OPINION: IT’S IMPORTANT TO KNOW THE DIFFERENCE BETWEEN BITCOIN BANKS AND WALLETS

NEW YORK (InsideBitcoins) – Coinbase and Circle have become two of the most well-known and beloved bitcoin companies in the community, but there’s an important clarification that needs to be made when it comes to using these services for day-to-day transactions. Due to the fact that these companies control the private keys associated with their users’ bitcoins, it would be more correct to call these institutions banks rather than bitcoin wallets.
Some would like to keep this fact under the radar, but it’s important to make this clarification for the benefit of new bitcoin users.
What are the issues with bitcoin banks?
When Satoshi Nakamoto unleashed his invention of the bitcoin blockchain onto the world, it was clear that his main focus was the removal of third-party trust from online transactions. In other words, bitcoin users can transact with each other directly rather than using a third-party clearinghouse for processing.
Bitcoin banks, such as Circle and Coinbase, bring these centralized institutions back into the picture. Bitcoin is censorship-resistant because transactions do not need to be confirmed by any bank, government, or other centralized institution. When you bring banking back into the equation, you remove bitcoin’s core value proposition. As we’ve seen in the case of Coinbase, censorship has already made its way into these sorts of platforms.

This post was published at Inside Bitcoins on Oct 27, 2014.