Bitcoin, Blockchain and Banks...

Bitcoin vs. Blockchain

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document time stamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.

The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points. As discussed above, this could be in the form of transactions, votes in an election, product inventories, state identifications, deeds to homes, and much more. 

Currently, tens of thousands of projects are looking to implement blockchains in a variety of ways to help society other than just recording transactions—for example, as a way to vote securely in democratic elections. The nature of blockchain’s immutability means that fraudulent voting would become far more difficult to occur. 

For example, a voting system could work such that each citizen of a country would be issued a single cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters would send their token or crypto to the address of whichever candidate for whom they wish to vote. The transparent and traceable nature of blockchain would eliminate both the need for human vote counting and the ability of bad actors to tamper with physical ballots.

Blockchain vs. Banks

Blockchains have been heralded as being a disruptive force to the finance sector, and especially with the functions of payments and banking. However, banks and decentralized blockchains are vastly different.

What distinguishes the Bitcoin system from the traditional banking system?

There is one major factor at the heart of every transaction system: trust. You need to know that you will receive the money if you agree to sell a thing in exchange for funds. Is the customer in a position to pay? Is it possible for him to cancel the payment once it has been initiated? Let’s compare cash and credit card transactions to Bitcoin transactions.

Anonymity

Ethereum and Litecoin are two additional coins that provide anonymity.

Traditional fiat currencies include the Euro, Pounds, and US Dollar. A single entity controls traditional currencies. It implies that the system is overseen by a central authority figure, like a bank or a government entity.

On the other hand, Bitcoin is a decentralized cryptocurrency with a peer-to-peer network. No central authority or banks operate as regulators when it comes to Bitcoin transactions. It is crucial to note that traditional currencies are subject to stringent bank and government regulations.

Transaction costs and flexibility

Traditional monetary and banking systems are usually only operational during specific hours and on particular days of the week. Transactions are restricted, and you must rely on a bank to complete transactions.

An international transaction can take weeks to complete, and there is a significant chance you will be charged a hefty transaction fee as well.

Making a national transaction in a typical banking system will take 2-3 working days and substantial transaction costs. The transaction charge for foreign transactions will be much more significant, and the transaction will take 15 days to complete.

There is no transaction charge for conducting a national trade with a cryptocurrency system like Bitcoins. As a Bitcoin system operates 24 hours a day, the transaction will also occur in seconds or within 24 hours. A minor transaction fee in comparison, will be charged when making an international transaction.

On the other hand, it is possible to complete Bitcoin transactions 24/7. You will not need to depend on a bank to conduct cryptocurrency transactions. Some Bitcoin exchange sites may provide a lower transaction fee, but you will not be charged any transaction fees at all in most situations. Because of the low prices and rapid transactions, many people are interested in investing in Bitcoin. Bitcoin has also been dubbed the “future of money” due to these factors.

There is a possibility that cryptocurrencies and the banking system may merge in the future, imposing laws and restrictions. However, when such a merger occurs, the process will drive the existing banking sector to adopt blockchain technology. Despite the regular swings in the Bitcoin system, many people want to invest in Bitcoins because of the speed and low transaction costs. Citizens may exchange Bitcoins for any currency, which saves both time and money. Many developing countries are preparing to implement blockchain technology in their businesses. El Salvador already has adopted Bitcoin as legal tender. Panama are rumoured to be closely following this as the next country to adopt Bitcoin.

Fraudulent Activity

If you want to use traditional fiat currencies, you may be asked to provide personal information such as your full name, residence, phone number, and other sensitive information. This makes it simple for hackers and scammers to access your bank accounts using that information.

Double spending is another issue that fiat currencies and the modern financial system can face. This occurs when a user makes many transactions with the same amount of money. This is due to the inefficient and slow financial system.

Every transaction in the Bitcoin network, on the other hand, is recorded as a block in the blockchain network, which is a vast public ledger. The data that will be made public will not be at all personal. Any government authority does not supervise the transactions that are added to the blockchain. It is a network that is fully decentralized. As an alternative to fiat, Bitcoin due to these factors would be hard to carry out illicit activities without getting caught. This is a recent article posted on Coinmarketcap demonstrates how.

On the other hand, Bitcoin is far more secure. The transactions have been made public, which implies that they are transparent. The parties engaged in each trade can keep their identities hidden. You will be able to keep all of your Bitcoin funds in a digital wallet, and no trader will be able to access it without the private access key or password.

Traders’ Opportunities

The high volatile nature of Bitcoin and other cryptocurrencies is well-known. Investors and traders are constantly looking for ways to profit from the crypto market’s volatility by buying the instrument when the price is low and selling later when the price rises. This is comparable to the Foreign Exchange market, where traders profit by exchanging different fiat currencies.

However, the crypto market has attracted a large number of investors and dealers. They believe there are more opportunities here. With the help of automated trading robots, even those with minimal expertise and knowledge of the crypto market may trade profitably. If you want to start a Bitcoin trading journey, there are a few things you should know.

