Every year Bitcoin continues to grow in stature. Bitcoin is going mainstream in every way — financial value, adoption rates, transaction volume, you name it.
But not everyone’s lucky bitcoin adoption is growing. The banking industry in particular feels threatened by the rise of Bitcoin and continues to wage war against the cryptocurrency.
That banks don’t like bitcoin shouldn’t come as a surprise. Satoshi Nakamoto’s invention is the biggest disruption to the ancient monetary system in decades. As a peer-to-peer network for creating and exchanging value, Bitcoin can render banks useless.
To protect their position, banking institutions have resorted to the classic tool of warfare: propaganda. By spreading misinformation, banks hope to discredit Bitcoin – reduce public acceptance and encourage tighter regulation.
A (Brief) History of Big Finance’s Propaganda War Against Bitcoin
Big Finance must have recognized from the start that Bitcoin could potentially disrupt the banking system. But they chose to believe that its use would be limited to drug dealers, geeks, cypherpunks, libertarians, and other fringe groups.
But as cryptocurrency adoption grew, particularly among institutional investors, panic spread through the banking system. For the first time, the possibility was real that this “magic internet money” could crowd out banks.
Hence, banks launched a coordinated effort to discredit cryptocurrencies. Bitcoin has always been a popular target given its status as the world’s first and most popular cryptocurrency.
In 2014, Jamie Dimon, billionaire president and CEO of JPMorgan Chase, America’s largest bank, declared Bitcoin “a terrible store of value” at the World Economic Forum in Davos, Switzerland. However, that didn’t stop New York State from issuing licenses to bitcoin exchanges the following year.
Dimon continued his criticism of Bitcoin in 2015, saying that the cryptocurrency would never get government approval. In his words, “No government will ever support a virtual currency that crosses borders and doesn’t have the same controls.”
Not satisfied, the head of JPMorgan Chase launched his biggest attack yet on Bitcoin at the 2015 Barclays Global Financial Services Conference. Not only did he call Bitcoin a scam similar to Tulipmania, but he also threatened to fire anyone who traded Bitcoin through his company.
Dimon isn’t the only Big Finance supporter who has tried to undermine Bitcoin. The President of the European Central Bank, Christine Lagarde, has also been critical of Bitcoin in the past.
At a Reuters Next conference, Lagarde branded Bitcoin “a highly speculative asset,” adding that it was used to conduct “some fun deals and some interesting and totally reprehensible money laundering activities.” And that despite the fact that the European Central Bank was considering introducing its digital currency called the Digital Euro.
The ECB has also often volunteered for the anti-Bitcoin propaganda campaign. In his 2021 Financial Stability Review, the top banker compared the Bitcoin price surge to the infamous South Sea bubble. “[Bitcoin’s] The exorbitant carbon footprint and potential use for illegal purposes are a cause for concern,” he added in the report.
The world’s largest financial institutions have also joined the anti-Bitcoin party. For example, the World Bank refused to support El Salvador’s plan to make Bitcoin legal tender, citing the cryptocurrency’s “environmental and transparency deficiencies.” The International Monetary Fund (IMF) also urged the Latin American nation to dump Bitcoin earlier this year.
Of course, there are many, many more cases of legacy institutions spreading doubt and misinformation about Bitcoin. Still, these statements all point to the same conclusion: Banks hate Bitcoin and will stop at nothing to discredit it.
“Bitcoin is bad, blockchain is good”
Some financial players have taken a different tack in their disinformation campaign. This includes criticizing Bitcoin but praising the underlying blockchain technology that powers the system.
Banks see the potential of blockchain technology to revolutionize payments and want to use the technology to their advantage. For example, JPMorgan Chase, the self-confessed Bitcoin critic, created a cryptocurrency called “JPMCoin” to run on its Quorum blockchain.
Central banks have also touted blockchain’s ability to operate central bank digital currencies (CBDCs) — cryptocurrencies issued and backed by governments. Such assets are pegged to a fiat currency like the dollar or euro, much like a stablecoin.
The Bank for International Settlements (BIS) took a look at cryptos in a June 2021 report, describing them as speculative assets used to facilitate money laundering, ransomware attacks, and other financial crimes. “Bitcoin in particular has few properties of public interest, including its wasteful energy consumption,” the report stated.
