Does bitcoin solve bank runs?
Banking system vulnerabilities are becoming evident with the latest events. People are debating possible solutions. Bitcoin being one of them, but does BTC really solve bank runs?
It's curious that with current events (SVB, Credit Suisse, etc.), many people are advocating for bitcoin as a viable solution to a fragile banking system.
In my opinion, BTC does solve a few issues present in the banking system — e.g., custody.
If you don't need to trust an entity to custody your money, and you can do self-custody, you solve part of the problem as banks or custody providers, are less inclined to use such a risky model — i.e. fractional reserves.
But bitcoin also has a similar dynamic as for bank runs. I will explain why.
Bitcoin Network can only settle a maximum of ~7.0 TPS, due to its protocol. But it's easy to see that there are far more users/accounts ready to transact at any time.
Think of that as a comparison to banks fractional reserves — where there are far more depositors in the banks as the available reserves ready to be withdrawn.
So, if the demand for transactions suddenly increases, users might be incentivized to 'RUN' and transact first — as they could be afraid of not being able to settle their transaction at the time it would be needed.
Just like bank runs can happen if people are afraid that they wouldn't be able to redeem their money at some point.
Some advocates might argue that Lightning Network solves this, but that would only be half true. Since LN also requires users to open/close channels to actually access bitcoin's secure and decentralized structure.
The second layer remains dependent on the capacity of the first layer.
More so. There is also the fee-market.
The fee-market works within fee-bids, where higher bids 'jump the line' in front of lower bids (of network fees).
If we bring it to the bank run analogy, it would be like bank depositors could bid 'tips' or 'bribes' in order to withdraw their money faster than other depositors waiting in line for their turn.
Depositors would then start to place higher bids, afraid that someone would do it first, paying more and more and more.
During 'panic' moments, like the ones we are seeing with a real threat of bank runs and financial collapses; fees can rise exponentially — without any clear 'top' ahead.
Smaller users would be prevented from using the network; at the same time, other users would be paying a premium to simply access their funds.
I think someone could argue that this is still a better system than banks. But Bitcoin also doesn't exist in a vacuum.
There are other decentralized money (cryptocurrencies) that have lots of the positive aspects of bitcoin (like security, decentralization and self-custody) — while, at the same time, they have more scalability, more transactions capacity and higher saturation points.
Like nano, monero, bitcoin cash, etc.
And XNO also doesn't suffer from the 'fee-bids' issue. As it has no network fees, and users doesn't need to compete monetarily to simply move their money around.
Instead, nano uses other solutions for dealing with high saturation/demand times — and also has no limits within its protocol to scale.
Nano scales as network's hardware and bandwidth scales. And both scales within an increased demand to use the network. Bringing value to its users.
Nano really solves custody and bank runs. Being a p2p cash system that can be used to exchange and store value all over the world, by anyone with a simple connection to the internet.