made instantaneous. Although this improved transaction speeds and costs, it opened up many vulnerabilities such as hacks, thefts and fraudulent transactions. This is mainly since banks had still retained their basic model of physical transactions. Large amounts of documentation and paperwork were still deemed necessary to rectify and protect transactions. Adding to this, the lack of transparency remained.

Fast forward to 2007, and the banks’ recklessness caused the financial crisis of 2007–2008 forcing the failure of many banks, including some of the world’s largest banks.

The taxpayer bailed out the biggest banks, thus, giving them the status of “Too Big To Fail.” This label gives them the fallback that no matter how irresponsible they are, the citizens of the nation will pay for them to thrive.

The government let the banks live by infusing 1.2 trillion dollars of the taxpayer’s money into a handful of banks and in turn, created the need, wave of innovation and a community for blockchain and the concept of decentralization to thrive.

The Internet of Money

In 2009, something incredible happened, Satoshi Nakamoto released his white paper which removed the need for a centralized authority to facilitate transactions in a purely peer to peer and decentralized fashion and making truly beneficial for every user holding the currency. Bitcoin is the first system of money that isn’t controlled by a centralized entity. It was the first most popular application of blockchain technology.

The highlight of this technology was to create a system operated on ‘trust’ without the need for a centralized authority. Bitcoin, having been built on this framework, removed the need for a centralized bank for the provision of financial services. The framework shed light on the fact that while financial services are necessary, financial institutions aren’t.

Although the technology provides the necessary means to change how banks and financial institutions are run, it is still nascent and very complex for people to actually use. We are still in the early stages of blockchain.

Another major issue is the volatility of the space. The sudden rise and fall in the price of bitcoin and other cryptocurrencies has lured away many potential investors as well as firms from investing in this space. This, in turn, affects adoption, making it difficult for two parties to accept payments and transactions.

The potential of this system to remove the need for banks and governing bodies has made it difficult for bitcoin to overcome regulatory hurdles. Many governments and banks don’t want to let go of the control of funds and, in turn — power.

How do we solve for this?

The way we solve for this is to ensure that there’s a system that works without the need for every entity or person to accept Bitcoin today.

Bank of Hodlers is trying to find a middle ground between the vision of Bitcoin, and the actual prevailing situation of regulatory hurdles, low network effects in blockchain solutions, etc. The goal is to facilitate mass usage of financial services, enabled (and made better) by the Blockchain technology in a decentralized manner wherever possible.

We plan on achieving this by offering crypto-backed financial services that will eliminate inefficiencies and the lack of transparency which comes with central authorities.