Bitcoin vs. banks: advantages and differences
When Bitcoin emerged in a white paper published under the pseudonym Satoshi Nakamoto back in 2008, it only garnered few initial supports from a small group of enthusiasts. Nevertheless, things have changed significantly in recent years: the "blockchain" technology has been making waves across markets and industries, and Bitcoin nowadays plays a pivotal role in global financial markets. How does it measure up against traditional banks? Does it offer greater effectiveness and credibility?
In this article, we'll explore the fundamental differences between Bitcoin and Banks, delving into Bitcoin's advantages as a payment medium and bringing you a clear understanding.
Decentralization vs. Centralization
As we all know, Bitcoin is a kind of digital cryptocurrency. It operates on a completely decentralized peer-to-peer network, and there is no central authority controlling it. This means that when you trade with Bitcoin, you hold full autonomy and control over your funds without relying on other intermediaries, which offer greater credibility for your financial transactions. At the same time, Bitcoin's system does not require users to disclose their personal information. Though everyone can view Bitcoin addresses in the explorer, they don't know who actually owns the address.
In contrast, traditional banks are centralized. They act as intermediaries between parties in transactions and require users to provide personal information in order to perform audits and validations. In cross-border transactions, there might even be censorship of the nature of transaction, which leads to a prolonged period of financial transfer. Besides, there is also an opinion that banks' access to transaction details may raise privacy issues.
Transparency & Security
With Bitcoin's cryptography and distributed ledger technology, all the transaction information is publicly verified and recorded by blockchain nodes. To fraudulently modify pending transactions or the nodes of past transactions, one would need to take control of the majority (over 51%) of the computing power, which is extremely difficult to make happen. In other words, compromising one or a few nodes would not compromise the network. Thus, it ensures a high-security environment and also makes the trade history completely transparent and traceable, no matter how much time passes.
When it comes to banks, the inner workings are not always transparent, and users are not always fully aware of how their money is managed and how it is used for investments or loans. Actually, they have no choice but to trust that the banking rules and mechanisms will not lead to errors and that every single counterparty involved operates properly. However, the current banking system has evolved over decades to become as stable as it is now, and so far, the stability backed by governmental regulations and supervision can still ensure the security of personal property.
Efficiency & Cost
Unlike fiat currencies, Bitcoin has no territorial boundaries. This eliminates the complicated currency conversion process and validation procedures among multinational financial institutions. Besides, Bitcoin's trading system is continuously running 24/7 as there are miners packing transactions every moment of the day. In most cases, a Bitcoin transaction only takes a few minutes to complete when the network is not congested. Also, the Bitcoin transaction fee is generally not too high, as it does not correlate with the amount of the transaction, but with the demand for block space and network congestion. As of Sep. 5, 2023, the average Bitcoin transaction fee is 0.000054 BTC, or $1.402 in US dollars.
In the case of traditional banking systems, though they strive to operate 24/7, most of them still fail to meet the expectations. Plus time differences, compliance, transfer routes and other factors, an international transfer via traditional banks may take several business days or more to complete. And according to the information disclosed by Western Union, there will be outgoing/incoming transfer fees and intermediary fees when users perform an international operation; hence the cost may range from tens to hundreds of dollars, which is substantially higher than that of Bitcoin's transaction.
Global accessibility is another key advantage of Bitcoin. Opening a Bitcoin wallet is relatively easy and can be done online by anyone with internet access. There are no stringent requirements, identification checks, or credit checks. Quite the opposite, traditional banks are not that accessible to everyone. Masses of people are excluded from traditional financial services due to a variety of barriers, like the lack of reliable local banking infrastructure, the inability to maintain the minimum deposit required for an account, or the inability to provide a valid ID to register as a customer.
According to statistics from the World Bank in 2022, an average of only 45% of Latin American adults don't have an account at a financial institution, meaning 207 million people don't have bank accounts in LATAM. Meanwhile, there are many people in Latin America highly dependent on remittances from expatriates for their livelihoods. Under these circumstances, Bitcoin will just be the perfect solution for unbanked people because it allows them to quickly send and receive funds across borders in a way better than banks'.
Bitcoin vs. banks is one of the big questions that digital economy enthusiasts ask themselves. The truth is that both have their advantages and disadvantages, so your choice should be focused on what you need at that moment for your life.
Cryptocurrencies have the advantage of being much more transparent than banks, plus it is a world for everyone due to its great accessibility. But, most importantly, cryptocurrencies are an excellent tool to diversify your investments and access a new world for you.