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A simple explanation of how money moves around the banking system

A very clear look at the current banking system, and how bitcoin fits into the model.

Richard Gendal Brown

Twitter went mad last week because somebody had transferred almost $150m in a single Bitcoin transaction. This tweet was typical:

There was much comment about how expensive or difficult this would have been in the regular banking system – and this could well be true.  But it also highlighted another point: in my expecience, almost nobody actually understands how payment systems work.  That is: if you “wire” funds to a supplier or “make a payment” to a friend, how does the money get from your account to theirs? 

In this article, I hope to change this situation by giving a very simple, but hopefully not oversimplified, survey of the landscape.

First, let’s establish some common ground

Perhaps the most important thing we need to realise about bank deposits is that they are liabilities

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