Why Bitcoin Needs Banking

The 2008 Wake-Up Call

The traditional financial system showed its hand in 2008. Banks got bailouts while people lost homes. Central banks printed trillions, enriching insiders while everyone else got poorer through inflation. The system was rigged, and everyone could see it.

Bitcoin was born from this failure: a monetary system that can’t be manipulated, inflated, or controlled by any central authority.

But fast-forward 16 years, and Bitcoin has settled into being a store of value asset. What’s missing for Bitcoin’s next step is the infrastructure to use it productively, without compromise.

Free Banking: How Banking Used to Work

Before central banks monopolized money, banks competed freely. Each issued its own notes backed by gold reserves. If a bank printed too much, customers redeemed their (soon to be worthless) notes, and the bank failed. Banks that stayed prudent earned their customers’ trust and grew. There was no Federal Reserve, bailouts, or money printer, just purely competitive market forces.

Free banking isn’t theoretical. Scotland ran this exact system for 129 years (1716-1845) with remarkable success. Money was stable, innovation was happening across the region, and bank failures were irregular.

The Scottish experiment ended not because it failed, but because Parliament gave the Bank of England monopoly control over British currency in 1845. Political power defeated economic efficiency. The system that worked for over a century was legislated away to create the central banking monopoly we’re still stuck with today.

The Cantillon Effect: Why You Always Lose

The “money printer” is more than a meme. When central banks print money, those closest to the printer get rich while everyone else gets poorer. Wall Street gets bailouts at 0% interest while you pay 15% on credit cards. This is the Cantillon Effect, the idea that new money enriches insiders first which then trickles down as inflation to everyone else.

Bitcoin fixes the money supply, but traditional lending still suffers from this problem.

True free banking eliminates the Cantillon Effect:

• No money printing or arbitrary rate changes
• Same transparent rates and terms for everyone
• Protocol fees flow to users of the system
• When the community owns the bank, there’s no “inside” to favor.

Bitcoin Banks

The concept of Free Banking applies phenomenally well to Bitcoin. One of the most respected early contributors to the Bitcoin Network discussed this in 2010.

“Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins.” — Hal Finney

Finney understood that Bitcoin couldn’t scale to handle every transaction on earth. The solution was a Bitcoin banking system that maintained the properties of hard money while enabling practical daily use.

This addresses a fundamental problem every Bitcoiner faces: Gresham’s Law, which states that “bad money drives out good”, and people will naturally spend depreciating fiat before appreciating Bitcoin. This creates an impossible dilemma: sell Bitcoin and watch it moon from the sidelines, or hold forever and miss opportunities.

Bitcoin-backed banking elegantly resolves this. You can borrow stablecoins at fixed rates against your Bitcoin, spend the weaker currency for daily needs, and keep your appreciating BTC. You’re following Gresham’s Law perfectly without compromising.

The Evolution to Self-Service Banking

We’re witnessing the natural evolution of money and banking:

Central Banking Era (1913-2008): Central authorities control money supply, insiders benefit from proximity to money creation, losses get socialized through bailouts, opacity enables manipulation.

Bitcoin Era (2009-2020): Fixed supply eliminates inflation, permissionless access for all, but limited utility beyond holding creates the “HODL or spend” dilemma.

Self-Service Banking Era (Now): Bitcoin-backed money without a central authority, fixed transparent rates with no insider advantages, the community owns the infrastructure.

What Free Banking Means Today

Modern free banking on Bitcoin rails delivers what the old system promised but never provided:

• No Central Authority: Users govern through code and consensus

• Market-Driven Rates: Competition forces efficiency

• Self-Regulating: Transparent rules execute automatically

• No Cantillon Effect: Same access and rates for everyone

• Gresham’s Law Aligned: Spend weak money, save hard money

When banks fail today, taxpayers bail them out. In free banking, bad positions are liquidated according to rules everyone agrees to up front. There’s no such thing as “too big to fail.” Just code executing exactly as written, with reserves verifiable 24/7.

Free banking on Bitcoin isn’t theoretical anymore, and the infrastructure Finney envisioned is here.

Mezo has built the onchain Bitcoin banking platform owned by its users. Self-service Bitcoin loans start at 1% fixed rates. No loan officers, no credit checks, no banker hours. Just permissionless banking that solves Gresham’s Law, eliminates the Cantillon Effect, and returns us to stable, competitive banking that actually worked.

The question isn’t whether Bitcoin banking will happen. It’s happening.

The question is whether you’re ready to leave the old system behind.