If you have ever set up an open-source wallet, such as that of MyEthereumWallet, and have read the warnings, or contacted the company’s support service with questions about your account, you will most likely have come across the phrase ‘we are not a bank.’
And what exactly can be implied by this? Nevertheless, it’s understood that the crypto wallet doesn’t act as a traditional financial institution. Why, then, do some cryptocurrency services operate with this statement? Why don’t other services mention it at all?
In the modern, Western world, many new cryptocurrency users have already had experience using other online banking platforms. They use banking systems they are accustomed to daily, and then expect a similar functionality from crypto wallets. Some of these expectations may include:
Even people who don’t use banking services sometimes expect a solution from the other end of a customer service line — from someone who can help them change their wallet settings, tell them their balance, or remotely reset their login information.
Few newbies are aware of their own personal role in managing cryptocurrency assets. One of the important advantages of cryptocurrencies is the concept of having your ‘own bank.’ This means that no-one apart from yourself can control the funds. On the other hand, it also means that you alone are responsible for the safety of your own assets.
The majority of cryptocurrency services have a long way to go before they can consider themselves to be user-friendly. However, some principles of cryptocurrencies and aspects of blockchain technology are unavoidable and will always differ from banking model.
It’s important to remember that ‘owning your own bank’ is only possible with the decentralization of services not connected to security. The topic here is open-source wallet — this acts as a means with which to conduct transactions. Centralized wallets and crypto exchanges, such as Polyx.net, retain control of user’s funds, meaning that they can provide a more depositary, bank-like experience. Open-source wallets, such as MEW, give their users full control over keys and funds, providing independence, and also demanding that users pay more attention from their side.
Crypto wallet services do not collect personal data from users; neither names, phone numbers, email addresses, or IP addresses. Users don’t have their own ‘file’ and they don’t have an account to manage. Support services cannot view wallets, change settings, update passwords or fix balances.
However, the fact that no-one is there to manage your account, also means that no-one is there to block funds should the need arise. You also would not need anybody to approve transactions, no matter the amount or location of the recipient. Using this model, there are no bank holidays or lunch breaks. No-one can stop you using or withdrawing your funds, regardless of what happens in the economy.
Your cryptocoins is always on the blockchain, while various services and interfaces can interact with it and transfer ownership of it. Coins do not actually move from one storage location to another.
Cryptocurrency is not actually stored in your physical wallet. All applications and wallet interfaces are simply different ways of accessing those coins in the blockchain, the ownership of which is predefined by your wallet.
Hackers don’t hack these wallet-companies, as there is nothing to hack: there is neither data nor coin storage. Funds are always stored on the blockchain.
Blockchain is a distributed ledger of information that cannot be changed after the event. It is impossible to fake previously recorded information and to change the data already entered into the blockchain. Transactions in the blockchain are irreversible.
No-one is able to freeze or cancel transactions that have taken place by accident or as a result of fraudulent activities. Custodial services can insure themselves against these situations and ‘return’ funds to users by paying them from the insurance fund, but even they cannot cancel the transaction.
On the other hand, it isn’t important for the blockchain itself where or why you send your funds, and how much for. The speed of the transaction only depends on network load and can take a couple of minutes. The operation doesn’t require any permission or verification. The cost of the transaction depends on the blockchain, but usually ends up being less than bank fees.
In traditional banking models, the responsibility for the storage of funds is divided between the client and the bank, where the financial institution has increased power. Your money could be frozen, transfers could be limited, and as a worst-case scenario, the bank may default.
In the case of a crypto wallet, you are the only decision maker. No-one is able to limit your access to financial products and services. With this freedom, the need for responsibility arises — both for the safety of assets and for the consequences of decisions made.
Perhaps in the future, traditional banks and cryptocurrency services will be able to provide users with the best of both worlds.