Be Your Own Bank

GFC Mayhem

We need only look at the atrocities of the Global Financial Crisis circa 2008 as a demonstrably abhorrent example of the failure of the banking system to act in accordance with their fiduciary responsibilities. Massive government bail-outs ensued, paid for with tax-payer dollars. Out of all the corruption, greed, and financial mismanagement, only one person went to jail in the US.

Money Laundering

Banks have been subject of numerous investigations into money laundering. See the following articles for just a couple of examples within Australia alone.

Fines

Many financial institutions have been fined for countless reasons, market manipulation being just one example. JP Morgan was fined in 2020 for interfering with the gold market. They were fined $920Million, many estimate however that this fine paled in comparison to what was profited. https://www.reuters.com/article/jp-morgan-spoofing-penalty-idUSKBN26K325. Figure 1 provides some insight into banking fines of some of the worlds largest banks in recent years. These fines are often a small % of what they make in profits from their criminal activities. It is simply crazy to think about.

Figure 1. Bank Fines to 2017. Source: <https://www.dw.com/en/financial-crisis-bank-fines-hit-record-10-years-after-market-collapse/a-40044540>

Bankers and their fees

What about bank fee scandals? A quick google search reveals too many articles to mention where banks have been fined for overcharging customers, charging overdraw fees, charging students and pensioners outside of stipulated terms and conditions, charging fees in error, charging dead people…..the list goes on. Again, they are issued a small fine, “don’t do that again”, a slap on the wrist, and off they go to the next scam.

Too big to fail

“Too big to fail”. This is a term that we have heard many times since 2008. These banks are considered too important to economic stability. They get slaps on the wrist for misbehaving and they get bailed-out by taxpayers when they really f@!* up. Where are the disincentives? Why aren’t these crooks going to jail?

Government guarantees and bail-in

All the above is but a simple illustration of the truly deplorable behavior of the banks, and they seem to get away with it endlessly. But here is where I wanted to focus our attention on for this article, I highlight the above issues to draw attention to just some of the ways that these banks are actually putting your capital at risk. I am talking about your deposits. The currency you swap your time for, the time you spend away from your families, the sweat and the efforts most of us spend 45+ years of our lives for. When we put that currency into the banking system, we are taking all of the risk.

Figure 2. Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018. Source: <https://www.legislation.gov.au/Details/C2018A00010>
Figure 3. Cyprus Bail in — Source: https://citizensparty.org.au/stop-bail-in
Figure 4. New Zealand Bank Bail-in — Source https://www.buybullion.nz/bank-bail-ins/

Bringing it home

It appears that banks can conduct criminal activities, rip-off depositors through fees, collect massive profits, reward their executives with bonuses and find every way possible to screw over the Average Joe; but it appears that it is the Average Joe that takes on all the risk. There must be a substantial reward for all this risk right? Yep, how about a nice big juicy 0.15% on your deposits. What? Say again?

Bearer Assets

Let’s detour briefly and examine “what is a bearer asset?” A bearer assets is an asset that doesn’t have any counter party claim and is considered settled once in possession. A $20 note in your hand is a bearer asset. A gold nugget is a bearer asset. There are no other claims to these assets, they have finality. The asset is yours because it is in your hand and it is final because it represents some value in its ability to be exchanged. Being in the possession of a bearer asset is the most secure form of asset possession, as it can’t be confiscated by indirect methods.

Be your own bank

Bitcoin gives you the power to be your own bank. Bitcoin is decentralised and permissionless. And, Bitcoin is a bearer instrument. When you hold bitcoin, there are no other claims on it. It is final. If I send someone bitcoin, once it is confirmed on the blockchain, it is completely final and I, nor any other 3rd party have any claim to it. The person in possession of the keys to unlock that bitcoin on the ledger are the holders of the bitcoin as a bearer instrument.

Banking the un-banked.

