Bitcoin banking - a better monetary system

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The promise of Bitcoin is not to get rid of banks, it is to offer people an alternative so that banks and the monetary system can be improved.

The current monetary system has two major flaws - people must use banks for payments and governments can print money. Both of these flaws erode trust in the system. A Bitcoin-based banking system would solve these problems with competitive decentralization.  

It is not difficult to imagine what a Bitcoin-based banking system would look like. All that is required is for banks to issue Bitcoin-denominated deposits. Banks would issue deposit accounts just as they do with fiat currencies and they would settle among themselves on the Bitcoin blockchain.  

(Note:  Bitcoin is used here to stand for a decentralized digital currency. It could be Bitcoin. It could be DASH, Litecoin, Stellar Lumens or another Global Currency competitor. It could be a coin that does not yet exist. It could be multiple coins.)

Below are a few thoughts on such a system:

User friendly payments:  Payments in Bitcoin-denominated accounts would be made over the same bank-based networks that currently carry dollars, such as the Visa network. Transaction speeds and consumer friendly features, such as charge backs, would be the same as they are with dollar-based payments. When people refer to Bitcoin as an inferior currency because of slow transaction speeds or high costs, they are confusing Bitcoin as a currency and Bitcoin as a payment method.  Bitcoin the currency can be transferred in exactly the same way as the dollar once it issued in the form of a bank deposit.  

Lower fees and better service:  People would have the choice to pay with Bitcoin directly on the Bitcoin network or with a Bitcoin-denominated account on a bank-based network. This competition would reduce fees and increase the quality of all services, including that of the banks, the bank-based payment networks and Bitcoin itself.    

Prudential money supply:  Supply of Bitcoin would be managed by creditworthy governments through traditional banking levers, such as the required level of Bitcoin reserves backing Bitcoin deposit accounts. Non-creditworthy governments would not have this option and would not be able to print money, which would force fiscal restraint. It is likely that the amount of base money as a percentage of M2 would be higher for Bitcoin than with the fiat currencies because more people would choose to hold their money outside of banks.  

Global growth and integration:  Since banks throughout the world would offer accounts in Bitcoin, Bitcoin would become a truly global currency.  Foreign exchange risks and transaction costs would be eliminated.  

Privacy regulation: Absent government regulation, transactions made outside of banks and directly on the Bitcoin blockchain would be private, similar to transactions made in cash. As mentioned above, the proportion of non-bank transactions would likely be much higher in a Bitcoin-banking world because of the relative ease of using Bitcoin versus cash. The people in each country would need to decide to what degree they want to give up the privacy of their payments to protect against bad actors. It is likely that some form of compromise would be reached to balance these competing interests while allowing for non-bank payments.      

Opportunity:  The first banks and countries to adopt Bitcoin-based banking could take significant market share from banks and countries that are slower to move to Bitcoin.  

The invention of Bitcoin cannot be undone. This amazing technology has created a finite commodity that is weightless, infinitely divisible and can be transferred in a trustless manner.  If gold had these characteristics, we might have never ended up with the flawed banking system that we have today. Now that this precious commodity exists, banking will certainly change.  The questions are how, where and when.  

It is common today for bankers to focus on blockchain as the technology that will change their industry, while dismissing Bitcoin.  This is a major oversight. 

Blockchain technology will undoubtedly improve record keeping and most financial instruments will eventually be tokenized. However, it is the decentralized currency that blockchain enables that will most fundamentally transform the global monetary system for the better.  

The world now needs brave bankers to stick their necks out and embrace Bitcoin. We'd be happy to help.  

Author:  Shane Hadden

About the Global Currency Group:  The Global Currency Group promotes the adoption of a decentralized global currency through investments, advisory services, new currency creation and advocacy.  

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