There has been a lot of debate raging between Blockchain vs Banks. The difference between the two is that banks operate a physical asset whereas digital assets such as bitcoins are an abstract digital asset. However, in the future only one of these asset types may matter more.
It has been estimated that banks hold over 2 trillion dollars in virtual assets. This is due to the fact that most banks do not lend their money directly to consumers, they borrow it and invest in things such as commercial real estate. A bank is a company that lends its money. It turns around and sells the asset and then re-loans the money it took out. Banks operate this way because they do not want to be in business for themselves but rather they want to make a profit for what they have already done.
Therefore, the value of their assets is tied to the value of the currencies they issue.
If they issued the currency for whatever its worth, but sold it for significantly less than its actual value, they would go out of business. Therefore, banks must base their value claims on something that is tangible. Asset values will always fluctuate so the banks must make their asset values constant. The only way to do this is through a process of mathematical algorithms.
However, when you factor in the cost of banking and the potential profit of their activity, you see that banks could be raking in billions of dollars by issuing more currency than they actually need to. This is known as “deflation”. They are not able to make up for the devaluation of their currency by printing more. This causes the economy to lose its base of operations which slows it down. If the economy were to go into freefall, then the Bank of America would be in deep trouble as they are the largest bank in the USA.
The problem with the deflation is that it causes the value of all economic resources to decline.
If this happens there will be nothing left to pay for the debts of these giant banks. This is why the cryptocoin revolution needs to take place. A digital asset such as the cryptocoin will act as a “back-up” to keep the economy going. In the case of the Bank of America, if they had issued a lot of currency, they may have created a lot of “paper wealth”, but if everyone else had followed them and stopped purchasing Bank of America paper assets, then the value of their currency would have been driven down to zero.
There are a few other benefits that the cryptocoin can provide. One of the biggest problems with banks is that they use their valuable IT systems to control everything. It would be nice to take that control and put it in the hands of individuals. With the digital asset, the banks would have to spend their time managing it instead of concentrating on banking. Also, when the system is managed by individuals it will lower the risk of errors and fraud, which are a huge deterrent for banks.