Bitcoin is banking the un-banked. According to a 2017 World Bank Report(Ref 1), 1.7 Billion adults remain un-banked globally, compared with 2billion in 2014. That’s still ¼ of the world population. Financial Technology is opening up access to a basic human right of financial inclusion. Bitcoin and the Lightning Network are opening up completely decentralised and permissionless access to basic banking services, payment rails and the ability for people to transact and store digital bearer instruments with payment finality. These technologies are opening up remittance payments whereby the receiver no longer has to pay a large percentage through the fees of the traditional systems. A $10 fee doesn’t mean much to the western world, but it means a whole lot more if you live off $10 a month.

Capital Flight

Bitcoin empowers people to hold their wealth entirely within their head (not recommended, but nonetheless possible). Never before have people had access to a bearer instrument technology that can be held and carried with you wherever you go and whatever border you cross, totally undetected. Have you ever been overseas and have to tick the declaration that you are not carrying any more than $10,000 in cash? Do you know why that is? Most likely it has to do with capital controls and the risk of capital flight. Governments do not like it when its citizens travel with considerable wealth. Especially if that wealth is likely to end up in other countries. If you packed a suitcase full of gold and tried to cross a border with it, how far do you think you could get? Would you want to let it out of your sight? Or cash for that matter, what would customs say if you had $20,000 in cash in your carry-on luggage?

Central Bank Digital Currencies

Have you heard about Central Bank Digital Currencies? The EU have already said they are close to rolling one out (figure 5), China already has one. China uses social credit scoring to manipulate and coerce its citizens. If you do as you are told, you might get a low interest rate on your home loan, if you don’t, well maybe they just freeze your accounts. Maybe they tell you where and when you can spend your money.

Figure 5. Digital Euro — Source https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html

Conclusion

Bitcoin gives you the power to have finality in transactions and allows you access to a natively digital, completely permissionless bearer asset. No government, bank or institution can stop you spending what you want, when you want and to whomever you want. Bitcoin, when managed appropriately cannot be confiscated. To shut down Bitcoin would be akin to shutting down the entire internet globally, including the satellites broadcasting the blockchain from space. Bitcoin is financial freedom. When push comes to shove, people will choose how they want to transact in this world, it might take some time, but I am convinced people will choose a decentralised and permissionless, open monetary network. Open systems always win. Bitcoin wins in the long run. Maybe you are still not 100% convinced, but ask yourself, what if what I and many others are saying is right? Do you want zero exposure? Start dollar cost averaging into bitcoin, iron out the volatility, get some skin in the game and start your educational journey.

With Great Power Comes Great Responsibility.

Bitcoin allows you to become your own bank. Once you buy bitcoin you have the choice to decide how far you want to go in becoming your own bank. There is a saying in Bitcoin, “Not your keys, not your coins”. If you buy bitcoin on an exchange and you keep your balance on the exchange, you are leaving yourself open to a possible attack of that exchange and the permanent loss of your coins. This cannot be reversed, because it permissionless and censorship resistant, nobody can reverse any transaction. There are a number of bitcoin wallet solutions we will introduce in the coming weeks, but a little time searching the net will show you that a hardware wallet (figure 6) is the most secure way of storing your bitcoin. I highly recommend taking custody of your own coins and your own keys, I personally use Ledger hardware wallets due to their ease of use, flexibility and interface. Always buy your hardware wallets directly from the manufacturer.

Figure 6— Ledger Hardware Wallet. Source: https://www.investopedia.com/best-bitcoin-wallets-5070283
  1. 1. The Unbanked, 2017 Findex Report. The World Bank, viewed 17/07/2021 https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf
  2. https://citizensparty.org.au/media-releases/government-sneaks-through-apra-bail-law-fuels-anti-bank-revolt
  3. https://www.legislation.gov.au/Details/C2018A00010
  4. https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/BankingDeposits/Report
  5. https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html
  6. https://www.imf.org/en/News/Articles/2018/11/13/sp111418-winds-of-change-the-case-for-new-digital-currency

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