Illustration for article titled Why the idea of Bitcoin Overseeing the Demise of Banks is not Pragmatic

How society around the globe arrived at using fiat currency as money is still very much controversial.


On one hand, there are those who believe that it won at the marketplace; that the absence of backing from valuable objects like gold and silver made it easy for money to serve trade better.

The other school of thought is that fiat money was forced down the throats of the populace through greed-driven legislations.


Whatever the case, banks are at the center of the changeover. And indeed, the same bankers seem to be the biggest winners out of the money system that has come to be out of it.

The view of, especially the libertarian community, is that the current monetary arrangement around the world provides commercial banks with a loophole to create money, as it were, out of thin air through, among others, fractional lending and sell it to the public at high interests.


Decentralized currencies are designed to take this advantage away from them using cryptography and code.

Commercial banks staking interest

As a matter of fact, Satoshi Nakamoto, the inventor of Bitcoin was partly inspired by the failure of the banking industry, especially the financial meltdown of 2008.


But is Bitcoin really the technology that ushers in the death of the commercial banking? That is not only hypothetical but also highly unlikely.

Of course, Bitcoin is so far doing very well. This is despite it having died 86 times by December 2015. This is according to an obituary website that tracks the number of times the mainstream media has predicted the cryptocurrency’s demise.


A lot of investment is going into startups offering services around it. Interestingly, much of it is coming from major banking institutions such as Santander and JP Morgan. Others like Goldman Sach are experimenting with their own versions of the Blockchain, the decentralized public ledger on which Bitcoin transactions are recorded.

By all accounts, Bitcoin and the Blockchain technology are not going anywhere, at least not any time soon.


But banks are not going anywhere, either.

Centralized points within a decentralized system

That might not sound correct until you start viewing banks, central and commercial, not as gatekeepers but centralized points within a decentralized network. Points that make the flow of value within the network more reliable to its users.


It is important to acknowledge that even if Bitcoin or any other cryptocurrency was to become the dominant form of money around the globe, such nodes will always be there.

Indeed, miners and mining pools in the bitcoin are such nodes. Add to these the exchanges, capital markets, and trading platforms. In fact, all banks will have to do to continue having their doors open in a cryptocurrency dominated economy, is just to reorganize and begin designing products that are relevant to that system.


That is something they have begun doing. They are already researching the Blockchain and forming strategic business alliances that will see them become relevant in the future. A case in point is the just announced Open Ledger Project, a multi-institution endeavor that Linux Foundation is leading to build an open source blockchain network.

Of course, there are issues as to whether what these mainstream banks, commercial institutions and technology companies are building are as innovative as the first blockchain by Satoshi Nakamoto.


Bottom line, however, is that given that banks are adapting albeit slowly to the emerging financial landscape, the idea that cryptocurrencies like Bitcoins will kill banks is not pragmatic. Also, as long as nodes within the financial network are needed their future is assured.

Image by fdecomite via Flickr

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