With countries like Vietnam, China recently placing ban on Bitcoin and other forms of virtual cryptocurrencies with South Korea being the latest to crackdown on Bitcoin, we know not every financial institution is happy with the massive adoption of cryptocurrency. Infact the banks for once has never liked these virtual currency and here is why.
Bitcoin and other decentralised cryptocurrencies allow people to trade directly with each other, cutting out the need for a middleman which, in traditional commerce, is a bank.
Banks generally charge fees for doing anything with money, even just holding on to it. That’s because the banks have created a level of trust that transactions pass smoothly and everything is recorded and accounted for correctly.
But as the financial crisis of 2008 proved, banks are not above abusing trust to line their own pockets.
The key to its success is something called the blockchain. The blockchain is a means of solving the double-spending problem: which is that because the currency is digital it is open to being copied and spent more than once – something banks stop with physical currency.
However, the blockchain acts as a digital ledger, whereby every single transaction (called a block) is securely linked together using cryptography and encryption. It’s verifiable, available to everyone who owns Bitcoin and is immune to fraud and hacking – unlike centralised banks.
It enables one digital wallet (that can be stored on a phone) to directly connect with another securely and process a transaction.
As such, it removes the need for any kind of traditional bank or regulator.
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