Battle of the Titans (Bitcoin VS Banks )

Bank of America recently joined other world banks in the move to ban its customers from buying bitcoin with a credit card. Bitcoin was initially introduced to the world in 2009 but had only just begun to gain momentum at the end of 2016. It is a digital payment and cryptocurrency system that works on a distributed and decentralized basis, with no central intermediary to carry out transactions.

Traditional banking

The traditional banking system works with ‘Fiat’ Currency, and the reserve currency in Canada is the Canadian Dollar. Because the fiat currencies can be printed at will or when needed, the supply is not necessarily ‘fixed’ or ‘capped’. Due to the ease at which traditional money is printed, it can slowly lose its value over time. The banks have legal obligations to their customers and have the ability to reverse transactions in the event of fraudulent activities among other things. The traditional banking system allows for reasonable reliability for digital transactions, although the amount of time for clearing can be long — most notably for wire payments.

Other important highlights for the traditional banking system include:

· An already established and trusted financial system

· Debit and credit cards are accepted nearly everywhere

· Use of physical cash does not require electricity or a wireless network connection

The birth of competition

Bitcoin is a relatively new technology. It was the first and still most important digital currency, Created after the financial crash of 2008 by a person or entity known as Satoshi Nakamoto. Bitcoin was a response to the manipulation of the banking system and the need for a decentralized banking system. Bitcoin is tamper-proof and uses a peer-to-peer network to prevent double-spending. With no central authority, Bitcoin is completely decentralized and eliminates the need for a middleman.

Traditional banks are known to charge high fees for transferring funds between countries, while Bitcoin and other cryptocurrencies can do it for a fraction of the cost at lightning speed (not quite but close). Bitcoin will potentially change commerce as we know it. It’s regarded as a significant advancement in financial technology and has the ability to put more power in the hands of citizens.

Attempts to regain control

It has been argued that many banks fear that the instability that cryptocurrency brings with it will result in people losing their wealth and, as a result, both banks and governments are simply trying to look out for people’s safety and well-being. However, there is no denying the obvious threat that cryptocurrencies pose on many banks. Think about it, if everyone can safely trade bitcoins with no extra charges or pricey interest rates, who would want to keep their money in a bank?

Many people consider cryptocurrency to be a lot safer than traditional banking and they feel like they can get more out of their investments than if they banked with a local institution. Some countries in Africa have previously dealt with corrupt institutions that looted the bulk of their citizens’ money leaving them with very little and no reasonable explanation as to what happened. As such, there is a lack of trust between banks in countries like Zimbabwe and their clients. When you present bitcoin and other cryptocurrencies to such countries, you get situations where people are more than willing to invest in an unstable digital asset than their own local banks.

Many financial institutions are aware that they are losing control and they’ve made it clear that banning the trade of cryptocurrency is an attempt to regain some of that control. For the most part, banks have been against the concept of cryptocurrency. Ironically, Bitcoin brought the blockchain technology to banks’ radar, which provides a frictionless experience to send and receive money globally. Banks continue to blame on money laundering and higher volatility to play down the use and legitimacy of Bitcoin and other cryptocurrencies. Some financial institutions go as far as not approving mortgage loans for customers who’ve realized gains by investing in Bitcoin. Others have banned the purchase of cryptocurrencies with credit cards1.

Conclusion

The traditional banking system and digital currencies are both here to stay for the foreseeable future. Both systems will co-exist, however, the global financial system has the obvious potential for a revolution in how it operates due to the creation of Bitcoin and the blockchain technology.

Reference

1- Forbes -“Banks Bannking Cryptocurrency Purchase On Credit Cards, Why?” by Naeem Aslam. Available at https://www.forbes.com/sites/naeemaslam/2018/02/05/banks-banning-cryptocurrency-purchase-on-credit-cards-why/#56743f183cf9