*This is the Continuation of Bitcoin versus Banks Part I *
As discussed in the previous article, there are a lot of reasons why an ordinary consumer is unsatisfied with the banks and the way they function. Some of them include Cost of transactions, Bureaucratic Regulations, Human Errors, Payment delays, etc. Now in this article, let’s see how these problems can be solved by the new cryptocurrency system and first-ever crypto, the Bitcoin.
Cost of transactions
Banks charge high transaction costs along with a lot of extra charges just to make one transaction. These transaction charges depend on the amount of money you are willing to transfer. They range from 1% to 5% depending on the banks you are willing to transact with. But with Bitcoins and other cryptocurrencies, these transaction charges are incredibly minute that you don’t even realize they are levied on you. For instance, to transfer $99 million through a bank transfer, you are supposed to pay $1 million to $5 million as a transaction fee, depending on the bank. But to do the exact same transaction through any cryptocurrency network, the transaction fee would be less than 10 dollars. Hence, the problem of high transaction fees can be easily solved by Cryptos and Bitcoins.
As we know, banks impose a lot of regulations on your money, and they decide when you can withdraw it. They are also supposed to notify the IRS or FBI about the personal transactions you have done if they are exceeding the limit they have set.
With respect to this, Bitcoin and other cryptos provide a lot of other alternatives. When you are using Bitcoin, your money is completely in your control. You don’t need any permission from your bank to withdraw the money you have earned and saved. There are no limitations on the amount of money you want to transfer.
You can transfer any amount of money, at any time, to anyone you want to, without any restrictions and regulations. There is no centralized authority to inform the IRS or FBI about your personal transactions. Hence, Bitcoins solves this problem of Bureaucratic Regulations.
Bank wire transfers usually take anywhere from one to five business days for a transaction to get processed completely. This depends on where you are sending money to. But in the case of Bitcoins and other cryptocurrencies, transactions are executed immediately, and funds transfers are done almost instantly. This is possible, only because the Bitcoin platform is decentralized and the fundamentals on which these cryptos are built, which is known as Blockchain.
It is almost impossible for the transaction to go wrong when you are transacting in Bitcoins. This is because unlike banks, there is no human intervention or manual data entry for the error to occur. As the Bitcoin addresses are really long, no one prefers entering them manually. So they just copy-paste the address, which also helps in eliminating the human error. And with respect to backend procedures, there is no room for error as the technology can never go wrong.
So by now, we know that this alternative currency system has a definite competitive advantage over the traditional banking system. However, like every system, cryptos and Bitcoins have their own disadvantages.
Cons of Bitcoin
Bitcoins and other cryptos have significant advantages over conventional banking methods. While they have a strong potential for growth in the future, they are still in their very early stages. There is a lot more this alternative currency stream has to do in order to compete and overtake the entire banking sector.
Things like investment banking, insurance underwriting, private wealth management, credit facilities, loans, and mortgages are essential for the economy, and none of the cryptocurrencies, including Bitcoins, provide any of these. But it is definitely possible.
With the superfast growing of technology, Blockchain will only get better with time. There are hundreds of cryptos in the market, solving different real-world problems. So we don’t have to be surprised if there is new crypto in the market tomorrow, which solves all of these problems.
Can Bitcoins replace Central Banks?
The simple answer is ‘no’ as of today and ‘maybe’ with regard to the future. Central Banks have strong foundations as they have been in existence from almost six centuries. These banks helped governments in stabilizing their economies and funded wars in their initial stages. The British then redefined the term central bank and granted them powers to issue their own currencies. Central Banks stabilize economies in times of war and crisis. Also, around the world play a lot of roles like maintaining stables prices, ensuring the safety of the nation’s banking and financial system, maintaining full employment, etc.
Currently, central banks are extremely powerful and have a long history and monopoly power. So they won’t give up easily without an intense fight. While Bitcoin and other virtual currencies have created considerable interest, the number of people adopting to them is very minimal. It is obvious that the support from the government is almost zero. Unless governments believe and label Bitcoin as a currency with real-time value, Bitcoin has no hope of replacing central banks.
But all the central banks across the globe are very observant on what Bitcoin is doing. As we know that metal coins which are minted in the mints are expensive to manufacture and most of the times the cost to make one coin is more expensive than its actual face value, it won’t be a surprise if central banks adopt to the blockchain technology and issue their own digital currency.
‘Ripple’ is one of those cryptocurrencies which are backed by central banks. So the bottom line is, Bitcoins or any other cryptos probably won’t replace banks. But, they may play a supportive role in making the banking processes more cheaper, transparent, faster, and way more convenient.