Is Bitcoin the Future of Banking?

Many believe that the recent unrest in the banking industry is the cause Bitcoin‘s (BTC -0.15%) last jump and why it passed $28,000 for the first time in nine months. Although it may come as a surprise, serving as an alternative to banks is one of the main reasons why Bitcoin was invented. Back in 2009, its pseudonymous creator Satoshi Nakamoto unveiled Bitcoin to the world as a response to the massive bailouts banks received following the fallout of the Great Recession.

To Nakamoto, it probably comes as no surprise that Bitcoin is benefiting from the banking chaos of early 2023. Its sole purpose was to give people another way to store and send money that didn’t rely on the highly opaque and sometimes shady. the operation of the banks.

A new design to compete with banks

To fully understand why Bitcoin is beneficial and how it can become a more viable option in the future, we need to examine the characteristics that make it unique.

1. Decentralization

Because Bitcoin operates on a decentralized network, no single entity, such as a government or financial institution, can control it. This high level of decentralization gives users more freedom, autonomy and resistance to censorship or manipulation.

2. Financial inclusion

While residents of developed economies have easy access to banking products, people in other parts of the world do not always have this luxury. With Bitcoin, all you need is an internet connection, and you can send money, pay remittances and store value without needing a bank.

3. Transparent security

Since Bitcoin operates on a blockchain, all transactions are public and immutable, so they can never be changed or removed. This combination of transparency and security makes transactions on the Bitcoin blockchain easy to verify and trace. As such, the risk of fraud and corruption becomes almost non-existent.

4. Privacy

Although Bitcoin transactions are public, there is an added level of privacy because transactions are not linked to any personal information. The only information associated with transactions is public addresses which are in the form of a random, unique combination of letters and numbers. Theoretically, someone can trace all transactions coming from an address, but the likelihood of actually knowing who is behind them remains difficult.

5. Programmable money

Thanks to a 2021 update known as Taproot, Bitcoin was able to support smart contract functionality. With smart contracts, various financial processes can be automated and streamlined as they perform pre-defined actions when certain criteria are met. This inevitably leads to increased efficiency and new business models.

Although we can only guess, it would be easy to assume that Bitcoin does exactly what Nakamoto intended. Banks are not as secure as advertised and are often involved in corruption and malpractice. And when they fail, they are bailed out while the citizens bear the brunt of the fallout. As people begin to realize this, Bitcoin will likely continue to gain attention from those looking for a way out of the status quo.

A necessary disclaimer

I’ll be the first to admit that the premise of Bitcoin replacing banks is still a bit far-fetched at the moment. Critics of Bitcoin almost always point to the fact that it can never serve as an alternative to traditional banking while volatility remains so high and deposits in banks are insured up to $250,000 by the US government.

However, these price fluctuations are likely to be a temporary phenomenon. Volatility is a characteristic of assets with little market value. As Bitcoin’s overall value begins to grow, volatility is likely to decrease.

But for now, it seems that Nakamoto’s vision may be unfolding before our eyes, as more people become aware that banks are not completely free of risk and often use customer funds for speculative activities. Should more turbulence hit the banking sector, Bitcoin may just keep climbing.