Every year, Bitcoin continues to gain momentum. Bitcoin is going mainstream on every metric – financial value, adoption rate, transaction volume, etc.
But the happy adoption of bitcoin by everyone is not growing. In particular, the banking sector feels threatened by the rise of bitcoin and continues to wage war on cryptocurrency.
That banks dislike bitcoin should come as no surprise. Satoshi Nakamoto’s invention is the biggest disruption to the secular monetary system in decades. As a peer-to-peer network for creating and exchanging value, Bitcoin can make banks redundant.
To protect their position, the banking institutions have resorted to the classic tool of war: propaganda. By spreading misinformation, the banks hope to discredit Bitcoin, reducing public adoption and encouraging stricter regulation.
A (Brief) History of Big Finance’s Propaganda War Against Bitcoin
Early on, Big Finance must have realized that Bitcoin could potentially disrupt the banking system. But they chose to believe that its use would remain restricted to drug dealers, computer geeks, cypherpunks, libertarians, and other fringe elements.
But as cryptocurrency adoption grew, especially among institutional investors, panic spread through the banking system. For the first time, the possibility that this “magic internet money” could displace the banks was real.
So the banks launched a coordinated effort to discredit cryptocurrencies. Bitcoin was and is a favorite target, given its status as the world’s first and most popular cryptocurrency.
In 2014, Jamie Dimon, billionaire chairman and CEO of JPMorgan Chase, America’s largest bank, called Bitcoin “a terrible store of value” at the World Economic Forum in Davos, Switzerland. However, that didn’t stop New York State from licensing bitcoin exchanges the following year.
Dimon continued his criticism of bitcoin in 2015, saying the cryptocurrency would never receive approval from governments. In his own words, “No government will ever support a virtual currency that bypasses borders and doesn’t have the same controls.”
Not satisfied, the JPMorgan Chase supremo launched his biggest attack on Bitcoin yet at the 2015 Barclays Global Financial Services Conference. Not only did he call Bitcoin a fraud similar to Tulipmania, but he also threatened to fire anyone. who traded Bitcoin through his company.
Dimon isn’t the only Big Finance stalwart to attempt to undermine Bitcoin. European Central Bank President Christine Lagarde has also criticized Bitcoin in the past.
At a Reuters Next conference, Lagarde called bitcoin a “highly speculative asset,” adding that it has been used to conduct “amusing business and interesting and totally reprehensible money laundering activities.” This was even when the European Central Bank was planning to launch its digital currency called the Digital Euro at the time.
The ECB, too, has often lent itself to the anti-Bitcoin propaganda campaign. In his 2021 Financial Stability Review, the Supreme Banker compared bitcoin price surges to the infamous South Sea bubble. “[Bitcoin’s] the exorbitant carbon footprint and potential use for illicit purposes are cause for concern,” he added in the report.
Even the biggest financial institutions in the world have also joined in the anti-Bitcoin party. For example, the World Bank declined to support El Salvador’s plan to adopt bitcoin as legal tender, citing the cryptocurrency’s “environmental and transparency shortcomings.” The International Monetary Fund (IMF) also urged the Latin American nation to ditch Bitcoin early this year.
Of course, there are many, many more cases of old-school institutions casting doubt and spreading misinformation about Bitcoin. Nevertheless, these statements all point to the same conclusion: banks hate Bitcoin and will stop at nothing to discredit it.
“Bitcoin is bad, blockchain is good”
Some financial players have taken another turn in their disinformation campaign. This involves criticizing Bitcoin but praising the underlying blockchain technology that powers the system.
Banks see the potential of blockchain technology to revolutionize payments and want to co-opt the technology to their advantage. For example, JPMorgan Chase, the avowed critic of Bitcoin, created a cryptocurrency called “JPMCoin” running on its Quorum blockchain.
Central banks have also touted the ability of blockchain to power central bank digital currencies (CBDCs) – cryptocurrencies issued and backed by governments. These assets are pegged to a fiat currency, such as the dollar or euro, much like a stablecoin.
The Bank for International Settlements (BIS) ripped cryptos in a June 2021 report, describing them as speculative assets used to facilitate money laundering, ransomware attacks, and other financial crimes. “Bitcoin, in particular, has few redeeming public good attributes when also considering its wasteful energy footprint,” the report said.
