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Banking vs Bitcoin

Banking vs Bitcoin

One sector that will go through a massive transformation is banking. It is worth taking a closer look at what could happen in this space under a Bbitcoin standard.

It would be fair to argue that banking will be reduced to what it was under the gold standard. Banking is simply a dignified form of money lending, the banker having the advantage that the money which he lends is not his own but other peoples’. It has been deposited with him for the sake of interest that he pays on it. The banker’s business is to lend this money out again at higher rates of interest than he pays for it, pocketing the difference as a reward.

Banks perform an important and significant role in society. It is through their agency that capital is transferred from those who cannot or will not employ it in industry, to those who can. In this way, a banker increases not the total amount of capital in existence, but the total amount available for production. This is an important service for which the bank deserves to be paid.

Under a bitcoin standard, the income and value of banks will be largely reduced to whatever the market will be willing to pay for the above-mentioned service. Note that under the gold standard, the public paid a fee to the bank for the “safekeeping” of their capital. Because it is safer for an individual to secure her bitcoin herself rather than entrust it to a third party, banks — or whoever will perform the capital distribution function — will have to incentivise depositors in order to obtain their bitcoin deposits

Who knows what novel capital distribution methods the free market will come up with when innovators are allowed to innovate in this space?

Whatever happens, in the long run, banking stocks will inevitably lose value in real terms as the space they are practising in with their regulation-laden oligarchies becomes smaller. Some banks may innovate and thrive — the free market might even allow for some form of fractional reserve bitcoin banking if the risk appetite exists. But under the bitcoin standard, there will not be free money being handed out to the connected few.