Bitcoin is a threat to the established banking system. If Bitcoin were to become the main medium of exchange, banks could lose their position as intermediaries. They would therefore lose their ability to extract an income from and their influence over the financial activities of the population.

If people start to hold on to their own money rather than depositing it in banks, then banks no longer have the leverage to run fractional reserves and to create money out of nothing. They would also lose their oversight of the population through their power to grant or deny loans.

Here are 10 steps they can follow to avert this situation.

1: Infiltrate positions of power in the industry

Aim especially to gain influence or control over discussion groups, media publications, development teams and the mining industry.

2: Work to get the industry fighting with itself

Use divide-and-conquer tactics. Emphasize all philosophical differences and attribute these to one of two camps. Encourage each side to demonize the other, especially by attacking the leaders of each camp. The immediate benefit from this step is to slow down progress in Bitcoin development, which will buy time for further infiltration.

3: Resist usability improvements on peer-to-peer Bitcoin clients

Also, help to spread awareness of this poor usability. As developers, try to shift focus away from UX projects and towards alternatives; or simply develop awkward and confusing user interfaces. As journalists and discussion group participants, highlight and emphasize all of the complexities and difficulties of using Bitcoin, and demonstrate terrible results that can happen from easy-to-make mistakes. These tasks will help instil a belief in the general public that Bitcoin is too difficult, too confusing, too dangerous and that their only hope is to rely on intermediaries (like banks). Simultaneously, work to improve usability of all centralized Bitcoin services such as web wallets; the Bitcoin banks of the future.

4: Promote high transaction fees .

Stress the benefits; such as greater hashing power as the block subsidy drops, lower blockchain bloat, etc. Belittle or ignore the disadvantages. High fees will directly discourage all peer-to-peer transactions and instead will incentivize people to store their bitcoins in web wallets. These web wallets can conduct transfers between customer accounts without incurring transaction fees, thus saving their customers money.

5: Promote second layer payment systems

Again, stress the benefits such as instant transactions, better privacy, and higher transactions per second throughput. Belittle or ignore the disadvantages. Second layers can be touted as a benefit for "micro-transactions" or simply "scaling" to avoid explicitly saying it is a solution to reduce high fees, given that aggregate high fees must be presented as a good thing. Nevertheless, it should be stressed that once second layer solutions are installed, that peer-to-peer transactions will be faster, cheaper and more private. This should help encourage the whole industry to fight for the synergistic benefit of high fees with second layers, to deliver the best security, least bloat, fastest and cheapest transactions and better privacy.

6: Praise web wallets that integrate with the second layer

Once second layer systems have been developed, work first to get this built into centralized Bitcoin service companies. Praise these companies as forward looking and helping to reduce fees, blockchain bloat, and looking out for their customers' privacy.

7: Promote Bitcoin to the general population

Once peer-to-peer wallets have started to integrate with the second layer, promote Bitcoin heavily to the general population. Extol the benefits of decentralization and censorship resistance, but always direct the public to centralized services, such as web wallets, as their starting point.

8: Recommend web wallets as reasonable alternatives to avoid high fees

With the influx of new users, base layer transaction fees will rise. As they rise to the point where even opening a payment channel for a second layer account is prohibitively expensive, continue to promote the benefits of higher fees and belittle the downsides. Argue that anyone who cannot afford their own peer-to-peer account should just use one of the many centralized payment services / web wallets. Emphasize that there are a great number of such services, all spread across the world in different jurisdictions, and that therefore decentralization and censorship resistance is still provided for to a large degree.

9: Promote web wallets above peer-to-peer options

Once a significant proportion of the general population has an account on one of these centralized payment services, start to promote their benefits above and beyond peer-to-peer wallets. Point out that for all practical purposes these services are cheaper, faster, more secure, easier to use and more familiar. Bring into doubt the motives of anyone who is determined to use peer-to-peer tools instead of “normal” payment services.

10: Begin banking practices

Encourage centralized payment systems to apply for relevant banking licenses and finally start up banking practices, such as holding fractional reserves and extending loans. At this point, these services are now genuine bitcoin banks. From their income from extending loans, they can offer deposit accounts for free, or may even pay interest on them. They can then further integrate with the existing financial system, start to offer a similar range of products and services, and once again profit from and direct the financial activities of the general population.

Why is the second layer a boon for bitcoin banks?

It is worth stressing that second layer payment systems are enormously beneficial to these emerging banks. Before second layers exist, Bitcoin banks have an advantage over normal users for processing transactions. They can merely shift balances between customer accounts, which does not involve a mining fee. However, the bank still needs to pay a fee when sending a payment to someone who does not have an account at the bank.

When a second layer is introduced, however, banks will be able to make very low fee payments to anyone connected to the second layer; not just their own customers. Especially once the majority of people are set up with a compatible bitcoin bank account, a closed system will emerge where payment channels between banks/hubs will almost never need to be opened/reopened. Banks also have an enormous pool of liquid funds available which they can use to create highly capitalized payment channels that can stay open for longer.

In contrast, an individual user trying to make arbitrary payments would struggle to balance their incoming and outgoing money on their channels and would need to reopen channels far more frequently; meaning that the relative mining expense would be far higher for them than for a bank. This is of course if the end user is happy to pay the up front cost to open a channel in the first place, which again would be a dramatically more significant cost to them than it would be for a bank.

Conclusion

Long story short, almost everyone will end up using a bitcoin bank and we will be back to square one.