We are misled as to the purpose of [banks](https://leofinance.io/@leoglossary/leoglossary-bank) these days.

Many believe they are [financial institutions](https://leofinance.io/@leoglossary/leoglossary-financial-institution) that take in cash deposits and then, in turn, pass the money along into the economy in the form of [loans](https://leofinance.io/@leoglossary/leoglossary-loans).  

While this might have been the case over 100 years ago, it is not the case anymore.  In fact, it wasn't even that way back in the early 1900s.  At that time, the number form of [money](https://leofinance.io/@leoglossary/leoglossary-money) transfer was the check.  This is a cashless form of [transaction](https://leofinance.io/@leoglossary/leoglossary-transaction),  bringing a concept into place that is vital for our understanding of the monetary system today.

At the core of all this is the [ledger](https://leofinance.io/@leoglossary/leoglossary-ledger).

![image.png](https://images.hive.blog/DQmf1ovkacMkADqU9HoDrRKJTx5Du7QGrwyQZ41pHYdXtNJ/image.png)
<center>[Source](https://en.wikipedia.org/wiki/First_Bank_of_the_United_States)</center>

### Banks Are Ledger Keepers

[Vault cash](https://leofinance.io/@leoglossary/leoglossary-vault-cash) is still a term used.  At present, it means the currency that is physically stored in the banks.  Each day tellers count up their drawers and put the [cash](https://leofinance.io/@leoglossary/leoglossary-cash) in the safe.  However, as a percentage of the whole, cash makes up very little of our economy.  The amount of transactions, in both number and value, that occur in this way is miniscule.

Essentially, we are in a cashless [economy](https://leofinance.io/@leoglossary/leoglossary-economy) and this was the case for decades.

Banks evolved over time.  They no longer are the keepers of [currency](https://leofinance.io/@leoglossary/leoglossary-currency) since we operate in digital dollars (or whatever currency) in the majority of cases.  Instead, they became ledger keepers.

Consider the idea of a check.  For those old enough, there was a time when people paid most of their bills using this medium.  One would write a check, send it to the other person/company which would deposit in its bank [account](https://leofinance.io/@leoglossary/leoglossary-account).  After a certain period of time, the check would clear, with the money being withdrawn from one account and [deposited](https://leofinance.io/@leoglossary/leoglossary-deposit) to the other.

However, as we can see there is no cash involved in the transaction.  Even the [settlement](https://leofinance.io/@leoglossary/leoglossary-settlement-financial) between banks is done electronically, using [the Fed's](https://leofinance.io/@leoglossary/leoglossary-federal-reserve-bank-the-fed) token called "reserves".  Once again, no cash involved.

All of this is ledger.  No matter what the payment mechanism, ACH, [check](https://leofinance.io/@leoglossary/leoglossary-check-cheque), or debit card, it is all just a matter of keeping track of a ledger.

This is what banks become.  They run a number of ledgers, all stacked on top of each other.  The job of the banks is to keep track of all these ledgers and ensure they interact seamlessly (efficiently) together.

### Blockchain Is The Replacement

What I just described is the essence of [blockchain](https://leofinance.io/@leoglossary/blockchain).  Instead of the banks being in charge of the ledger, a [decentralized](https://leofinance.io/@leoglossary/leoglossary-decentralization) network of computers mirroring the [database](https://leofinance.io/@leoglossary/leoglossary-database) of transactions is capable of doing the same thing.  This completely changes the entire monetary system.

We saw bankers such as Jamie Dimon attack [Bitcoin](https://leofinance.io/@leoglossary/leoglossary-bitcoin).  A number of years ago the mantra was "we dont like Bitcoin but we are all for blockchain".  

The reality is that blockchain is the threat to them.  Bitcoin and Hive are both decentralized ledgers that can do exactly what the banking system does.  Banks are the present ledger keepers but can be replaced.  Blockchain does this.

In fact, it is safe to say this is the ultimate outcome of this [technology](https://leofinance.io/@leoglossary/leoglossary-technology).  There is no way the banking system can compete since blockchain is more efficient, secure, and without the greed element inserted.  For this to work, however, there needs to be a [digital asset](https://leofinance.io/@leoglossary/leoglossary-digital-assets) to exchange.  Here is where [cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency) enters the picture.

For those who discount it as having no future, they are sadly mistaken.  We have a global monetary system that is basically cashless.  Even at the [Eurodollar](https://leofinance.io/@leoglossary/leoglossary-eurodollar-system-market) level, we deal with MBS, ABS, and all kinds of financial products that are demoninated in the [USD](https://leofinance.io/@leoglossary/leoglossary-usd) yet have no dollars tied to them.

Over the last century, we saw enormous [wealth](https://leofinance.io/@leoglossary/leoglossary-wealth) created.  Society moved ahead at a rapid pace, in large part due to financial innovation, especially as it pertains to technology.  However, when we look at distribution, we get a different picture.

Here again is where blockchain and cryptocurrency enter the picture.  We see new distibution models developing that are providing access to those who were previous shut out of the financial system.  As [decentralized finance](https://leofinance.io/@leoglossary/leoglossary-decentralized-finance-defi) unfolds, the options offered to individuals around the world should explode as we move throughout this decade.

Perhaps this is why people like Jamie Dimon do all they can to attack cryptocurrency.  They are well aware the monetary system is nothing more than a series of ledgers and that blockchains can usurp the service that banks provide in this area.

___
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