Governments control fiat currencies. They use central banks to issue or destroy money out of thin air, using what is known as monetary policy to exert economic influence. They also dictate how fiat currencies can be transferred, enabling them to track currency movement, dictate who profits from that movement, collect taxes on it, and trace criminal activity. All of this control is lost when non-government bodies create their own currencies.Bitcoin users dont need the existing banking system. The currency is created in cyberspace, when so called "miners" use the power of their computers to solve complex algorithms that serve as verification for Bitcoin transactions. Their reward is payment with cyber currency, which is stored digitally and passed between buyers and sellers without the need for an intermediary. On a smaller scale, airlines reward miles function in a similar way, enabling travelers to purchase plane tickets, hotel rooms, and other items using airline miles as virtual currency.
If bitcoin or another cryptocurrency become widely adopted, the entire banking system could become irrelevant. While this may sound like a wonderful concept in light of the recent behavior of the banking industry, there are two sides to every story. While the financial crisis gave bankers an even worse reputation than they already had, there is something to be said for institutions that oversee timely, effective, and trustworthy asset transfers and their associated recordkeeping. Theres also the issue of the fees banks earn for the services they provide. Those fees generate a lot of revenue and a lot of jobs across the global banking industry. Without banks, those jobs disappear, as does the tax revenue those banks and their employees paychecks generate. Money transfer business would also disappear in a virtual world. Nobody needs Western Union or its competitors if everybody is using bitcoin.