Ironically, the BIS made the case for CBDCs in the same report. Here is an exerpt :
“Central bank digital currencies represent a unique opportunity to design a technologically advanced representation of central bank money that offers the unique characteristics of finality, liquidity and integrity.
These currencies could form the backbone of a new, highly efficient digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID.
The “Bitcoin Bad, Blockchain Good!” The line has become a favorite refrain of banks and fintech operators in response to Bitcoin’s popularity. As always, this argument misses the point.
Without Bitcoin’s decentralized architecture, blockchain-based monetary payment systems are useless. Permissioned blockchains like Quorum suffer from centralization and single points of failure – problems that Nakamoto sought to correct by creating Bitcoin.
The same issues plague CBDCs. As I explained in a recent article, centralized control of a digital dollar or pound causes the same problems as seen with fiat currencies. With central banks controlling every inflow and outflow of money, it would be all too easy to conduct financial surveillance, implement unpopular monetary policies, and practice financial discrimination.
A bigger problem with this line of argument is that it ignores Bitcoin’s greatest strength: the cryptoeconomy. Satoshi’s greatest contribution was a new combination of economic incentives, game theory, and applied cryptography needed to keep the system secure and useful in the absence of a centralized entity. Centralized blockchains with weak incentives are open to attack like any other legacy system.
Why are banks afraid of Bitcoin?
Traditional banks have long made money by charging users to store and use their money. The average account holder pays account maintenance fees, debit fees, overdraft fees and a plethora of fees intended to benefit the bank. All the while, the bank lends the money in the account, while only giving users a fraction of the interest earned.
Bitcoin, however, poses a threat to the banking industry’s revenue model. With cryptocurrencies, there are no institutions that help users store, manage, or use their money. The owner remains completely in control of his bitcoins.
But, wait, there’s more.
Better and cheaper transactions
Bitcoin allows money to be transferred to anyone, instantly, regardless of the amount at stake or the recipient’s location. And users can do this without relying on an intermediary like their local bank.
On average, transactions powered by Bitcoin are faster and cheaper than transactions through banks. Consider the time it takes to process an international transfer and the high fees charged by banks.
Except for miner fees, people don’t pay anyone else to process transactions on the Bitcoin blockchain. And quantities of all sizes, large or small, can be moved without the usual paperwork. In less than 10 minutes, Bitcoin processes an irreversible money transfer. Banks just can’t match that.
Store of value
Banks help customers arrange long-term investments in gold, bonds, and other assets to secure their money’s worth. And they charge fees for custody, investment advice, and portfolio management.
But what happens when people realize they don’t have to rely on banks to store value?
Due to its intrinsic properties, Bitcoin is rapidly emerging as a preferred store of value. Bitcoin is rare (only 21 million units will be produced), but also fungible and portable. This makes it even better than traditional stores of values like gold.
Because anyone can easily buy bitcoin and HODL, banks can no longer make money from shilling asset management plans. Banks, like JPMorgan, have adapted by selling bitcoin-based investments such as futures, but that won’t save them.
Handling resistance
Banks have long survived by manipulating the financial system for private gain. The 2008 financial crisis resulted from underhanded operations by some of the world’s largest banks, including Lehman Brothers, which later declared bankruptcy.
For example, banks still lend more money than they own in what is called leverage. If everyone decided to withdraw their money from the banks, the whole industry would inevitably collapse.
Bitcoin allows people to be their own banks. Money in a Bitcoin wallet cannot be handled or used by anyone other than the holder. For the first time, people now have the power to control their money.
Banks Can’t Kill Bitcoin
The intensity of the banking industry’s information war shows how much they fear Bitcoin – as it should. It is only a matter of time before bitcoin penetrates all financial sectors – offshore settlements, escrow, payments, asset investments and more.
When this happens, banks will become the latest victims of technological disruption. Just as Netflix replaced video rentals and Amazon replaced bookstores, Bitcoin will replace banks. And no amount of seed doubt and misinformation will reverse that.
This is a guest post by Emmanuel Awosika. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or bitcoin magazine.