Bitcoin Banks Are Coming. Wave Goodbye to Your Privacy

Posted on Jan 4, 2019 by Ben Brown
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Bitcoin bank

If you’ve never read the famous bitcoin white paper, now is a good time to do so.

Bitcoin’s elusive creator, Satoshi Nakamoto, outlines his vision for a cash system that exists without a “trusted third party.” 

In other words, money without banks. Without invasive identity checks and verification. Money without permission.

And for the past decade, bitcoin has done a pretty good job at this.

Anyone in the world can send and receive bitcoin without a bank or third-party getting in the way. You can store it yourself on a hardware wallet that only you have access to.

But in 2019 we’re going to see a huge shift towards bitcoin banking.

Big institutions will compete to hold and store your cryptocurrency in their possession.

Bitcoin banking: trends so far

Here are just a few of the reasons for this prediction:

  1. Fidelity (one of the biggest asset management companies on the planet) is launching a crypto custody service. It will essentially be a bank to hold cryptocurrencies for its clients.
  1. Coinbase (the world’s best-known crypto exchange) is now registered as a “qualified custodian” in New York. That’s the same designation that allows banks to hold other people’s money. 
  1. Bank of America just filed a bitcoin storage patent.
  1. Mastercard just filed a patent for a cryptocurrency fractional reserve system.

These are just the big names. Countless others in the crypto space are building large-scale bitcoin storage solutions. Bitgo is now a qualified custodian to store people’s crypto. The Winklevoss Twins operate a fully licensed crypto custody service.

Not all bad…

Don’t get me wrong, there are some good points to these developments. Not everyone wants to “be their own bank” and look after their own crypto wallet.

And for the thousands of people that have already lost their bitcoin wallets, a fully-insured “bitcoin bank” might be preferable.

(As for Wall Street institutions looking to get into crypto, they’re required by law to use a custody service).

… But terrible for privacy

However, it’s a huge blow to your personal privacy. Using any one of these services will require reams of identification info to satisfy KYC (know your customer) and AML (anti-money laundering) laws.

It won’t be much different to signing up for a new bank account.

If you’re buying and using bitcoin or other cryptocurrencies for privacy reasons, you should avoid these rapidly-growing services at all costs.

And then there’s the philosophical argument…

By design, bitcoin was created to exist outside the traditional banking infrastructure. By embracing these monolithic banking institutions, aren’t we defeating the point of bitcoin?

As always, we find ourselves facing the constant and frustrating tradeoff: will we sacrifice privacy for convenience? We’re about to usher in a new generation of simple, easy-to-use cryptocurrency services. But how much privacy will we sacrifice for it?

About Ben Brown

Ben is the editor at Block Explorer - the world’s longest-running bitcoin transaction tracking tool. He is the author of three cryptocurrency eBooks and has had work published in the Huffington Post.

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