Why the Bitcoin Wallet App Is Better than Modern Banking
There have been numerous reports from centralized banking institutions about cryptocurrencies, indicating how worried they are about people’s ability to simply download a bitcoin wallet app and be free from interference. Indeed, the financial industry seems to be getting very concerned about this.
Why the Bitcoin Wallet App is Changing the World
Cryptocurrencies are all kept on what is known as the “block chain”. This public ledger lists all the transactions that have taken place. It is important to record exchanges in order for the system to function as a whole. But this requires trust as well, as people have to known that the recordings are accurate. The block chain is decentralized, however, as anybody can access it and anybody can use it, regardless of the terms and conditions of a country or financial institution.
Why Does This Matter?
When money has been decentralized, nobody has to rely on the financial infrastructure anymore. It also means that, if something goes wrong, not everybody will be affected. Remember the 2007 crisis? This showed the three key dangers of centralized systems:
Since 2008, there are 504 bank failures as a result of insolvency. In 2010 alone, there were 157. While this shouldn’t jeopardize the savings of an account holder, because other financial institutions come in an absorb it, it can lead to short term access issues. Most of all, it leads to loss of trust, meaning people take their money elsewhere.
Indeed, even if a bank doesn’t fail, there can still be a significant impact on savers. For instance, Lloyd and RBS customers in the United Kingdom were once locked out of their accounts for several weeks as a result of an operational IT failure. This mean that they couldn’t access any of their savings. It turned out that this was because the IT system was around four decades old and was no longer capable of supporting modern needs. Decentralized systems never have to face these types of difficulties, as they can simply scale up and down.
Then, there is the issue of liquidity. In 2001, for instance, banks in Argentina suddenly froze their accounts. They put various capital controls in place to solve their debt crisis. In 2012, banks in Spain had to change their terms and conditions to stop people from withdrawing more than a certain amount. And in Cyprus, customer accounts were frozen completely for a short period of time, and people contributed 10% of their savings to pay the National Debt. What these things did to consumer trust were horrendous. People have started to keep their money in a sock under their mattress again! If a bank can, from one moment to the next, simply take away the money you have worked hard for, then why give them that opportunity?
With a decentralized network, no government, financial institution, or bank can suddenly change the terms and conditions of their offerings. They cannot suddenly charge more, allow less, or make other such changes. That is the way it should be.