Be your own bank.
I’m sure you’ve heard that statement in the crypto space before.
It comes up on Twitter as both a statement and a question.
So what does being your own bank mean anyway?
It can mean a bunch of different things.
One of the challenges with this statement comes down to how you see a bank. And how you see a bank will be related to how old you are and what your experience has been with banking.
In modern finance, it is easy to think about individual activities in a financial transaction as separate.
The money is one part. The payment system is a separate part. The credit or debit card you use is a separate part that connects the two. You may interact with several payment gateways in a day. And you also have many different ways to pay, including cards and various apps.
You may also have many different accounts. For example your brokerage account is separate from your checking or savings account.
The financial system as a whole is very complex. This is the result of decades and centuries of technology evolution, regulation, politics, and culture.
Crypto takes some of these concepts and makes them portable and uniquely focused on the individual.
Now, I could say that being your own bank comes down to one simple word. But before we get to that, let’s look at crypto and banking and see what being your own bank might mean.
Crypto is a new form of banking and finance
Crypto is relatively new compared to traditional banking and finance. The tech behind crypto is much more advanced, but many of the financial concepts are borrowed directly from finance and banking.
Crypto takes a relatively simple idea and packages it into a protocol or software to deliver it.
That simple idea is a decentralized payment system with what could be called a self-sovereign asset. AKA, not issued or controlled by any government. And because crypto is relatively unconstrained from tradition and regulation, it has created new ways to explore existing banking and finance.
Your crypto experience might begin with a wallet and a transfer from a friend. It might be earning some tokens from a project, assignment, or company bonus pool. Or maybe you got some DOGE love for your contribution on Twitter or Reddit.
Or maybe you opened an account on a trading platform, deposited some funds, and bought some.
What you are doing in each of these cases is moving out of the traditional financial system into the crypto system.
Your crypto experience with Bitcoin
With crypto, you have a unique flexibility based on how the protocol or software is designed.
For example, with Bitcoin, you get a digital currency in the form of a token called a Bitcoin. Or, if you don’t want a whole Bitcoin, you can get a subunit of a Bitcoin called a satoshi or SAT. Bitcoin is not issued by the government, nor is it guaranteed in any way by the government.
Now, the other thing you get is a built-in peer-to-peer payment system. That means you can transfer unspent Bitcoins to anyone else on the network anywhere in the world. And the Lightning Network, a Bitcoin sidechain, gives you the ability to do micropayments.
You can think of your Bitcoin as an asset and trade it accordingly. Periods of volatility allow you to trade in and out of Bitcoin, taking advantage of market moves.
The record of your transactions is on nodes all over the world using a semi-anonymous ledger. This is why crypto is often referred to as decentralized ledger technology. It’s another way to say blockchain.
And through the decentralized ledger approach, Bitcoin makes it easy for you to remove assets from the traditional system. It’s like your own trust fund without all the lawyers and complications.
You can also use it to buy access into up-and-coming projects through various coin releases. And there are other ways to use your Bitcoin as collateral for lending and other DeFi activities.
So this one protocol gives you all of that in your pocket from a thumb drive.
Banking on Ethereum
What if you have some Ether (ETH) instead?
With Ethereum, your ETH can be used to pay for activity on the Ethereum ecosystem. It can be used to stake and earn fees for helping to secure the Ethereum blockchain. This takes place because of the consensus mechanism called proof-of-stake. In this case, ETH is giving you access to the governance of the protocol in a unique vision of ownership.
Ethereum is also a peer-to-peer payment system. You use it to pay your gas fees in ETH for using the resources of the protocol. Or you can send payments for activities in various dApps, or pay someone in ETH for a product and service. Or you could buy and sell your first (or next) NFT in ETH using it as a currency.
Ethereum gives you access to numerous decentralized financial (DeFi) products and services. For example, you could stake your ETH on Uniswap to earn tokens.
And the market also gives you ways to earn yield by lending your ETH. You can even use your NFTs, priced in ETH, as collateral for a loan.
You could also use ETH to buy into other up-and-coming projects.
There are a growing number of opportunities to use your ETH in the Ethereum ecosystem. And hodling ETH means you can participate in developing the wider cryptosphere in various ways.
