The global financial crisis of 2007/8 marked a crucial period in transforming the global financial system. Shortly after the economic crisis, a new financial system emerged. That was Bitcoin. Satoshi Nakamoto, the originator of this new system, introduced Bitcoin as an alternative to the traditional banking system. If you are interested in Bitcoin trading, you may also consider knowing about the Bitcoin Buyer
Bitcoin differs from the traditional banking system in various ways. Unlike the former, Bitcoin is a decentralized system with no centralized control. Bitcoin relies on blockchain technology that works differently from the way banks work. Blockchain is a globally distributed digital ledger through which miners validate Bitcoin transactions.
Almost 14 years since Bitcoin launched, it has become a serious challenger to the traditional banking system. Bitcoin usage has continued to grow, with millions of individual and institutional users now using it. Like the conventional banking system, Bitcoin allows users to transact digitally and invest. However, the two systems are not the same.
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Centralized Versus Decentralized Structures
Bitcoin has a different structure from the traditional banking system. The conventional banking system has a straightforward design with banks, fiat money, users, policies, and regulations. For example, to transact, a business must have a bank account through which it will receive payments from customers in terms of fiat money.
The traditional banking system has a centralized structure where the government, often through the central bank and a few financial institutions, bears the most incredible control. That means these entities can influence, interfere with, and disrupt the financial system to affect users. A good example is the bank policies requiring banks to open and close at specific times. When banks close, it becomes difficult for people to access the services.
Bitcoin provides a decentralized financial system. In the decentralized structure, authority and control are shared across all users rather than concentrating on a few players. That means that Bitcoin transactions are not subject to government intervention or the regulations of banks or other entities.
Regulation
Bitcoin also differs from the traditional banking system in terms of regulation. Bitcoin is primarily deregulated, unlike the conventional banking system. The decentralized nature of Bitcoin eliminates the government and other financial regulators. It makes Bitcoin transactions largely unregulated. For example, there is no limitation on the amount of Bitcoin to transact.
In traditional banking, many regulations apply. These range from rules on who qualifies to open a bank account to how much money one can transfer. However, most regulations tend to protect consumers in the traditional banking system. However, this protection comes at a cost regarding privacy and freedom.
Convenience
There are points of diversion between Bitcoin and traditional banking regarding convenience. From a financial transaction perspective, Bitcoin provides more comfort than conventional banks. That’s due to the removal of centralized control, giving users more control over their money and reducing transaction costs.
Banks, credit card companies, and other financial intermediaries make transactions cost more in the traditional banking system. They charge fees for processing transactions. Bitcoin eliminates these intermediaries and the costs. That makes Bitcoin transactions cost much lower than transactions in the traditional banking system.
Bitcoin transactions are also faster than transactions in the traditional banking system. Bitcoin transactions typically take a few minutes to complete. In the conventional banking system, transactions can take days or even weeks. That’s also due to blockchain technology involving many validators and no intermediaries.
Final Thought
Bitcoin is an alternative to the traditional banking system. It challenges the centralized and regulated nature of the latter and provides greater conveniences in financial transactions. However, rather than be a threat to the traditional banking system, Bitcoin is increasingly becoming integrated into this conventional system.
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- Source: https://www.fintechnews.org/bitcoin-vs-traditional-banking-a-comparison/
