Nicolas Burtey, CEO of Galoy explores what happens when the massive & highly regulated global banking system comes into contact with the decentralized, permissionless nature of Bitcoin. This talk was recorded at the fourth annual Adopting Bitcoin conference in El Salvador.
When Bitcoin and Banks Collide: Exploring the Future of Finance
In recent months, Bitcoin has become a prominent topic in the financial world. What was once considered a niche digital asset has caught the attention of major banks and financial institutions. As Larry Fink put it, Bitcoin is now an “institutional asset.”
Record-breaking ETF inflows, bipartisan political support, and Bitcoin’s price trajectory have signaled that traditional finance (TradFi) is inching closer to embracing the digital currency. But what happens when these two forces—Bitcoin and banks—collide?
The banking industry is one of the oldest and most massive institutions on Earth, generating $6.8 trillion annually and employing tens of millions of people. It's not just large; it's deeply embedded in our civilization. However, it’s also broken. Central banking policies have paved the road to hyperinflation, costly compliance has left billions unbanked, and outdated software adds unnecessary complexity.
This collision between Bitcoin—the unstoppable force—and the legacy banking system—the immovable object—will create profound transformations. Let’s explore how banking has evolved and what the future holds when these two worlds meet.
A Brief History of Banking
At its core, banking is simple: custody and lending. Thousands of years ago, Mesopotamian temples acted as the first “banks,” safeguarding valuables and providing loans.
The Medici Bank in the 14th century introduced double-entry bookkeeping—a revolutionary innovation still foundational to banking. In the 17th century, the Bank of Amsterdam stabilized trade with full-reserve banking (though it later shifted away from this model).
In 1694, the Bank of England became the world’s first central bank, issuing public debt to fund war efforts. This marked a turning point: banking shifted from private custodianship to government-backed fiat control.
Fast forward to the 20th century, and layers of regulations, payment networks, and financial products accumulated:
- The Federal Reserve (1913) centralized monetary policy.
- The FDIC (1933) restored trust after the Great Depression.
- Credit cards (1950s) and the SWIFT network (1973) modernized payments.
Today, the banking system operates as a complex, centralized web. Despite the efforts of over 25,000 fintech companies worldwide, inefficiencies persist. Sending money internationally can still take days, and the number of banks is shrinking as the industry centralizes further.
Enter Bitcoin: The Unstoppable Force
Bitcoin offers a radical alternative. Unlike fiat systems, Bitcoin is:
- Decentralized: Decision-making is spread across a global network. Changes to the protocol require consensus, ensuring stability and fairness.
- Permissionless: Anyone can use Bitcoin, regardless of status or location. It’s a protocol for all, from presidents to dissidents.
- Uninflatable: Bitcoin’s supply is fixed, with a predetermined issuance schedule. Its monetary policy removes the temptation to print money, unlike fiat systems.
These qualities make Bitcoin an "unstoppable force" in finance. However, its adoption is not without challenges, as highlighted by concerns that legacy institutions could misuse Bitcoin for surveillance. The technology must be wielded carefully to ensure it fulfills its potential to decentralize and democratize finance.
The Collision: Six Key Transformations
When Bitcoin and banks collide, we’ll see significant shifts in how the financial system operates. Here are six outcomes to watch:
- Legacy Banks Rush In
Increasing regulatory clarity and demand will drive banks to adopt Bitcoin services like custody and payments. This will normalize Bitcoin in TradFi but could leave room for disruption by agile, Bitcoin-native competitors. - Free Market Intensifies
Bitcoin adoption by banks will spark competition. While banks serve the masses, specialized Bitcoin firms will continue advancing privacy, sovereignty, and security features. - Truth Trumps Trust
Proof-of-reserves practices built on Bitcoin could eliminate the need for regulatory audits, enabling transparent and solvent banking models. This could attract entrepreneurs to forward-thinking jurisdictions. - Open Source Wins
Most banking software today is closed source and heavily regulated. Open-source Bitcoin banking tools will lower barriers for entrepreneurs, align with Bitcoin’s ethos, and democratize finance. - Banks Reclaim Custody
Under a fiat system, "custody" lost its meaning, but Bitcoin brings it back. Banks will offer custodial services to meet demand, creating a new revenue stream and redefining their role in finance. - Bitcoin Puts a Lid on Leverage
Bitcoin's transparency and the inability to bail out insolvent banks will encourage more conservative banking practices. This could lead to stronger balance sheets and less risky behavior in the industry.
Does Bitcoin Make Banks Obsolete?
No. Bitcoin won’t eliminate banks but will force them to adapt. Custody services, transparency, and better financial practices could “make banking great again.”
The collision of Bitcoin and banks is not about destruction but transformation. Bitcoin has already proven itself an unstoppable force, and as it integrates with the legacy system, we’ll see a financial system that’s more transparent, decentralized, and equitable.
