Today, cryptocurrencies are already winning the hearts of investors, traders, and financial institutions, with the innovative features of their blockchain technology. The advent of cryptocurrencies re-engineered the spending behaviour of people, which is in contrast to the behavioural patterns of spending fiat currencies.
Similar to how digital banks work to assist their customers in managing they’re, there are several services and platforms also to help users in the management of Bitcoin and other cryptos in their everyday finances.
So in this article, we will walk you through everything you need to know about cryptocurrency banking and its advantages its use.
What Is Crypto Banking?
Bitcoin is the earliest, most popular, largest, and most expensive cryptocurrency in the world, with a market cap of over $800 billion. It is stored in digital wallets with individually generated keys.
Bitcoin and other virtual currencies are often the electronic equivalents of fiat currencies, although they are not stored in a physical wallet. Due to the use of the blockchain (digital ledger), digital currencies are largely decentralised, meaning that banks or governments do not regulate them.
There is a misconception surrounding “cryptocurrency banking” because banks or the government do not regard crypto-related activities. It can, however, be noted that the numerous exchange firms we have in the crypto marketplace are technically not banks.
However, crypto banking is a function that enables users to store cash in a digital wallet or spend money in a way similar to how traditional currency will be paid. Above all, different crypto exchanges can be used to manage crypto balances in the wallet.
How Can Banks Be Actively Involved In The Crypto Market?
Technology is ever-evolving; hence all walks of life must join its bandwagon for the innovations it carries. This narrative is also important for banks, as it would be helpful to them in leveraging the potential of technology.
Wide cryptocurrency adoption has a propensity for fast, safe, reliable, and streamlined ways of initiating financial services. In recent years, this technological advancement characterised by crypto has allayed many people’s fears, propelling them to opt for cryptocurrency and its plethora of benefits.
1. Custody Services
In the United States, the Office of the Comptroller of the Currency (OCC) said in its announcement that customers could be provided with crypto custody services through banks and other saving associations. This will also include the maintenance of unique cryptographic keys to access private wallets.
The OCC, in its kind, believes that the bank can safely keep either the access key to cryptos on the personal digital wallet of Bitcoin itself.
2. Smart Contracts
A smart contract is another innovation coupling the transaction process in the crypto market. There is often a lower level of trust needed between parties while forging a smart contract agreement. This is owed to the fact that transaction completion and confirmation are dependent on computer code and not an individual’s behaviour.
In most cases, banks can act as the trusted third party for smart contracts like commercial loans, mortgages, and other transactions. Their operation world enables them to build more trust.
3. Simple Onboarding And Expert Support
With the aid and collaboration with banks, they can help to introduce new, less experienced investors by providing them with trading tools that would make it simple for their customers to adopt cryptocurrency quickly.
For instance, a newbie in Bitcoin investment might find it difficult to accurately set up their crypto wallet, so banks can help them set this up at little or no cost.
Also, rather than these users keeping their crypto off-exchange or with unreliable third parties, it can be convenient and safe for them to keep their cryptocurrency with a reliable banking institution.
To this end, it is the best choice for customers to either invest in cryptocurrency via different financial services available or on the back end. This depends on how credible is the third party they want to use in terms of keeping their funds safe.
4. Security Concerns
Traditional banks are known to be reliable and conscious about their customers’ money. Moreover, the security worries of Bitcoin users can be adequately addressed by banks. Technology can be said to have brought many blessings to the way of performing different transactions, but the event of hacking is considered one of its significant worries.
As many users are concerned about their wallets and the vulnerability of exchange platforms to hacking, trustworthy financial institutions can step in to assist in the protection of cryptos from hacking or theft, thereby assuring customers of safety.
Bringing cryptocurrency within the eagle eye of banks may reduce criminalities, hence, painting how insecure crypto transactions could be to the global society.
Why Banks Are Afraid Of Cryptocurrencies?
About 63% of banking industry respondents see cryptocurrency as a risky venture than an opportunity. This observation is according to a poll conducted by the Association of Certified Anti-Money Laundering Specialists (ACAMS) and the Royal United Services Institute, United Kingdom.
1. Volatility
One prominent feature of cryptocurrencies like Bitcoin is their highly volatile nature. The volatility is a function of factors like liquidity, market size, market players, etc. Therefore, the perception of banks about crypto is tilted at its risk potential because the price constantly fluctuates. Banks believe that cryptos can not be a stable future investment outlook.
2. Decentralized Nature
Primarily, crypto-assets were designed to be devoid of the meddlesome of third parties, unlike the traditional banks that central banks and governments control. The blockchain comes in place of third-party regulations with a trusted distributed structure.
Advantages Of Crypto-Banking
1. Crypto banking be used to pay for products and services from retailers who do not accept cryptocurrency online.
2. Customers can easily use their crypto balances like other currency to make daily purchases and withdrawals.
Conclusion
The lack of regulation surrounding cryptocurrency is why many financial institutions are reluctant to go into crypto trading and investment. Other causes include security and stability. Nonetheless, there are many opportunities to grab its risks.
But, the large-scale adoption of cryptocurrency and its blockchain technology would help banking activities to be more effective and efficient.
