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The Bitcoin is vastly different than any other monetary system, other than the alt currencies that the movement spawned, is a given. What is surprising to many experts is how vast the movement has become and how it is beginning to incite change in the traditional financial system. The very first time that Bitcoin was featured in a mainstream publication was in April 16, 2011, edition of Time. Journalist Jerry Brito wrote an article entitled "Online Cash Bitcoin Could Challenge Governments, Banks," almost as a harbinger of what Bitcoin may ultimately do.
Biopower
The traditional financial system that currently exists today took thousands of years to develop. It is the product of an evolution from a system of bartering to the use of gold as a universal currency to a centralized government-based coinage to banks offering paper notes that they guarantee, almost as loans against the bank. Banks, as they exist today, offer important things for individuals: a secure place to store their money, an easy way to conveniently access their money, and a means for their money to grow via investments and savings. People use banks so that they can reap one or more of these benefits.
For banks to provide these benefits, they must necessarily incur costs. They have to pay for the building that houses the bank, the salaries of tellers and other employees that provide the services necessary for running the bank, the IT specialists who maintain the online forums and websites for the bank, advertising and promotions to attract new customers, etc. These things all cost the bank money, lots of money. It generates this money by charging fees for its services. Banks offer loans to customers so that they can receive interest, via lines of credit, credit cards, mortgages, auto loans, small business loans, etc. They charge high overdraft fees — sometimes more than $40 — when customers spend money that they don't have in their checking accounts. Fees are assessed when bank customers use an ATM outside of the bank's network and when non-bank customers access one of the bank's ATMs. Merchants are charged when customers use the bank's credit cards. All of these fees add up, generating not only enough to cover overhead expenses — staff salaries, building upkeep and maintenance, etc. — but to create a lot of profit for the people who run the bank. What this actually looks like on the ground is someone who is unable to pay for groceries or gas for the week may incur a large overdraft fee, which goes to fund the second vacation home of the bank’s CEO. The current financial system leads to the rich getting richer and the poor getting poorer.
The client-server model that many traditional financial institutions still use is not just how the banks run their online platforms. It is symbolic of how the bank funnels money to itself via the common people. Think about it like this. In the client-server model, individual users connect their computers to the main server to access the information to their accounts. That information theoretically belongs to the users, but in actuality, it belongs to the bank. If there is any kind of problem with the server, the entire system will fail. Similarly, if there is a problem with the centralized structure of the bank, the bank will fail, and all of the money in it could be lost, minus what is insured by the United States government. Say that unethical accounting practices have been occurring for years, similarly to what happened at Enron. All of the individual users who have been connecting their resources to the bank, trusting that the bank will manage them properly, will fall victim to the scheme.
Consider an impending financial crisis: the student loan bubble. College students and their parents have borrowed heavily from the United States government to fund the ever-increasing cost of college education. They do so with the belief that a college degree will provide graduates with the opportunity for a better, high-paying job than what would be available to a high-school graduate. While that scheme makes sense on a micro level, what has actually happened is that so many people have borrowed so much money that young graduates who are trying to get on their feet and start their own lives owe tens, even hundreds, of thousands of dollars to the government. In addition to the loan principal, they pay high-interest charges. Most student loans have an interest rate of about 6%, which is pretty low unless you consider that 6% is applied to loans that run into the hundreds of thousands of dollars. Many college graduates are barely able to even pay the interest on their loans and are not making any kind of dent into the principal. Because they are saddled with this heavy debt, they are unable to do things like save for a home, buy a car, or do other things that their parents were able to do at their age.
The 20th-century French philosopher Michel Foucault referred to this paradigm as biopower. Biopower exists when a government or other institution extends a seemingly friendly, helpful service to its citizens, such as when a bank or a government offers financial services — loans or a checking account — to common citizens. In doing so, the government or financial institution can exert a high degree of control over citizens. Consider how much of your personal information is available to your bank. If you were to default on a loan held by the bank, that default will be displayed on your credit report and keep you from being able to rent an apartment, buy a home, sometimes even get a job. You know that you must work long hours, sometimes at a job that you don't like, to keep from defaulting. You aren't able to use that money for things that you enjoy, like, say, a date night or a vacation, but rather must give it to the bank. The bank has thereby implemented a high degree of control over many aspects of your personal life. That control is biopower.
Peer-to-Peer Over Biopower
The peer-to-peer structure of Bitcoin and other alt currencies eliminates the paradigm of biopower. When a small group of people is in charge of the bank, they can control many aspects of their customers' lives. When a large group of people engages in peer-to-peer currency, such as Bitcoin, they can take control of their own financial lives and reclaim the freedom associated with it.
Banks charge high fees and interest rates. Bitcoin's fees are incredibly low. Instead of going to pay for the CEO's second vacation home, they pay miners to process the transactions on the Bitcoin network. Banks are centralized and vulnerable to attacks that could compromise your finances as well as personal information. Bitcoin is decentralized and impervious to attacks; moreover, personal information is not required to join the network. You cannot owe money to Bitcoin. You may owe money to other users and choose to pay in Bitcoins, but you cannot owe money to the Bitcoin network.
Similarly, to how the client-server model is symbolic of how banks are run, the blockchain model is symbolic of how Bitcoin is run. Thousands of users connect to the network to keep it running. No one person or entity is running things behind the scene. Everybody has to agree on transactions that have occurred. The money cannot be manipulated in any way.
