With Bitcoin,
"You Are The Bank"

Relevant to other Blockchain-based cryptocurrencies

Links Updated: 7 May 2018

First Published: 6 February 2017

In many references to cryptocurrencies such as Bitcoin, "You are the bank," will be commonly found.

This table attempts to put that statement into context.

But at end of the day, you still must make up your own mind about it.

References to gold and silver here are with respect to you being in physical possession of it. Otherwise, you are trading in promissory notes with belief in a specific institution to still be there when you wish to redeem that note.

BTC Gold & Local Foreign   Chequing Savings Stocks Bonds SWIFT
  (Ƀ) Silver Currency Currency   Account Account (NYSE)    
When in possession of it, you control it Yes Yes Yes Yes            
May be used for short-term spending Yes   Yes     Yes        
May be used for long-term holding Yes Yes   Yes   Yes Yes Yes Yes  
Easily moved across jurisdictions/borders Yes Yes Yes Yes            
May transact person-to-person Yes Yes Yes Yes            
May transact via broker/exchange/institution Yes Yes Yes Yes            
Must transact via broker/exchange/institution           Yes Yes Yes Yes Yes
Value fluctuates at whim of central bank     Yes Yes   Yes Yes     N/A
Vulnerable to inflation & hyper-inflation     Yes Yes   Yes Yes Yes Yes N/A
Vulnerable to deflation Yes Yes Yes Yes   Yes Yes Yes Yes N/A
Vulnerable to Cypress-style bank "bail-in"             {1}     N/A
Hard limit on maximum possible quantity 21M Yes               N/A
Subject to business hours of institution           Yes Yes Yes Yes Yes
Institution assumes physical risk           Yes Yes Yes Yes Yes
You assume all risk Yes Yes Yes Yes            
You are the bank / You are your own bank Yes Yes                
Incurs transaction/handling fees Yes Yes   Yes   Yes Yes Yes Yes Yes
Fees are generally considered very high   Yes {2} Yes       Yes Yes Yes
Fees are generally considered negligible Yes                  
  BTC Gold & Local Foreign   Chequing Savings Stocks Bonds SWIFT
  (Ƀ) Silver Currency Currency   Account Account (NYSE)    
Transactions are immediate Yes Yes Yes Yes            
Transactions must be local & direct   Yes Yes Yes   Yes        
Transactions may cross national borders Yes                 Yes
Transactions may occur via ATM Yes   Yes     Yes        
Transactions may be reversed/repealed           Yes Yes Yes    
Transactions are anonymous Yes Yes Yes Yes            
Transactions are public record Yes             {3}   {4}
Public record is anonymous Yes                  
Public record is decentralized Yes                  
Prevents double-spending Yes Yes Yes Yes   Yes Yes Yes Yes Yes
Requires an intermediary for transactions           Yes Yes Yes Yes Yes
Involves an intermediary for confirming Yes             Yes Yes Yes
Institution legally owns your deposits           Yes Yes Yes Yes Yes
Institution may refuse you service           Yes Yes Yes Yes Yes
May have password, PIN, 2FA, etc. Yes         Yes Yes Yes Yes  
May exist only as digital bits Yes   Yes Yes   Yes Yes Yes Yes Yes
May exist only as paper, strictly offline Yes   Yes Yes       Yes Yes  
May exist only as physical material   Yes                
May co-exist as both digital bits and paper {5}                  
Naming a beneficiary is important Yes Yes Yes Yes   Yes Yes Yes Yes N/A
Maintaining a back-up/copy is important Yes N/A N/A N/A   Yes Yes Yes Yes N/A
Best to use a clean & secure computer Yes N/A N/A N/A   Yes Yes Yes Yes N/A
If you lose the codes, you lose funds Yes                  
Codes may be memorized, no physical trace Yes                  
Accommodates multiple signatures for approval {6}         Yes Yes      
  BTC Gold & Local Foreign   Chequing Savings Stocks Bonds SWIFT
  (Ƀ) Silver Currency Currency   Account Account (NYSE)    

The conventional abbreviation for Bitcoin is BTC and its equivalent to the dollar sign is: Ƀ

When comparing to currencies such as dollar, the abbreviation BTX is proposed such as BTXUSD for Bitcoin to US Dollar exchange rates. However, BTCUSD is more common. Likewise for Canadian Dollar: BTXCAD and BTCCAD, respectively.

"Unless It's In Your Hand, It's Not Really Yours"

Intentionally omitted from the comparison table above are so-called “paper gold” and cryptocurrency exchanges.

The same reasons apply to both: when you hold only a certificate or note rather than the actual asset directly, you are not the actual owner— they are. While a certificate or note are legal instruments that entitle the bearer to certain rights, until those entitlements have been fully executed, you are not yet in actual possession of the asset.

That is, holding a certificate or note is only a promise that may be redeemed at later date.

While most facilities are legitimate, some in the past were proven to have oversubscribed the same asset several times. Since most investors are merely speculating and holding for a short time, the odds of all such certificates or notes being redeemed or called at the same time was a gamble by unscrupulous agents to have been unlikely. Even when audited by a reputable third party, catching this either requires extreme diligence on part of the accountants or dumb luck. This has happened to precious metals like gold (e.g., Germany’s gold in 2012), securities (e.g., MF Global in 2011) and cryptocurrencies (e.g., Mt.Gox in 2010).

Again, unless you hold an asset directly, you are not the owner— the agent is the official owner. Except for Direct Registration, this is how your stock brokerage accounts work (“Street Name Registration” and “Book Entry”), and most of the time, it’s perfectly fine. For purposes here, review the column in table above for “Stocks (NYSE)”. (NYSE is New York Stock Exchange, yet this also applies to exchanges such as: Nasdaq, Toronto, London, Tokyo, etc. See also an explanation involving Cede & Co.)

Back to Bitcoin and cryptocurrencies: if you use an exchange, they actually own your cryptos— not you.

While there is a convenience like being able to spend via debit card, just “don’t put all your eggs in one basket”.

Footnotes

  1. As of November 2014 OECD Meeting at G20 Summit, all member nations have legislation allowing failing banks to "bail-in" from customer deposits, as already happened with Cypress in 2013. List of nations includes all of North America, Oceania, European Union and Switzerland.
  2. Merchants depositing cash into their own bank accounts commonly pay 10-20% "handling" fees.
  3. For CEO or other C-level corporate officer or anyone with sufficiently large holdings in a company traded on a stock exchange, their transactions are publicly disclosed.
  4. SWIFT transactions should be understood as non-confidential yet inaccessible to the average person.
  5. Other than back-up purposes, there is a "watch-only wallet" allowing easy receive yet requires extra step to spend; e.g., Electrum.org
  6. Only some wallet apps support multiple signature authorization; e.g., Copay.io wallet from Bitpay.co

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