Public blockchains are open and decentralised networks, where data and records are stored and verified across multiple nodes, computers or validators. These blockchains aim to provide decentralised, secure and scalable infrastructure to replace banks in the modern-financial system. Although, when building these blockchains, developers successfully manage to integrate two of three components, but struggle to incorporate the third due to technological limitations; this is sometimes nicknamed the ‘Trilemma’.
By nature, public blockchains have the bonus of transparency and triple-entry accounting, meaning a third cryptographically secure ledger exists for everybody to view, reducing the likelihood of financial report errors and fraud.
Large-scale blockchains like Bitcoin and Ethereum are so cryptographically secure that not even current quantum computers can crack the SHA256 hashing function (unfathomably complex encryption). In particular, Bitcoin has been a foundation for those who oppose financial institutions as it provides a new, structurally-sound financial infrastructure without the needs for banks.
If this were the case, then governments would still be able to control the macroeconomy, but with new DeFi mechanisms instead: decentralised lending pool rates and variable token supplies (for QE). A bankless economy would lead to increases in the effectiveness of government monetary policies, as alterations in lending rates would directly affect those participating in decentralised-lending pools. Both borrowing and lending rates can be set independently, impractical in the modern-banking system,
Therefore, banks would no longer be an intermediary in the financial system, which was the original motive for Bitcoin’s creation and prevent any financial collapses going forward.
Strong observations can be made about the success of these distributed ledger-based currencies (without banks) dating back to the 1700s. In Micronesia, Rai stones (large, heavy & prominently located) were used as money, as inhabitants would declare transactions to townsfolk; this system is analogous to the Bitcoin ledger system and still exists to this day. In recent years, El Salvador successfully adopted Bitcoin as a legal tender as a means to reduce remittance fees; banks are nonessential in functioning societies like these and are evidence of a bankless economy.
Without a doubt, Bitcoin, Ethereum and altcoins alike have their problems (i.e. environmental impacts). Regardless, progress is being made to improve this groundbreaking technology; Ethereum shifted from PoW to PoS consensus algorithms in late 2022 (different incentives for the upkeep of the network), reducing energy usage by 99.5%, vastly more efficient than the modern banking system.
While myths and misconceptions surrounding Bitcoin still exist, there are simple explanations to addresses these ‘so-called problems’. [Example 1] It is believed Bitcoin should have some intrinsic value, which is not the case according to the International Monetary Fund and other fiat currencies. [Example 2] Many people say Bitcoin is cannot be spent anywhere, although contactless technology was the same in 2007; now 91.2% of spending is transacted via contactless and Bitcoin is likely to follow.
It is natural for new technologies to encounter challenges, but developers in the DeFi industry, such as the Ethereum or Algorand Foundation continue to make progress and resolve any mainnet issues. Conversely, banks have caused problems (i.e. 2008 crash, and Great Depression).
To briefly conclude, banks are not as essential as they claim to be; their necessity is frequently overstated, and often diminishes alternate financial solutions, like Bitcoin.