What’s happening now in cryptocurrency is that some major governments and banks are taken aback at how popular some of these Internet currencies have been over the last 6 months, and it scares them.
They run what is known as a “fractional reserve banking” system, and peer to peer online currencies like Bitcoin are an existential threat to everything they do.
How does your bank make money?
Well, you give them a deposit and with that deposit, many times over the initial amount you gave them, they re-loan it and “fractionalize” it across various investments, loans, and gambles.
If you and all other customers – or even many customers – were to simultaneously demand your deposit back, the bank would be simply unable to service that demand, as the money has been loaned in the form of various long-term commitments.
Normally, there’s no need for the public to withdraw all or most of their money at once, as they know their bank is FDIC insured and as the bank takes reasonable precautions to protect their balance.
Yet, if a product emerges – apples, tulips, rocketships, or peer to peer online currency software – that seems to be producing short term returns for millions of holders of cash, it is not unreasonable that consumers would withdraw… needing and wanting access to all of their purchasing power at once, to try out this new system or product, whatever it is.
Coinbase is just one cryptocurrency exchange of many reputable ones, and yet it already has 10 million customers and supports access to crypto in 32 countries around the world. The company claims the equivalent of more than $50 billion in crypto has been exchanged on its platform.
Blockchain.info, another popular cryptocurrency service working with Bitcoin and now Ether also, reportedly has users in 140 countries and now boasts 22 million total wallets on its platform.
And those are, again, simply two English language cryptocurrency services out of many others around the world – not to mention the remaining large Asian exchanges.
Cryptocurrency – this emergent product set and community – is an existential threat to not only “fractional reserve banking,” but to the idea of a bank account itself!
Again, Blockchain.info services users in 140 countries. 22 million wallets. A wallet allows users to send, receive, or store online currencies 24/7. No bank holidays. Minimal fees. Settlement times between users in the minutes typically, rather than days.
For many young, Internet savvy workers and consumers around the world, this very well could be the “email account” to the archaic “post office” they’ve always known and used beforehand.
So no, it doesn’t bother me that low-level bank employees sneer at cryptocurrency, especially when their higher-level colleagues appear to be buying. It doesn’t bother me that government bureaucrats around the world have threatened to cut off their citizens’ access to cryptocurrency, as aside from China, the actual damage to the global ecosystem appears very minimal. And it’s so hard to stomp out P2P value sharing, which is what cryptocurrency amounts to. In fact, some have argued it is impossible to eliminate it.
An Indian bureaucrat’s opinions have little impact on the tastes of a Norwegian or American or Canadian Bitcoin buyer thousands of miles away – which is the beauty of crypto, in my view.
Most important of all at the moment, these networks do not appear to be dying. More than 867,000 transactions yesterday on the Ethereum network (https://www.etherchain.org/charts/transactionsPerDay), still not far from last month’s all time high of around 1.3 million transactions in a day.
Did Napster go away the first time music executives condemned it? Did Bittorrent go away with a few lawsuits? Has porn gone away with all the outcry of various moral groups and organizations over the years?
The Internet is resilient, and cryptocurrency is its first truly native product. Even email is to a large extent reliant on “email service providers” who host and maintain your inbox on a server somewhere. Crypto – if need be – could be entirely P2P. You boot up your Bitcoin or Ether wallet, send some Bitcoin to a roommate or landlord to pay your rent, and they receive it into their wallet without involving any third party or traditional financial institution whatsoever.
Regulated institutions like Coinbase are a luxury in the ecosystem, not a necessity.
And as most millennials don’t own any stocks directly and view the entire traditional financial system as a thinly veiled con, I still think they are very open to experimenting wholeheartedly with new systems and ideas about money, especially systems that work natively with the Internet – the place so many millennials truly identify with.
As that population ages, they are likely to experiment MORE with peer to peer currency systems at the edges, rather than LESS. And I see no reason why they would become more faithful to the traditional systems in the future.
Although nothing here should be construed as financial advice, I am not worried. Crypto has a bright future of some kind – party on, currency revolutions are fun and necessary from time to time.
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