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Differences between the Bitcoin System and the U.S. Monetary System


The Bitcoin system provides rules and features that have a divergent effect from those of the U.S. monetary system. Although the Bitcoin system provides some advantages, it does not provide a solution to every deficiency of the U.S. monetary system. Following are some differences, advantages, and disadvantages between the Bitcoin system and the U.S. monetary system.

I. Decentralized v. Centralized Control

The U.S. government, by way of the Federal Reserve Bank, retains centralized control of the U.S. economy. It “places the Fed[eral Reserve Bank] at center stage in the control of the money supply, the conduct of monetary policy, and the regulation of the commercial banking system.”1 The Federal Reserve Bank is “more accurately described as independent within the government rather than independent of government.”2 Although it exists due to an act of Congress,3 its decisions do not have to be ratified by any government official.4 However, Congress may alter the responsibilities of the Federal Reserve Bank by enacting statutes.5

The infrastructure in which Bitcoin operates provides for decentralized control of the currency.6 Transactions are recognized by a one-CPU-one-vote method – users essentially vote on how bitcoins are spent7 by choosing on which block to invest their computational efforts to add it to the blockchain. In other words, users select which bitcoin transactions to validate.8 Additionally, any person can improve the bitcoin software9 and access the complete record of bitcoin transactions recorded in the blockchain.10

The Bitcoin system could soon become centralized, however. The cost of becoming a miner is increasing as mining hardware continues to improve and mining facilities keep expanding. This would grant the power to validate transactions and determine the price of transaction fees to a small group of miners.11


II. Currency as Documents Acknowledging a Debt (IOUs)

The U.S. monetary system increases the public debt when it creates money.12 Because banks create money by lending and fund their reserves by buying government debt, the U.S. dollar is essentially an IOU that must be paid by taxing the public.13 The Bitcoin system works differently, however. It does not carry a debt like the U.S. dollar as the supply of bitcoin is limited and created only by solving mathematical computations.

III. Reversible and Irreversible Transactions

The U.S. financial system cannot conduct “completely non-reversible transactions” because financial institutions, which serve as trusted third parties to process electronic payments, “cannot avoid mediating disputes.”14 This deficiency increases transaction costs, limits the size of transactions, and creates a higher demand for customers’ personal information by merchants to protect against liabilities.15 The Bitcoin system works in an opposite way, however. By establishing an “irrefutable and unchangeable record of past transactions”, it allows for completely non-reversible transactions.16 It also allows for customers and sellers to remain anonymous.17

IV. Currency Supply, Insurance, and Fess

The U.S. financial system allows for an unlimited supply of money. On the contrary, the Bitcoin system permits only the creation of 21 million bitcoins.18 However, the Bitcoin system allows for a bitcoin to be “split into 100,000,000 units” called Satoshis.19 One Satoshi is equal to 0.00000001 bitcoin.20

If a bank is FDIC insured and is not able to meet the demands of cash withdrawals and deposits, the government will replace up to $250,000 of unreturned deposits.21 Banks are also good at calculating how much to keep in its reserves in order to be able to meet cash withdrawal demands. For this reason, banks are among the safest places to store money.22

The Bitcoin system is not as a secure as banks. The security of bitcoins depends mainly on the owner of the bitcoins. If a user loses the private key that came with a bitcoin address, she will not be able to access the bitcoins that are sent to that address and the sender will not be able to reverse the transaction.23 Additionally, if a Bitcoin user loses her private keys, she will lose access to all of her bitcoins.24

Banks generally charge consumers a fee or a combination of fees to use their services. For example, some banks charge maintenance fees for checking accounts, a minimum balance fee on certain accounts, a fee for foreign transactions, and a fee for designating an agent to handle certain transactions.25 Additionally, banks charge companies for accepting credit card payments.26 The Bitcoin system, on the contrary, only requires the sender of bitcoins to pay a transaction fee.27

Transaction fees vary per the level of strain in the bitcoin network – the higher the demand, the higher the transaction fee. Nevertheless, they tend to be lower than bank fees.28 As of the date of this writing, the average transaction fee for a bitcoin transaction was $6.29 However, it takes the Bitcoin system one or more hours to process a transaction, while banks process transactions within minutes.

