The Financial Crypto System vs The Banking systems: A Detailed Comparison and Futuristic Outlook
Cryptocurrencies are superior to today’s nation-state currency and fractional reserve banking systems. Here are four reasons why.
- Lower costs: Crypto transactions cost much lesser than bank transfers do.
- Convenience: You can transact directly using cryptocurrencies. This cuts out credit card companies and bank intermediaries.
- A fixed supply of cryptocurrencies
- Cryptosystems align better with human values (read on to discover how).
The cryptocurrency system is purely digital technology. On the other hand, traditional banking and payments use analog technology that can’t be upgraded- the whole architecture is outdated 1970s technology patched together.
In simple words, if crypto were to represent your smartphone, the banking system is irrefutably then like a blackberry or a former mobile innovation. Worse, using the bank payment system in this scenario is nothing more than using a past rotary dial fixed line phone.
What Derails the Adoption of Crypto?
The hugest obstacle to cryptocurrencies is access to today’s real economy. Entities that prevent this access are commercial banks and their enablers. If a crypto bank emerges this year and links cryptocurrencies to the economy though, there will be an exponential increase in adoption.
Fractional Reserve Banking is Risky Because:
1. The current banking system’s fractional reserve is innately dishonest. Bankers will convince you that your money is safe with them, and at the same time, it is being lent to others. You’ll be made to believe that the money is strictly yours, while it legally belongs to the bank, and the bank can do whatever they intend to do with it.
2. Banks create their own “money” that has current purchasing power and lend it to borrowers. However, the value of this money is totally dependent on future cash flows and if these cash flows fail to materialize, an economic crisis is caused by recursive money destruction. This means that the bank may lack sufficient reserves to give depositors their money back.
Satoshi Nakamoto in the year 2009 created a money system that responds to how people exchanged value in the past. Technologically, this system was created on the basis of a mathematical formula, and a straight to forward verification and record system. The system’s implications are remarkable: Today, you can trust exchanging value with an institution or person you don’t know directly.
When it comes to value, the cryptosystem is exceedingly natural, and a very human invention that’s based on freedom and fairness. This is the most authentic form of money that people have ever had since the value is based on memory. This is characterized by:
• The present value of money – the value of cryptocurrencies is not tied to any required future value creation. Its value exists today.
• Zero middlemen – Cryptocurrency can be instantaneously exchanged between two parties directly without the need for middlemen, and hence a meager exchange cost.
Cryptocurrencies can be better described as honest money. The money system not only focuses on exchanging value, but also exchanges our values. The combination of human values and value merged with the potential that the cryptosystem unlocks for humans is hard to overstate.
What is the Future of Cryptocurrency?
Over the next decade, fractional banking reserve will decline, as the cryptosystem expands. An inflection point where rates for both rapidly accelerates will be reached, and the cryptosystem will be offering higher returns for depositors and fewer risks increasingly.
The fractional reserve banking has a structure that resembles an inverted house of cards. This means that even a slight change in “g”, the growth number used in valuing future cash flows can have a vast impact on the bank’s calculation of asset values. In simple words, the moment enough deposits have been pulled out from the bottom, the house will collapse.
Here’s the Reason Why Bankers and Speak Ill About Crypto
The cryptocurrency system is a huge threat to nation-state currency and the financial reserve banking system. This is because the cryptosystem is purely based on a transparent record of truth that’s recorded forever in a giant paper, and on the present value. So, asking a bank enabler like Warren Buffet or Jamie Dimon what their sentiments are about banking is like asking a taxi driver what he/she feels about ridesharing companies like Uber.
What is the Way Forward?
Only one of these two systems can survive in the long haul. They can’t co-exist or agree as their values totally contradict each other. Expect crypto to outdo banks with time, and bankers and their enablers to continue relentlessly attacking cryptos.