Ironically, the BIS came out in favor of CBDCs in the same report. Here is an excerpt:
“Central Bank Digital Currencies represent a unique opportunity to design a technologically advanced representation of central bank money that offers the unique characteristics of finality, liquidity and integrity.
Such currencies could form the backbone of a highly efficient new digital payments system, enabling broad access and offering strong data governance and privacy standards based on digital IDs.”
The “bitcoin bad, blockchain good!” line has become the favorite refrain of banks and fintech operators in response to the popularity of bitcoin. As always, this argument misses the point.
Without Bitcoin’s decentralized architecture, blockchain-based payment systems are useless. Legitimate blockchains like Quorum suffer from centralization and single points of failure — issues Nakamoto sought to fix by creating Bitcoin.
The same problems plague CBDCs. As I explained in a recent article, the centralized control of a digital dollar or pound causes the same problems as fiat currencies. Since central banks control every money inflow and outflow, it would be all too easy to carry out financial surveillance, implement unpopular monetary policies and carry out financial discrimination.
A bigger problem with this line of reasoning is that it doesn’t take into account Bitcoin’s greatest strength: the crypto economy. Satoshi’s greatest contribution was a novel combination of economic incentives, game theory, and applied cryptography necessary to keep the system secure and useful when there is no centralized entity. Centralized blockchains with poor incentives are vulnerable to attack like any other legacy system.
Why Are Banks Afraid of Bitcoin?
Traditional banks have long made money by charging users for storing and using their money. The average account holder pays maintenance fees, debit fees, overdraft fees, and a plethora of fees intended to benefit the bank. Meanwhile, the bank is lending out the money in the account, giving users only a fraction of the interest earned.
However, Bitcoin poses a threat to the revenue model of the banking industry. With cryptocurrencies, there are no institutions that help users store, manage, or use their money. The owner retains full control over their bitcoins.
But wait, there’s more.
Better and cheaper transactions
Bitcoin makes it possible to send money instantly to anyone, regardless of the amount or the location of the recipient. And users can do this without having to rely on an intermediary like their local bank.
On average, Bitcoin-backed transactions are faster and cheaper than transactions through banks. Consider how long it takes to process an international transfer and the high fees charged by banks.
Aside from miner fees, people don’t pay anyone to process transactions on the Bitcoin blockchain. And amounts of any size, large or small, can be moved without the usual bureaucratic hassle. Bitcoin processes an irreversible money transfer in less than 10 minutes. Banks just can’t keep up.
store of value
Banks help customers arrange long-term investments in gold, bonds, and other assets to protect the value of their money. And they charge a fee for custody, investment advice, and portfolio management.
But what happens when people find out they don’t have to rely on banks to store value?
Because of its intrinsic properties, Bitcoin is fast becoming a preferred store of value. Bitcoin is scarce (only 21 million units will ever be produced), but also fungible and portable. It’s even better than traditional stores of value like gold.
Since anyone can easily buy Bitcoin and HODL, banks can no longer make money from Schilling wealth management plans. Banks like JPMorgan have adapted by selling bitcoin-based investments like futures — but that won’t save them.
resistance to manipulation
Banks have long survived by manipulating the financial system for private gain. The 2008 financial crisis resulted from underhanded machinations by some of the world’s largest banks, including Lehman Brothers, which later declared bankruptcy.
For example banks always borrow more money than they own, which is known as leverage. Should everyone decide to withdraw their money from the banks, the entire industry would inevitably collapse.
Bitcoin allows people to be their own bank. Money in a bitcoin wallet cannot be manipulated or used by anyone but the holder. For the first time, humans now have the power to control her Money.
Banks cannot kill bitcoin
The intensity of the banking industry’s information war shows how much they fear Bitcoin – and they should. It’s only a matter of time before Bitcoin permeates every financial sector – offshore settlements, escrow, payments, investment and more.
When that happens, banks will be the latest victims of technological disruption. Just as Netflix replaced video rentals and Amazon replaced bookstores, Bitcoin will replace banks. And no amount of doubt and misinformation will undo this.
This is a guest post by Emmanuel Awosika. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.