V. Conclusion

The Bitcoin technology includes procedures, like its proof-of-work requirement to connect blocks to the blockchain, that, unlike banks, allow for irreversible transactions. It also includes a blockchain that, unlike banks, allows for a decentralized monetary system. However, the U.S. monetary system has proven capable of meeting the demands of the people and industries. Only time will tell whether the innovations presented by the Bitcoin system will ever displace the ingrained U.S. monetary system.

  1. Federal Reserve System, Amos WebEncyclonomic Webpedia, (last visited Dec. 6, 2017). 

  2. Federal Reserve System, Federal Reserve Bank of Richmond,

  3. Who Owns Reserve Banks?, Federal Reserve Bank of St. Louis, (last visited Dec. 6, 2018). 

  4. Federal Reserve Bank, Investopedia, (last visited Nov. 2, 2017). 

  5. Federal Reserve Bank of Richmond, supra 

  6. Avishay Yanay, Bitcoin – Money Decentralization, vpnMentor, (last visited Oct. 3, 2017). 

  7. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi Nakamoto Institute (Oct. 31, 2008),

  8. See id

  9. Bitcoin Development, BitcoinCore, (last visited Dec. 4, 2017) (To institute improvements, the acceptance of all bitcoin users is required). See also Frequently Asked Questions, Bitcoin, (last visited Dec. 6,2017) (if the acceptance of all bitcoin users is not obtained, “the miners who carry on running the old version are effectively running a completely different currency from those who have updated.” See also Alex Hern, Everything you Wanted to Know About Bitcoin but were Afraid to Ask, The Guardian (Nov. 11, 2017 2:00 PM), (if the miners who carry on running the old version are effectively running a completely different currency from those who have updated, they (and others) do not double their bitcoins or lose bitcoins – the supply of bitcoins stays the same). 

  10. Nakamoto, supra 

  11. Frisco d’Anconia, Bitcoin Mining ‘Wastes Vast Amounts of Energy, Harms Environment’, The Cointelegraph (Oct. 25, 2017),

  12. Graeber, supra 

  13. Id

  14. Nakamoto, supra 

  15. Id

  16. See generally Samee Zafar, Can Blockchain Prevent Cybercrime?, Finextra (Aug. 31, 2016),

  17. Adam Ludwin, How Anonymous is Bitcoin? A Backgrounder for Policymakers, coindesk (Jan 25, 2015), (identities are never recorded at any stage in the bitcoin protocol). 

  18. Pranbihanga Borpuzari, 16 million mined, 5 million remaining. Approaching Bitcoin threshold fuel crypto frenzy, The Economic Times ET RISE (Dec. 7, 2017),

  19. What is a Satoshi, Satoshi to Bitcoin, (last visited Dec. 7, 2017). 

  20. Satoshi to USD Converter, 99 Bitcoins, (last visited Dec. 6, 2017). 

  21. Justin Pritchard, What Is a Bank Failure, and What Happens to Your Money?, The Balance (Sept. 11, 2016), See also Justin Pritchard, How FDIC Insurance Works and What’s Covered, The Balance (Sept. 13, 2016),

  22. Justin Pritchard, How to Tell Which Banks are Safest, The Balance (Oct. 5, 2017),

  23. Sudhir Khatwani, Bitcoin Private Keys: Everything You Need To Know, Coinsutra (May 29, 2017), (the sender is supposed to contact the recipient and request the recipient’s updated address). See also JGM, Bitcoin Sent to a Defunct Address- What Happens to It?, Stack Exchange (May 2013), (the bitcoins will remain in that address with no one to claim them). 

  24. Lauren Orsini, What Happens To Lost Bitcoins, Read Write (Jan. 13, 2014), (“It’s extremely improbable, and effectively impossible [to recover lost coins] . . . If you’ve lost your private key, the system is so secure that you may not be able to recover it.”). 

  25. Daniel Bortz, 10 Annoying Bank Fees—and How to Avoid Them, U.S. & World Report News (Aug. 10, 2012),

  26. Adam Hayes, How Much Cheaper are Bitcoin Fees than Credit Card Fees?, Investopedia (Sept. 13, 2016 3:15 PM), 

  27. See generally Download Bitcoin Core, Bitcoin Core, (last visited Dec. 6, 2017). 

  28. See, e.g., Bortz, supra note 172 (“a regular checking account at Bank of America comes with a $12 monthly maintenance fee”). 

  29. Bitcoin Avg. Transaction Fee Historical Chart, Bit Info Charts, (last visited Dec. 6, 2017). 

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Jose Peralta

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