In reply to Sean Hill.

"If they ran an exclusive ledger, maybe even as a chain of crypto-secured blocks"

You're absolutely right. Traditional banks need to become more efficient, and I wish them all the best in their attempts to do so.

However, I think the piece that many casual observers are missing is that the Bitcoin blockchain is not "crypto-secured" in the sense that online purchases, banking, etc, are "crypto-secured." In fact, in that sense, the blockchain isn't crypto-secured at all. All of the transactions are in plain text for everyone in the world to see.

Perhaps a better term to describe the Bitcoin blockchain would be something like "crypto-controlled." That's because the blockchain is like a giant vault of safe deposit boxes open to the entire world. At any time of day or night I can walk into the vault without needing anyone's permission. I can go to one of my boxes and use my personal secret "key" to open it and withdrawal cash. I can then walk over to your box (known only to you and to anyone to whom you share its "address") and push the cash through a tiny 1-way slot.

But who runs this giant vault of safe deposit boxes for the whole world? It must be quite expensive to maintain, right? Well, if it's JPMorgan Chase, they will likely require me to sign-in and pay a fee before entering the vault. In the real world, in fact, I already pay them for the privilege of a checking account, and I generally trust them to play fair with the numbers in my account.

But let's say we don't (or shouldn't) trust the mythical bank running the giant vault of safe deposit boxes. Perhaps it's a foreign bank, or even a foreign state. How are we sure that in the middle of the night, the bankers don't sneak into the vault and use some master key to open all the boxes and take a little here and there? How do we prove our balance the next morning?

The true innovation of Bitcoin is the way in which it solves this problem. The first step is making the "vault" completely open, universal, distributed, and decentralized. No one entity can unilaterally control access to the vault or secretly make changes to its contents. The second step is implementing "proof-of-work" as a means of making any attempts at manipulating or cheating the blockchain immensely costly in the real world.

This is the point at which one must truly begin to carefully study and understand the mixture of economic forces which come into play to secure the Bitcoin blockchain. Honesty is incentivized over dishonesty, consensus is incentivized over disorder, and universality is incentivized over walled-gardens (... the educated, here, will see the obvious similarity to the Internet...) But these economic forces would not be present if there was not the "currency" Bitcoin which embodies and activates them.

So there is really no need for "crypto-secured blocks" in "an exclusive ledger" between banks. If the banks trust each other, they should share a Google (spread)Sheet. If they don't trust each other, then they will have to find a way to make cheating the ledger too expensive to succeed while at the same time maintaining equal participation. I contend that this cannot be accomplished without incorporating some currency like "bitcoins" into the blockchain. In other words, there needs to be a store and transfer of wealth built in to the very fabric of the ledger for it to be able to withstand the inevitable attempts to corrupt it.

Don't be confused by the fact that a blockchain, including most certainly Bitcoin, can track and validate a host of "things," i.e., messages, fiat transactions, deeds... because in order for any of those transactions to be secure, they must also be directly linked to the economic forces mentioned above. Without a built-in currency like Bitcoin providing the embodiment of those economic forces, your "blockchain encoded" fiat and mortgage are good only for a game of Monopoly.

And furthermore, powerful economic forces are at work against the banks' attempts at private blockchains. If the banks had conceived of blockchain technology before Bitcoin, then yes, perhaps they could have succeeded in building an exclusive, members-only club.

Fortunately for mankind, however, Bitcoin exists now and is proven to work today so it will forever present an obstacle toward the establishment of any alternative exclusive blockchain. For example, if I'm a smaller bank and don't feel I'm being treated fairly on the private blockchain, perhaps I find it more advantageous to send transactions through Bitcoin instead. When enough of my peers have done the same, the more exclusive private blockchain naturally becomes obsolete.

Thus just as with the initial "online service providers" and telcos of the nascent Internet, the banks are going to have accept the reality that they will never get in front of and permanently capitalize upon this paradigm change in international commerce.

Perhaps they will have some early success, but just as every attempt at privatizing the Internet fails, thus will fail every attempt to privatize Bitcoin.