Blockchains have been heralded as being a disruptive force to the finance sector, and especially with the functions of payments and banking. However, banks and decentralized blockchains are vastly different.
To see how a bank differs from blockchain, let’s compare the banking system to Bitcoin’s implementation of blockchain.
Blockchain vs. Banks
|Hours open||Typical brick-and-mortar banks are open from 9:00 am to 5:00 pm on weekdays. Some banks are open on weekends but with limited hours. All banks are closed on banking holidays.||No set hours; open 24/7, 365 days a year.|
|Transaction Fees||•Card payments: This fee varies based on the card and is not paid by the user directly. Fees are paid to the payment processors by stores and are usually charged per transaction. The effect of this fee can sometimes make the cost of goods and services rise. •Checks: can cost between $1 and $30 depending on your bank. •ACH: ACH transfers can cost up to $3 when sending to external accounts. •Wire: Outgoing domestic wire transfers can cost as much as $25. Outgoing international wire transfers can cost as much as $45.||Bitcoin has variable transaction fees determined by miners and users. This fee can range between $0 and $50 but users have the ability to determine how much of a fee they are willing to pay. This creates an open marketplace where if the user sets their fee too low their transaction may not be processed.|
|Transaction Speed||•Card payments: 24-48 hours •Checks: 24-72 hours to clear •ACH: 24-48 hours •Wire: Within 24 hours unless international *Bank transfers are typically not processed on weekends or bank holidays||Bitcoin transactions can take as little as 15 minutes and as much as over an hour depending on network congestion.|
|Know Your Customer Rules||Bank accounts and other banking products require “Know Your Customer” (KYC) procedures. This means it is legally required for banks to record a customer’s identification prior to opening an account.||Anyone or anything can participate in Bitcoin’s network with no identification. In theory, even an entity equipped with artificial intelligence could participate.|
|Ease of Transfers||Government-issued identification, a bank account, and a mobile phone are the minimum requirements for digital transfers.||An internet connection and a mobile phone are the minimum requirements.|
|Privacy||Bank account information is stored on the bank’s private servers and held by the client. Bank account privacy is limited to how secure the bank’s servers are and how well the individual user secures their own information. If the bank’s servers were to be compromised then the individual’s account would be as well.||Bitcoin can be as private as the user wishes. All Bitcoin is traceable but it is impossible to establish who has ownership of Bitcoin if it was purchased anonymously. If Bitcoin is purchased on a KYC exchange then the Bitcoin is directly tied to the holder of the KYC exchange account.|
|Security||Assuming the client practices solid internet security measures like using secure passwords and two-factor authentication, a bank account’s information is only as secure as the bank’s server that contains client account information.||The larger the Bitcoin network grows the more secure it gets. The level of security a Bitcoin holder has with their own Bitcoin is entirely up to them. For this reason it is recommended that people use cold storage for larger quantities of Bitcoin or any amount that is intended to be held for a long period of time.|
|Approved Transactions||Banks reserve the right to deny transactions for a variety of reasons. Banks also reserve the right to freeze accounts. If your bank notices purchases in unusual locations or for unusual items they can be denied.||The Bitcoin network itself does not dictate how Bitcoin is used in any shape or form. Users can transact Bitcoin how they see fit but should also adhere to the guidelines of their country or region.|
|Account Seizures||Due to KYC laws, governments can easily track people’s banks accounts and seize the assets within them for a variety of reasons.||If Bitcoin is used anonymously governments would have a hard time tracking it down to seize it.|