As we have seen, traditional fiat currencies have many issues that Bitcoin can help us solve. Bitcoin is a lot easier to use as a payment mechanism over the internet. The flexibility of Bitcoin and its growth potential have attracted a large number of investors and traders. Bitcoin could become the worldwide currency of our globe soon if it continues to expand.

What are the benefits of Bitcoin over the traditional banking system?

While some of the Bitcoin system’s potential benefits, such as anonymity, transparency, and independence from governments and central banks, appear ideological, Bitcoin offers practical efficiency and trust benefits.

The ability of cryptography to run and operate without a single point of failure that hackers may exploit would be the primary benefit. Another advantage is that most cryptos are built on a peer-to-peer settlement system and are fully operational every time, including holidays and weekends.

Businesses and individuals that operate in locations where government bodies control banks and financial institutions would benefit significantly from the financial freedom and independence that cryptocurrencies provide.

We may also suggest that utilizing and trading crypto increases customers’ financial understanding because they access and control their assets. Once the private key is gone, no one will refund any transactions or retrieve user accounts.

Intermediaries are reduced

When sending Bitcoins to another party, only your wallet and the Bitcoin network are required as intermediaries for the money to be effectively transferred. Because nodes and miners are only minor components of the network, adding or removing them has little effect on how it works. On the other hand, the card payment system necessitates a minimum of four intermediaries, and often more in practice.

Improved Efficiency

As a distributed system, the Bitcoin protocol allows all system components to access and verify all pending and past transactions simultaneously, resulting in time efficiency. And no mistakes may happen along the way; as long as you input the correct address when initiating the transaction, the cash will arrive at its intended location. Not only does the traditional payment system include additional intermediaries, but it also multiplies the number of back-and-forth communication exchanges that must occur in order. It takes time, and mistakes might happen along the road.

Single Point of Failure and Distributed Trust

However, Bitcoin’s main advantage is how it handles transaction trust and removes single points of failure. With the old system, you must trust that the rules and mechanisms will not cause problems and that each counterparty will perform as expected. If one counterparty in the chain is compromised in some way, the entire chain is affected.

The collection of rules and systems that underpin Bitcoin make fraud, manipulation, and mistakes impossible. Anyone in the world can access and review Bitcoin software because it is open source. No security fault has ever been discovered in Bitcoin’s ten-year history. No one has yet found a means to alter a signed transaction or the blockchain.

Furthermore, because there is no single point of failure, the beauty of a distributed system is that you do not have to trust any of its components. No one would not jeopardize the network if one or a few nodes were compromised. To change ongoing transactions or the blockchain of previous transactions fraudulently, one would need to control the majority of the network’s CPU power. Your digital wallet, which contains your private keys, is ultimately where the risk rests.

Users with access to your private keys can spend the funds in your wallet. This is why offline wallets, sometimes known as “cold storage,” are routinely used to protect against hacking. However, your transaction is secure from the time it is signed. There are no single points of failure, and you do not have to put your faith in anyone.

What are the advantages of decentralized technology for the banking system?

Given the unique characteristics of decentralized systems, it is only natural that the banking industry will be at the forefront of decentralized technology adoption.

The government and the big players created banking institutions to bring people together and make all trade and business easier. On the other hand, a blockchain is a tool that can perform the same thing on a global scale. In addition, it is secure and transparent.

Blockchain has enough potential to revolutionize the way people do business all across the world. It can improve trade efficiency by automating and streamlining manual and paper-based operations. A public blockchain can be an excellent cooperation tool because it is decentralized and uncontrollable by a single person.

Decentralized and Centralized Transactions

Banking is one of the most sensitive and vulnerable sectors of the financial sector when it comes to cyber-attacks. Because of the enormous quantities of money housed in its databases, several banks worldwide have reported severe cyber threats in recent years, including direct attacks on centralized systems that resulted in billions of dollars in damages.

As a result, governments have issued strict instructions, and major institutions have begun to look into ways to leverage advanced decentralized asset solutions such as blockchain. The real benefit of Bitcoin transactions is that they do not have a single point of failure.

Most cryptocurrencies use a peer-to-peer settlement method and are available 24 hours a day, seven days a week, including holidays and weekends. When compared to banks, the prices are lower, there is no need for an intermediary, the service is available and operating 24 hours a day, seven days a week, and the supply is fixed. Cryptography also better aligns with ideological ideals.

Decentralized transactions have disadvantages over centralized transactions

Payments are not reversible, which is the fundamental disadvantage of Bitcoin transactions over bank transactions. And while there is no way to retrieve a wallet that has been misplaced, any bank account can be recovered using specific procedures and recommendations. Another disadvantage is that Bitcoin values do not remain consistent in the global market; they fluctuate every second. Websites adoption and institutional investment is growing in this market

I hope you have enjoyed reading this article and look forward to hearing from you.