And many of these options can be applied to other projects like Cardano.
The key point here is that all of these options are open to anyone that wants to participate.
What does a bank do?
A traditional bank provides a wide variety of services as well.
They will provide you with custody, where they hold your savings on your behalf. Your savings will earn a return from the bank. And the bank earns a spread between what they give you and what they charge a borrower. They vet those borrowers in exchange for that spread. Or at least that is the thinking.
The bank is also a payment gateway. They facilitate payments across individuals and businesses through different points in the payment chain. They may give you a card that you can use through different payment gateways. And they will help to confirm and settle those payments.
And they also deal with returns and chargebacks.
The bank can provide you with a variety of products and services, constantly vetting you based on the information they have access to. They are always working hard to cross-sell you more in-house services.
When your money is in the bank, you are giving them permission to use it as they see fit.
One of the big features of a bank is the ability to provide various guarantees protecting the money they hold on your behalf. This is done through organizations like the CDIC (Canadian Deposit Insurance Corporation) and if it’s an investment product through the CIPF (Canadian Investor Protection Fund). These guarantees are available through federally regulated institutions. And the money in your savings account is issued and backed by the government.
For the modern tech-savvy individual, the growth of fintech gives you a more electronic sense of how all this works. The difference is a superior user experience and less cumbersome infrastructure.
Your bank vs being your own bank with crypto
So looking at these different scenarios, we can see that the concept of banking involves a variety of elements.
In both crypto and banking, there is custody of assets or hodling balances. In crypto, you hodl some or all of them in some sort of wallet. The bank, on the other hand, holds your assets on your behalf. The big difference here is that at the bank your deposits are insured, and your fiat is issued and backed by the government.
There is also a payment element in both cases. The difference is that with crypto, you have direct access to a payment system built right into the protocol. With crypto, you can transact directly with anyone, anywhere in the world, that has an address for the crypto coin you’re using. No bank intermediaries to vet or clear. Your transaction is cleared by the protocol cheaply in ten minutes or less.
A traditional bank is more of a vetting and toll booth for every transaction. They clear transactions, interact with the various other payment gateways, and look out for fraud on your behalf. International transfers with your bank are expensive, cumbersome and time consuming.
You can also access investment, trading, and speculative products in both cases. With crypto, you can move into DeFi and use it in various protocols to earn returns. So, for example, you can stake your coins, or your crypto assets can be used as collateral. And you can also participate in various other projects by buying into protocols like DAOs.
At the bank, they have lots of in-house products to sell you so they can earn more fees for themselves on your balances.
What crypto won’t help you with are the guarantees. Some crypto protocols have funds to deal with unexpected losses. But if your assets are stolen, or you lose your wallet, well, that’s the definition of a bad day.
The bank will hold your hand, but with crypto, if something bad happens, you’ll have to hold your own.
So in many ways, crypto gives you several elements of a bank from a thumb drive. But the one thing being your own bank requires in return is one simple thing.
When it comes to being your own bank in crypto, it comes down to direct personal responsibility for your assets and activities.
Be your own bank is a powerful concept for a new generation
Crypto is a new form of financial literacy. Being involved in crypto encourages a key element missing from other forms of financial literacy, the earning part. You can learn how to earn returns and participate in building innovative products. You can assume risk freely and enjoy the benefits or learn from your mistakes.
A traditional bank carries responsibility for you in various financial elements. And there is nothing wrong with this. It’s a valuable service, but it comes with a price attached. The system is heavily designed to preserve itself through confidence. And that confidence is a byproduct of protecting people from risks. Sometimes, the more risk you are protected from, the less you may learn about how the financial world works.
As an individual, you can take on much of this responsibility. And in exchange for taking the risk, you have a greater degree of freedom to explore earning and building.
By combining crypto with traditional banking, you expand your experiences and have the potential to learn more, faster.
But you are also responsible for the outcomes, good or bad.
This is a powerful change. It’s a positive development for a new generation.
So yes, you can be your own bank. And yes, you can have more than one kind of banking relationship. One with a traditional bank, and in another by being your own bank.
But with crypto, your banking experience is less paternalistic and more empowering.
And it all starts with a wallet, an internet connection, and the willingness to explore.
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