Ultimately, people vote with their wallets. They may be unable to change how things are done at the bank, but they can move their money to Bitcoin and other virtual currencies. The growth of virtual currencies has grown at such an exponential rate that banks have begun taking notice and are realizing that this is not just a passing trend. As more and more money is allocated to virtual currencies, banks will have to revise their practices to maintain customers.
Mastering Bitcoin for Beginners - Neil Hoffman
Biopower
The traditional financial system that currently exists today took thousands of years to develop. It is the product of an evolution from a system of bartering to the use of gold as a universal currency to a centralized government-based coinage to banks offering paper notes that they guarantee, almost as loans against the bank. Banks, as they exist today, offer important things for individuals: a secure place to store their money, an easy way to conveniently access their money, and a means for their money to grow via investments and savings. People use banks so that they can reap one or more of these benefits.
For banks to provide these benefits, they must necessarily incur costs. They have to pay for the building that houses the bank, the salaries of tellers and other employees that provide the services necessary for running the bank, the IT specialists who maintain the online forums and websites for the bank, advertising and promotions to attract new customers, etc. These things all cost the bank money, lots of money. It generates this money by charging fees for its services. Banks offer loans to customers so that they can receive interest, via lines of credit, credit cards, mortgages, auto loans, small business loans, etc. They charge high overdraft fees — sometimes more than $40 — when customers spend money that they don't have in their checking accounts. Fees are assessed when bank customers use an ATM outside of the bank's network and when non-bank customers access one of the bank's ATMs. Merchants are charged when customers use the bank's credit cards. All of these fees add up, generating not only enough to cover overhead expenses — staff salaries, building upkeep and maintenance, etc. — but to create a lot of profit for the people who run the bank. What this actually looks like on the ground is someone who is unable to pay for groceries or gas for the week may incur a large overdraft fee, which goes to fund the second vacation home of the bank’s CEO. The current financial system leads to the rich getting richer and the poor getting poorer.
The client-server model that many traditional financial institutions still use is not just how the banks run their online platforms. It is symbolic of how the bank funnels money to itself via the common people. Think about it like this. In the client-server model, individual users connect their computers to the main server to access the information to their accounts. That information theoretically belongs to the users, but in actuality, it belongs to the bank. If there is any kind of problem with the server, the entire system will fail. Similarly, if there is a problem with the centralized structure of the bank, the bank will fail, and all of the money in it could be lost, minus what is insured by the United States government. Say that unethical accounting practices have been occurring for years, similarly to what happened at Enron. All of the individual users who have been connecting their resources to the bank, trusting that the bank will manage them properly, will fall victim to the scheme.
Consider an impending financial crisis: the student loan bubble. College students and their parents have borrowed heavily from the United States government to fund the ever-increasing cost of college education. They do so with the belief that a college degree will provide graduates with the opportunity for a better, high-paying job than what would be available to a high-school graduate. While that scheme makes sense on a micro level, what has actually happened is that so many people have borrowed so much money that young graduates who are trying to get on their feet and start their own lives owe tens, even hundreds, of thousands of dollars to the government. In addition to the loan principal, they pay high-interest charges. Most student loans have an interest rate of about 6%, which is pretty low unless you consider that 6% is applied to loans that run into the hundreds of thousands of dollars. Many college graduates are barely able to even pay the interest on their loans and are not making any kind of dent into the principal. Because they are saddled with this heavy debt, they are unable to do things like save for a home, buy a car, or do other things that their parents were able to do at their age.
The 20th-century French philosopher Michel Foucault referred to this paradigm as biopower. Biopower exists when a government or other institution extends a seemingly friendly, helpful service to its citizens, such as when a bank or a government offers financial services — loans or a checking account — to common citizens. In doing so, the government or financial institution can exert a high degree of control over citizens. Consider how much of your personal information is available to your bank. If you were to default on a loan held by the bank, that default will be displayed on your credit report and keep you from being able to rent an apartment, buy a home, sometimes even get a job. You know that you must work long hours, sometimes at a job that you don't like, to keep from defaulting. You aren't able to use that money for things that you enjoy, like, say, a date night or a vacation, but rather must give it to the bank. The bank has thereby implemented a high degree of control over many aspects of your personal life. That control is biopower.
Peer-to-Peer Over Biopower
The peer-to-peer structure of Bitcoin and other alt currencies eliminates the paradigm of biopower. When a small group of people is in charge of the bank, they can control many aspects of their customers' lives. When a large group of people engages in peer-to-peer currency, such as Bitcoin, they can take control of their own financial lives and reclaim the freedom associated with it.
Banks charge high fees and interest rates. Bitcoin's fees are incredibly low. Instead of going to pay for the CEO's second vacation home, they pay miners to process the transactions on the Bitcoin network. Banks are centralized and vulnerable to attacks that could compromise your finances as well as personal information. Bitcoin is decentralized and impervious to attacks; moreover, personal information is not required to join the network. You cannot owe money to Bitcoin. You may owe money to other users and choose to pay in Bitcoins, but you cannot owe money to the Bitcoin network.
Similarly, to how the client-server model is symbolic of how banks are run, the blockchain model is symbolic of how Bitcoin is run. Thousands of users connect to the network to keep it running. No one person or entity is running things behind the scene. Everybody has to agree on transactions that have occurred. The money cannot be manipulated in any way.
Ultimately, people vote with their wallets. They may be unable to change how things are done at the bank, but they can move their money to Bitcoin and other virtual currencies. The growth of virtual currencies has grown at such an exponential rate that banks have begun taking notice and are realizing that this is not just a passing trend. As more and more money is allocated to virtual currencies, banks will have to revise their practices to maintain customers.
Mastering Bitcoin for Beginners - Neil Hoffman
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